Winning Value Portfolio Update

 | Apr 01, 2013 | 3:30 PM EDT
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The 2013 first quarter is in and U.S. markets continue to please investors. It's no secret that a rising market helps all investors, including the most seasoned pros. Still, it's by absolute performance that I judge my scorecard. Last year, my 2012 Gad Value Portfolio exceeded the S&P 500 return by nearly 6 percentage points. Over the long-term, I would be very happy with a margin of 3 percentage points.

After the first three months of 2103, here's where the 2013 Gad Value Portfolio stacks up:

One of the modifications I am making this year is also measuring the portfolio return against the Wilshire 5000 index. Several Real Money readers pointed out that because the Value Portfolio invests across all market caps, that perhaps the S&P 500 wasn't the most accurate yardstick. Our biggest winner so far, Tecumseh (TECUA) could be considered a microcap by market standards. Historically, the S&P 500 and Wilshire 5000 index returns have been very similar over longer periods of time but it can't hurt evaluate our performance against both yardsticks.

For the first quarter, the Gad Value Portfolio is ahead of both indices by more than 6 percentage points (even when accounting for total index returns, which include dividends reinvested). The portfolio's mandate is simple: I pick 10 securities for the year. No position is sold, unless I discover corporate malfeasance. If a company is acquired, as may be the case with Dell (DELL) later this year, I will either replace it or finish the year with a smaller list of securities. The absence of trading eliminates frictional costs, so the above performance numbers are quite accurate.

What I like most about this portfolio is that two underperformers, General Motors (GM) and Potash (POT) are two very high quality companies that I believe will weather any market storm relatively well. One is the largest automaker in the world while the other is the largest fertilizer company in the world.

Our biggest gainers, Dell and Tecumseh, both have large shareholders lobbying for a sale or asset monetization, which will likely serve as a floor on the stock price going forward.

The remainder of the portfolio consists of the financials, DaVita (DVA) and Gentex (GNTX). They are quality growth candidates with attractive valuations. Microcap Motorcar Parts of America (MPAA) continues to find its way and could be a nice surprise pick later in the year.

If the Federal Reserve were to signal that it will tighten its monetary stance later this year, I believe this group of businesses would weather the storm in fine fashion. Still, I would love to see that happen to see how Mr. Market reacts. In the meantime, any further advance in the S&P 500 should serve our holdings quite well.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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