Blessed by the Potato

Nelson at Financial Uproar is once again organizing a stock picking contest, with no shorting. Kind of a shame as for a no-consequences contest like this I think I could come up with some short picks this year much more easily than longs.

Poseidon was a strong choice in the race last year, only to blow up right before the finish line — a move that earned me the booby prize of a bronzed toilet. While I’m not going to touch it in real life, I’m tempted to make it a pick again this year just to see if there’s a bounce… but a repeat would be boring. So instead, my picks are:

HNZ.A: This one had a run up to the $30-level not so long ago. That was a bit over-done IMHO (though not quite so over-done that I thought to sell into it), but it could happen again with a strong contract to replace the Afghanistan work. In the meantime, a decent balance sheet and well-supported dividend.

URB.A: A closed-end fund that invests in exchanges trading at a bit of a discount to NAV. With the recent announcement of the sale of NYSE-Euronext, there should be some cash coming into Urbana, which may help close the valuation gap.

AIG: one of the biggest blow-ups from the financial crisis has had a hell of a run in 2012 — and is still quite a ways away from book value, with what look like much calmer waters ahead.

CLC: CML Healthcare is a last-minute pick. I think they will cut the dividend, but maybe not quite as much as the market is pricing in. With a ~7% dividend and a slight bounce after the uncertainty is removed, this might give a decent ~10% in what I am anticipating to be a much tougher competition than last year.

I had to make a last-minute change before submitting my picks to Nelson on New Year’s Eve: I had originally put in Iridium (IRDM), but it put in almost all the expected return I was hoping for in the last week of the year. It was kind of a borderline pick anyway: it looks undervalued after being (rightly) punished for a stupid insider-benefiting warrant repricing move while the core business is still ticking along. Of course, the growth is not coming in as well as I had first projected, so I didn’t expect huge gains to come from it.

(Disclosure: I am long every one of these except Poseidon).

And to put everything in one post, my investing returns for 2012 were 22% — including active and passive components of the portfolio (vs a passive benchmark of 8.2%). Even combining that with last year’s existential crisis-inducing underperformance it isn’t too shabby. Interestingly, bounce-backs in the losers I called out in that post were largely responsible for this year’s out-performance (IDG, SPB, NFI). In one case I was even smart/lucky enough to decide to average down early in the year.

Despite that, I find that between my full-time writing job, my part-time subway* pole inspector job, and spending time with Blueberry I don’t have as much time or mental energy reserves to pore through annual reports. I’ve been moving more towards passive investing for that reason, and am slowly working at taking down some positions in the active portfolio. The last few years I’ve ranged from 24 to 31 positions, and it’s just too many to follow these days. However, with a decent 5-year track record now it’s certainly worth giving up a few weekends to pick stocks, so I don’t want to get completely out of it. I’m aiming to move a good portion over to passive ETFs, and focus on a smaller number of active picks, perhaps more like 10-12 (the active portion will be more concentrated, but the overall portfolio won’t be — at least not much).

* – Aside: I’ve tried to take advantage of the ride to do analysis, but it just can’t be done. I need to spread out a bit more and the way I work means I’m constantly looking things up on the internet. I briefly considered switching to the much more expensive GO train (which might allow me to use my smartphone and sit), but I’d need to be assured of a continued 5+% alpha to make it worthwhile for me, and that seems unreasonable.