V Is for Value Portfolio -- and Volatility

 | Feb 01, 2016 | 3:00 PM EST
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Stock quotes in this article:

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lng

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town

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ibm

With January having served as one of the more volatile starts to a stock market year, all portfolios were affected, including our 2016 Winning Value Portfolio.

Our 10 selections were down 12% in January vs. a 5% to 6% decline for comparable indices. Our objective remains unchanged since starting this portfolio four years ago: to beat all market indices by at least three percentage points -- in up or down markets over an investment period of at least five years.

That being said, because our selections are completely agnostic with respect to size or industry, we view the Wilshire 5000 as the best comparative index to measure our performance. The 2016 portfolio include companies in banking, restaurants, biopharma, energy and real estate. And our size ranges from the hundreds of billions to under $100 million. Still, because the S&P 500 represents over 90% of the market value of all stocks, we also view it as a relevant measuring stick.

Performance-wise, there is nothing intelligent to be said after one month. During 2016, our energy picks Sanchez Energy (SN) and Cheniere (LNG) may remain at the mercy of Mr. Market if one is to view, as I do, that oil prices may begin to stabilize sometime in 2017.

Alcoa (AA) is a spinoff play. The company plans to split into two companies in the second half of 2016. The value of those entities separately should significantly exceed today's price. This morning, Alcoa announced it was bringing on three new directors at the backing of its largest shareholders.

Towne Bank (TOWN) is one of my favorite banks -- strongly capitalized with margins that are the envy of the industry. The drop in January makes the bank an incredible asset to own for the long term.

I would note that if the markets decide to correct in 2016, the events occurring throughout the world -- China, a U.S. presidential election and the Middle East, while bearing no long-term effect on the intrinsic value of a business -- will create an environment of volatility that could hurt the best portfolios for this 12-month period.

That being said, we've always found turmoil the best time for disciplined value investing to flourish, and our viewpoint remains unchanged.

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