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.
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.