I have been raising cash in anticipation of a correction. Despite all of this, and despite being positioned somewhat conservatively, my Aspect Large Cap Value portfolio has taken a hit.
That said, I continue to believe that the positions in the portfolio such as RCI Hospitality Holdings (RICK), Teva Pharmaceutical Holdings (TEVA), Cisco (CSCO), General Electric (GE), Intel (INTC), and Verizon (VZ) offer good value in this market.
New Mustang
As of this writing I have even used the current pullback to add to my position in Ford (F) and Outerwall (OUTR). Ford is doing all of the right things and may very well have missed targets due to a soft economy in Europe but this is not a long term view in my opinion.
When you look at the new designs coming out of Ford, especially the new Mustang and the F-150, it is hard to conclude that they are not the premier domestic auto manufacturer.
In times like these, I try to figure out whether my drawdown is due to stock selection or simply the weight of the market pushing my holdings lower.
I have a decent sized position in Ambac Financial (AMBC) that is bothering me, but it seems to be more of an issue with the sector, not necessarily Ambac specifically.
There has not been a lot of news on Ambac, yet the stock continues to drift lower as does MBI (MBIA), a company that is very similar to Ambac. The thesis behind the investment has not changed and has in fact gotten stronger. In a world as chaotic as the one we live in, bond insurance should be a good business.
The default rate on the types of bonds that MBIA and Ambac choose to insure are low. Yet having bond insurance raises the credit rating of the underlying bond, which makes it more attractive.
The bond insurance is typically less costly than the increase in price that the newly insured bond will command. So I am a bit confused about this one. I am considering swapping into MBIA before the end of the year and harvest a tax loss while maintaining the bet on the sector overall.
Outerwall
My other big bet, precious metal mining, is encountering difficulties despite what should be a good environment for both precious metals and miners, which were severely depressed when we bought them.
I am not looking at this as an insurance against disaster, and in previous articles I have written about the horrible track record of precious metals as insurance against disaster. This is more of a bet on increasing inflation and increasing anxiety, as opposed to actual negative events occurring. Nothing has really changed here.
Outerwall (OUTR) is a company that I have always liked, despite its detractors. My personal experience is that I tried to get streaming content via Netflix (NFLX) but did not enjoy it because my internet service always froze up and the movies were average in my opinion.
Redbox is great because the selection is better and the movies are newer. Furthermore, playing physical Blu Ray DVDs on my home theater setup seems to create a higher quality experience and no lag or frozen movies unless the disc is damaged.
So I believe that Outerwall is a solid investment, and it would not surprise me to see JANA partners or some other activist create some value in the stock.
We are working down the cash position now, and while my performance this month has been lousy, I believe that the market may be setting up for a nice rebound starting sometime in late October.
DISCLAIMER: The investments discussed are held in client accounts as of September 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
