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Independent Value Portfolio

The Independent Value (IV) portfolio was launched on 24 October 2013.

NOTE: As of 13th October 2014, I am no longer in a position to share investment analysis and commentary, or make further investments due to professional commitments. I will therefore not be blogging here or anywhere else for the foreseeable future. 

As of 10th October 2014, the IV portfolio was 30% invested in equities and 70% invested in cash, as follows:

Portfolio - October 2014

The IV portfolio is predominantly in cash given the heightened risk of permanent capital impairment at present – valuations for common stocks at the general level appear overly optimistic, with the S&P 500 repeatedly setting new all-time highs during 2014.

A number of factors offering a real basis for concern include:

  • Series of new all-time high prices for common stocks during 2014
  • Dramatic increase in the number of IPOs of companies of “secondary” quality
  • Junk bond yields of c. 5%, and increased issuance of covenant-lite loans and CLO structures
  • Extrapolation of current profit margins into the future as sustainable

In simple terms, new peak price levels at the index level have historically not been the best time to invest, and I see no reason to believe this time is different. That being said, as Seth Klarman has helpfully advised, “One doesn’t need the entire market to become inexpensive to put significant money to work, just a limited number of securities.” To quote another great investor, Dr. Michael J. Burry, “my firm opinion is that the best hedge is buying an appropriately safe and cheap stock.” Equipped with these insights, an enterprising investor may be able to identify attractive opportunities, despite the general price level of the stock market.

 

 

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