2012 Performance

In 2012, we returned 11.7%. This is less than what S&P500 returned, 16%. Any underperformance is not to taken lightly. Although my performance was negatively impacted by one big holding.

Year Performance S&P 500
2009  128.75%  26.46%
2010  8.85%  15.05%
2011 (20.57%)  2.1%
2012 11.7%)  16.0%
Cumulative 120.92% 72.32%

In early 2012, I loaded up on Yukon-Nevada Gold. I expected certain catalyst to play out in the year, which would have moved the stock price dramatically. Although as the year unfolded the catalyst didn’t pan out as expected. I had built a huge position in YNG at the start of the year. At the end of the year I exited most of my holding. The exit price was the same as the entry point. So there was no realized loss. The biggest loss, and the big negative impact, was the opportunity cost. This one holding had a 0% for 2012 (for the position I bought and sold in 2012, the position that I still hold is under water). This had a big negative drag on what was an otherwise good 2012.

Although 2012 returns were hurt by the heavy concentration, I haven’t shied away from big bets. I ended 2012 with 3 positions accounting for over 60% of my portfolio. I would consider buying more of these 3 positions if they get cheaper. One of my take away from 2012 is to be more concentrated, given my small asset base to begin with.

Quick thoughts on my holdings:

Bank of America: The company has turned the corner and has put a majority of its legacy issues behind it. 2013 will be the year when the company increases its dividend and potentially has a buyback of shares. 2012 was great for the stock and warrants, up over 100%. I expect 2013 to be great also, but not similar to 2012.

Kingsway Financial: The company has 2 major investors pushing for change. The management team has been making good decisions in fixing the company. I like the moves they have made and expect 2013 to have significant impact on their operational numbers.

MBIA: We bought this position in late 2012. The play here is clear, BAC & MBIA will settle for substantial amount for MBIA. MBIA will be able to get back to writing its traditional business. Once this occurs the stock is worth multiple of current price.

Veris Gold: The company has finally turned the corner. The new plant is up and running , company is cash flow positive, and production is growing. Once they get the toll milling agreement, the company will be generating substantial cash flow. We will wait patiently until the cash starts coming and the market realizes the value.

Dolan Company: This hasn’t worked out as I had expected. The company’s acquisition of the foreclosure business looks like a bad bet. Although I like the eDiscovery business. We will wait to see the quarterly numbers to decide what to do next.

Goldgroup Mining: It is amazing to see the amount of insider buying. Per my calculation, voer 2% of the company has been bought back by insiders in the last few months. I have a hard time understanding who is selling these shares to insiders. This is a position that has a specific catalyst. I expect the stock to move in early 2013.

Taro Pharma: We are just patiently waiting for Sun to make its next offer. We believe Sun is going to take Taro private. The longer it waits the more expensive it can get.

7 responses to “2012 Performance”

  1.   Hi,

    Why do you the longer SUN waits , the more expensive it gets ? Are you expecting TARO’s performance to improve , if so why ? They are publicly stating their pipeline is not good ? So what is the basis of your prediction ? I am guessing they want the operations to go to toilet in 2 years so they can justify a low valuation for the buy out.

    thanks John


    • Taro’s performance will keep getting better. They might lose pricing power on the drugs that are currently in short supply. But the are also building their pipeline through their R&D. I think you saw a decent increase in ANDA applications in Q3. ANDAs usually take around 18 months to get approved. I doubt Sun will hurt Taro’s performance just to get a low ball offer. There could be legal issues that come out of it plus it could tarnish Taro’s brand.

  2. My bet is another low ball offer maybe $58.5 (since someone magically can calculate the accurate fair value to the 50th cent). the prof’s negotiations skills will be put to test with the billionaire. To me the BIGGEST JOKE of the year was the back & forth negotiation b/w the disinterested professor & the multi-billionaire

    • The longer Sun keeps putting out the low bid offers the worst for them. As time goes by, Taro will get its ANDA and NDA closer to approval from FDA. I think Sun had started negotiations w/ other funds to get to a final price. But those negotiations could have stalled. You just have to be patient to have this work out. Just to put it in perspective, Sun initially made an offer to buyout Taro at $7 something in 2009. So if you had bought the shares then and just held on to it, it would have been a 6-bagger in 3 yrs with very little downside.

    • Yes. Superb quarterly numbers for Taro. Sun Pharma stock goes up 5% in India. Taro’s shares are up less than 4%. It is amazing the valuation that Taro is getting. It has a market cap of 2.2B, EV of 1.75B, doing around 400M of EBIT. So a 4x EBIT/EV valuation. It is extremely cheap at current prices. At current run rate, by the end of 2013 the company could have almost 50% of its current EV in cash. Taro is extremely cheap at these prices. Unfortunately the Sun Pharma overhang is not allowing the price to adjust.

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