A closer look at my current portfolio

As a reader of this blog you probably know most of the stocks that I own since I’m keeping track of my purchases and sells on the portfolio page. But just a list of stocks doesn’t tell the whole story. How big the various positions are in absolute and relative terms is for example very important from the portfolio perspective, and just looking at a list it’s for example hard to see how the companies are distributed geographically or how they are valued on average. So lets start with an overview of the positions of my portfolio:

Alpha Vulture portfolio overview by positions size

Almost everything you see in this list is something that I have discussed previously on this blog. I’m quite content with the number of positions and their sizing. If I would start from scratch I would probably size some of the positions lower down on the list slightly different, but don’t think it matters a whole lot if a position is 4 or 5 percent of the total portfolio. Not a single one is so big that I would lose a night sleep if it would go to zero, but I certainly don’t think that’s likely for the bigger positions. Berkshire Hathaway is a diversified conglomerate with a solid balance sheet that would probably do relative well if shit hits the fan. Asta Funding has most of the balance sheet in cash while Alternative Asset Opportunities should have returns that are uncorrelated to the market. Hard to see how these could turn out disastrously. The first real risky positions are, in my mind, Conduril and Salem Communications. They have a weaker balance sheet, but Conduril is nicely profitable while Salem Communications is deleveraging and generating tons of cash flow.

The amount of cash that I’m holding is probably also a good subject to talk about. Compared to some value investors the amount of cash in my portfolio is low, and this is actually a highish level for me. I just happen to have some cash because a few special situations recently liquidated, but it’s my goal to be more or less fully invested as long as I’m able to find undervalued companies or attractive special situations.

Having said that: if you would look at my portfolio on a look-through basis I do have a lot of cash, but it’s at the level of the individual companies. ASFI, Rella, Solitron, Deswell, OBIC and ALJ are all companies with roughly their market cap in net cash, and some of the other companies on the list also have a solid liquidity position. It’s a bit too much work to calculate it exactly, but I estimate that effectively ~35% of my portfolio is in cash or cash like securities. My hypothesis is that as a result my portfolio would do relative well in a bear market, especially since I also have a few small short positions that reduce my market exposure.

Closely related to the number of positions and their sizing is the diversification of the portfolio, so time for the second graph: an estimate on how the various businesses are located throughout the world.

Alpha Vulture portfolio exposure by region

Given the fact that my two biggest positions are located in the US it’s not a big surprise that I have a lot of exposure there. I don’t really care how my exposure is exactly distributed around the world, but I don’t want to be too concentrated in one single region. I would prefer to own a bit less in the US and probably a bit more in Europe, so if the opportunity arises I wouldn’t mind swapping a position in the US for a new position in Europe. I also have to note that the above diagram is a crude representation of reality. It doesn’t account for companies exporting to, or being active in, other countries. Allan International gets for example a lot of revenue from Europe, but since the manufacturing facilities are in China I decided to put it in the China bucket.

I could create a similar diagram with regards to my exposure to various industries, but don’t think that’s really useful since the overlap in sectors is minimal in the portfolio. This is unless you go to a very broad classification and put for example Berkshire Hathaway and Asta Funding both in the financials category. While that’s technically correct I don’t think that would provide any useful information since both businesses are totally different. It’s not very different from putting Microsoft and your pop-and-mum grocery in the same category.

The biggest overlap is in the (life) insurance sector. AIG and Delta Lloyd are both active in the life insurance business and Berkshire probably does have some correlated exposure as well somewhere in their insurance and reinsurance businesses. Given the fact that AIG and Delta Lloyd are both relative small positions and Berkshire is also doing a lot of other things I’m comfortable with my exposure. But it’s unlikely I would invest in a new insurance company without exiting another.

To finish this post, some questions for my readers:

  1. How do you perceive the riskiness and the diversification of the portfolio?
  2. Did you find this post about my portfolio composition interesting?
  3. Anything else you want to know about my portfolio?

Disclosure

Obviously long everything discussed

12 thoughts on “A closer look at my current portfolio

  1. pietje

    nice post. I guess the ‘cash percentage’ question is not really relevant anyway because you probably have a decent amount of liquidity in your bank account / savings account that can be deployed if the shit really hits the fan.

    I’m actually wondering two things: one is the small exposure to European equities (I think it’s not correct anyway because Conduril + Rella is already > 10%). Since Europe appears to be in some sort of crisis maybe there are some good opportunities in this region? One of the risks (opportunities?) here is that the online value investing community is mostly US focused and hence your portfolio is too. In other words you have no European exposure because there you have to do all the research yourself 🙂

    Third: what do you think about selling the 5 (10?) smallest positions and investing the proceeds in the rest of your portfolio?

    Reply
    1. Alpha Vulture Post author

      If shit hits the fan I do have additional sources of cash, but it depends a bit on the time frame how liquid it is.

      About my exposure to Europe: I put Conduril in the emerging basket because almost all it’s business is in Africa. But it does have some exposure to Portugal and Spain, so I like that :). The fact that a lot of the value investing community is US focused has probably something to do with my exposure to this region, but don’t think that’s the whole explanation. Especially UK and France based idea’s are quite common, it’s just that often it doesn’t scream like a buy to me, especially considering tax implications.

      I think part of the reason is also that the equity markets are better developed in the US. Conduril has for example a E40 million market cap, and so far 100 shares have been traded this year. Solitron is almost a tenth the size of Conduril, but has an average daily volume of more than 1000 shares. The kind of things you can buy in the US aren’t always for sale in the rest of the world, or it for sale on a market you don’t have access to. Saw for example a potentially interesting idea in New Zealand, but what’s the point of researching it further if it’s not investable for me?

      About selling the smaller positions: don’t like that idea. I don’t think my lower conviction picks are necessarily a whole lot worse than the higher conviction picks, and I would be increasing my risk significantly. Some of the bigger positions are already more or less as big as I want them to be. I really like Conduril for example, but certainly don’t think it’s a sure thing that can’t go wrong.

      Reply
      1. pietje

        Regarding the Euro-exposure: I’m thinking the Netherlands, Belgium or even Germany could offer some nice opportunities but I’ve never looked in depth. And about position sizing: guess that will always be a bit arbitrary.

        Reply
  2. krullebol

    Warning: You may want to be a bit selective in answering the large number of questions 🙂

    Do you ever consider other asset classes? Real Estate? Bonds? Commodities? Derivatives? ETFs?

    Are tax considerations a big issue for you? Do you just need to pay 1.2% of the market value in (Box 3) tax in NL? Or are dividends taxed as well? Could you start an investment company, own the equity of that company and lower your tax expense? Do you think the Dutch tax regime is problematic for value investors that intend to hold stocks for the long term?

    Do you easily transfer money between the investments portfolio / poker bankroll / savings accounts? Or do you consider those as three separate entities in your life that should be shielded from the others?

    Are you happy owning a piece of Heinz through Berkshire?

    Reply
    1. Alpha Vulture Post author

      I do own other assets classes, most notably traded life interests (Alternative Assets Opps) and the companies that I own do have sizable investments in real estate and (mostly short term) bonds. Don’t think ETFs and Derivatives are an alternative asset class, just an alternative way to get exposure to the same underlying asset class.

      Have to pay the box 3 tax, and most foreign dividends are also taxed at the source. It depends a bit on the country. France is for example 25% (so that sucks) while Hong Kong or Cayman Islands is 0%. I think the Dutch tax system is actually pretty good. No complicated record keeping needed for a tax on realized gains or something like that, and not getting taxed on gains is pretty nice if you generate high returns.

      I do keep investments/savings and poker money more or less separated. I have a long time horizon for my investment portfolio, so doesn’t make sense to add/withdraw money that needs to remain more liquid.

      And no opinion on the Heinz deal, and don’t think it’s material for my portfolio.

      Reply
      1. krullebol

        I don’t think the Dutch tax system is so favorable compared to a capital gain tax that is due upon selling your position.

        Let’s say you buy the Steady Eddy stock and your entire net worth of 100 is invested in it. Steady Eddy returns 15% p.y, every year.

        In year 1 you gain 15 before taxes or 13.8 after taxes. Equivalent effective capital gain tax is 1.2/15 = 9%.

        After 10y your investment is worth 368. You have paid 26 in taxes over those 10 years. But if you didn’t need to sell 1.2% of your portfolio each year to fund the tax bill, you would have had 405 pre-tax. This is an additional 37 missing in your portfolio. I would say that the equivalent capital gain tax rate is (26+37)/(405-100) = 21%.

        At 50y the equivalent capital tax rate is 46%.

        For slightly more realistic returns such as 6% maybe the numbers are
        1y = 20%
        10y = 42%
        50y = 60%

        I would say that a bit of administration and some possibilities to offset realized losses vs gains would be more attractive.

        Reply
        1. Alpha Vulture Post author

          If you are going for a buy and hold strategy a capital gain tax is certainly more favorable because you can delay paying taxes for a very long time. But if you want to generate alpha buying and holding is a though strategy. You not only need to find a nice growing company, it has to remain undervalued forever. Because once the market correctly prices in the growth of that specific company you are not generating any alpha by holding from that point in time.

          I don’t expect that my average holding period is going to be close to 10 years or even 5 years. It’s probably less than one year. I do participate in a lot of special situations were my holding period is a few weeks or a couple of months. But also without these short term plays I don’t expect to hold a lot of stocks longer than 5 years. At some point in time there will be some kind of catalyst to unlock value, and/or a cheaper company will come along.

          Reply

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