While monthly performance numbers are completely irrelevant in my opinion, the Gad Winning Value Portfolio demonstrated why buying undervalued securities over the long-run is likely to be a market-beating strategy.
At the end of February, the results stacked up like this:
As of Feb. 27, 2015, the class of 2015 was up 0.4% against an advance of 2.5% for both the S&P 500 and Wilshire 5000. However, I'm not too concerned about the trailing performance against the market index thus far, as I believe the portfolio of 10 securities is well undervalued.
That element of undervaluation surfaced in February when Sizmek (SZMK) reported strong quarterly results. The shares were down 2% at the end of January, before the company's strong operating performance propelled the shares up 26% during the month of February. This further affirms to me that when an undervalued security is purchased and given time, quality operating performance has an extraordinary effect on equity returns.
The opposite is also true, however, which further illustrates why value investing works. If you buy an "optimistically" valued business and it delivers mediocre results, or good results that aren't as exciting as hoped, equity value can be lost very quickly.
Overall, I expect energy prices will have a significant effect on the portfolio's overall return, seeing as how we have two names, Chesapeake Energy (CHK) and Murphy Oil (MUR) that benefit from a rising oil price. That being said, CHK and MUR were chosen because of either significant assets or a low-cost structure that would make them more resilient in a new oil price environment. Cheniere Energy (LNG), on the other hand, should do well in any energy pricing environment.
But low energy prices are a tailwind for automakers and our GM warrants (GM-WTB) are up 12% year to date. Meanwhile, Travelzoo (TZOO), while still down 20% year to date, got some attention as a result of consolidation elsewhere in the online travel industry. Some interesting things can happen in this space during the course of the year.
This portfolio, in particular, has various positions that are likely to do incredibly well in the event of certain catalysts but were also bought at prices which should lead to little to no permanent loss of capital over a period of a year or more. Stay tuned.
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