The Value Portfolio Falls Behind

 | Apr 01, 2014 | 4:30 PM EDT
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At least for the first quarter of 2014, it looks like the Gad Winning Value Portfolio is being humbled by Mr. Market. Since I started this portfolio in 2012, this is the first time the portfolio has trailed the S&P 500. To be fair, the U.S. stock market the past several years has been on a binge of higher and higher prices. I've always said that a portfolio's quality should be measured by how it weathers the storm when the tide starts to go out. Perhaps 2014 will be that year.

For the first quarter of 2014, the Class of 2014 is barely positive for the year, up 0.3% vs. 2.2% for the S&P 500 and 2.4% for the Wilshire 5000. I include the Wilshire to provide an even broader metric to evaluate performance. The goal of the Winning Value Portfolio is to beat all indices by at least three percentage points. This goal stems from a study conducted by Vanguard Group founder John Bogle that revealed that more than 80% of professional money managers fail to beat the market once expenses and fees are factored in.

The anchor continues to be our position in General Motors (GM) Class B warrants. The warrants provide the holder the right to buy GM common shares at a price of $18.33 and they expire on July 10, 2019. The warrants were trading for $23 at the beginning of the year. Revelations that GM had to recall vehicles with faulty ignition switches and the news surrounding that has caused investors to sour on GM shares. GM common is down 16% year to date.

In the end, I believe GM remains one of the undervalued names in the market, and I view the warrants as a very intelligent way to leverage the upside in the common stock. GM has a high-caliber CEO in Mary Barra -- she has Warren Buffett's stamp of approval -- and I believe she is going to do a magnificent job running GM. On a valuation basis, GM is trading at a significant discount to not only the market, but to the other automakers as well.

This portfolio has a lot of firepower left. Potash (POT) has gone from being a laggard to being up over 10%, crushing the overall market. More returns like that are likely to come from this group of stocks.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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