In the last three months since I wrote my previous letter this long term value portfolio returned approximately twice the S&P 500’s return. Part of the reason was outstanding short term performance by Oshkosh Corporation and Buckeye technologies. I hate to discard them in my portfolio, but I had to choose better opportunities which in long run appear more attractive. Solid fundamentals, a strong balance sheet and sustainable earning power are the essential ingredients in my recipe. I would rather compromise short term return for hopeful long term gains.
In my recent trip to India, I noticed an interesting highway sign: “Speed thrills, but kills.” I don’t employ leverage in this portfolio to get short term thrill – especially when markets are rumbling. Recent Middle Eastern and Libyan disturbance caused markets to panic but also provided me the opportunity to acquire more of my favorite stocks like Berkshire Hathaway and Tim Hortons right before their earnings announcements.
Berkshire Hathaway (BRK.A, BRK.B) represents ten insurance companies and sixty eight non-insurance companies, all run by efficient managers bound by good corporate ethics. Berkshire is nothing but a true American conglomerate operated by highly efficient management. As of 3/1/11, Berkshire is trading at approximately one and half times its book value and has a relatively low price/earnings ratio (Yahoo Finance). At Berkshire I see immense potential for future growth.
POSCO (SEO:005490) was another portfolio pick that happened to be at what I considered an attractive price when I purchased it on February 23. It has shown a bit of negative performance since then, but in the long run I expect this to be made up. POSCO is the third largest steel producer in the world, based out of South Korea. It has presence in many countries including India, Russia, China and the U.S. POSCO has grown its sales impressively and consolidation in the steel industry has been paying a major role in the steel industry. As the auto industry picks up steam in Korea, there is greater need for domestic steel, and margins are good for POSCO. Apart from the economy of scale, POSCO’s balance sheet is great and it has sustained earning and pricing power, while trading at a reasonable price. Hopefully this will contribute in the future portfolio performance.
Lastly, I added Tim Hortons, a Canadian fast food restaurant chain. Tim Hortons (TSE: THI) is often the first sign you see in Canada when you cross the border from the U.S. The restaurant chain is known for healthy and tasty food and has become the largest chain in Canada, outnumbering even McDonalds franchises. Tim Hortons is in expansion mode internationally and also pushing for higher sales at existing stores in Canada. While many casual and fast food restaurant businesses are struggling to reach customers, “Fast ‘n Casual” restaurants like Chipotle and Panera are becoming more popular due in large part to their simple and healthy menus. Tim Horton falls into the same category, but has little presence in the U.S. As the Tim Hortons brand gains American recognition and it starts expanding southwards more aggressively, I believe Tim Hortons is going to become a major American restaurant chain serving healthy and unique dishes.
As always, I acquire equities of firms with strong balance sheets and trading at reasonable prices based on my valuation analysis, but I cannot guarantee past performance will continue in the future.
“Tim Hortons” Wikipedia, 3/10/11 https://en.wikipedia.org/wiki/Tim_Hortons