Week In Review: Week of March 9, 2015

"Whatever decision you make, make sure it is with conviction and reason" Anonymous

The week that was contained mostly red with only Yamana Gold (AUY) posting a positive return. The IWC Stock Portfolio dropped a whopping 2.5% over the week with gold miners, chinese internet companies and energy holdings all falling big time. One learning from the week was how difficult it was not observing the performance of the individual holdings throughout the week. Does this practice make me more patient or uninformed? Does not checking my portfolio help me with making calm decisions or delay decisions until they are too late? What is truly the right number of times for checking a portfolio for a long-term investor?

Right now it seems the stock market is taking a turn for lower returns. The NASDAQ was down 1.1% while the S&P 500 index was down almost 0.9%. The run up of stocls has made things overall a bit frothy in terms of valuations but there is still some companies that have value. Though the IWC Stock Portfolio seems to be hitting some hard times, there are still no hard decisions in terms of buying and/or selling yet from these results. Table 1 shows some the losses during the week in more detail.

Table 1 - IWC Stock Portfolio Week of 3/6/2015
Stock Ticker Close 3/6/2015 Close 3/13/2015 Difference Weight of Holding
- $/share $/share % %
AAPL $126.60 $123.59 -2.4% 10.6%
ABX $11.34 $10.60 -6.5% 2.1%
AUY $3.74 $3.75 0.3% 1.6%
BA $153.12 $151.57 -1.0% 10.4%
BIDU $213.31 $204.45 -4.2% 14.6%
BRK-B $145.28 $143.97 -0.9% 9.4%
CTSH $61.61 $61.15 -0.8% 11.3%
GG $19.05 $18.86 -1.0% 2.2%
NOV $52.54 $49.07 -6.6% 4.8%
QCOM $71.51 $68.64 -4.0% 8.0%
QIHU $48.53 $46.22 -4.8% 7.2%
Cash - - - 17.8%
IWC Stock Portfolio - - -2.5% 100%

Qihoo 360 (QIHU) released earnings and a more closer look will be presented later this week. Some of the highlights include revenue increasing year-over-year by 95% and yet experiencing fresh new 52-week lows seemingly every week. This holding has posed as a conumdrum for the IWC Stock Portfolio along with National Oilwell Varco (NOV). Both QIHU and NOV have been by far the worst performing stocks in the fund with QIHU losing 46.3% and NOV losing 33.7%. Only Barrick Gold (ABX) is an active holding with a negative return since the inception of the IWC Stock Portfolio with Yandex closing with a loss. Fundamentally QIHU and NOV are undervalued with strong balance sheets and bright futures. Both also lag due to pressures outside of the company. NOV is dragging due to oil prices declining and oil companies lowering capital expenditures which hurts NOV business. QIHU is a small fish playing in a huge Chinese pond with Baidu, Tencent and Alibaba serving as competitors. The key question is what to do with the valuations as cheap as they are but an ever decreasing stock price? Nothing. 

Over the long-haul there are two trends that I feel that have good chances of happening. Oil will not stay where it is now for long. What does long mean in this sense would be a complete guess as no one knows when the oil prices will spike. Could happen next week, in a few months or a couple of years. The main thesis is that oil prices eventually will increase and rig activity will increase once again. NOV is the dominate company in this business and with a strong balance sheet should be able to hold out this oil price weakness until it bounces back.

QIHU on the other hand are competiting with motivated gigantic companies with market caps an order of magnitude larger than they are. They are growing revenue at an amazing pace and making money. Though earnings are not as impressive, the real numbers to look at are revenue growth and investment within the company. QIHU has a few options in the future. Grow and compete with the Alibabas and Baidus of the world and continue to grow at their pace. Another option is to be bought out by a large company at a valuation that is more suitable. WIth a forward P/E ratio of 9.8, there is too much negative sentiment towards QIHU for the performance. With the stock price going from as high as $120/share now trading at the $45/share range, there may have been some buyers who are now hesitant to buy shares. This may be a perfect time for QIHU management to purchase more shares to lower the share count and return more to investors.

Final Thoughts

Even with the negativity over NOV and QIHU as well as some pessimistic views on the future performance of the stock market overall, to long-term investors the reality is you diversify and invest in well run organizations with strong fundamentals and competitive advantages. One of the questions to ask moving forward though is the position of the gold miner stocks in the IWC Stock Portfolio and whether they deserve a spot moving forward. Though no purchase planned to be made, no selling shall be done either.

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