Special Situations Real Money Portfolio March 2010 Update

The wind finally got behind the sails of the Special Situations Real Money Portfolio for the first time in 2010 during the month of March. I guess that’s not surprising considering March is known for its winds. The portfolio closed on March 31, 2010 with a balance of $33,600.16. That’s up 9.46% since the February Special Situations Real Money Portfolio ending balance of $30,697.24.

What caused March to be such a good month? Some of the positions that I picked up earlier in the year finally starting coming to maturity. I sold three different positions this past month.

First, let me discuss a stock that was trading below Benjamin Graham’s deep value screen that selects stocks trading below two-thirds of net current asset value (NCAV). On February 8, 2010, I bought 500 shares of Conn’s (CONN) at $5.33 per share for the Special Situations Real Money Portfolio. I estimated Conn’s NCAV to be about $8.39 per share. On March 11, 2010, I sold those 500 shares of Conn’s for $6.85 per share.  My main reason for selling those 500 shares was because Conn’s was selling above 66% of NCAV on no new significant news. My total profit on this trade was $746.05. That’s a 27.9% return in just over a month! I also had bought an additional 500 shares of Conn’s for $4.50 per share on February 9th when the stock price plunged. I’m hoping to sell those remaining shares at or close to NCAV. Given that CONN is trading around $8.03 this morning, that might not be too far away.

I sold the 99 shares of MDS Inc. (MDZ) held by the Special Situations Real Money Portfolio on March 16, 2010. I sold the shares at $8.45 a share. My total proceeds from that sale came to $829.58. Since I bought those shares on February 22, 2010 for a total of $828.65 my return on this trade was $0.93. I basically broke even. Why did I sell? Basically, I didn’t realize the tax withholdings associated with this Canadian tender offer. Given that this is a tax advantaged Coverdell Education Savings Account, I don’t believe I’d be able to recover the tax withholding on my income taxes next year. Also, I’d have to pay a $25 fee to tender the shares. Therefore, I placed a limit order shortly after I figured this out. That limit order was triggered when MDS shares traded above $8.45. Given that MDS is now at $8.86, maybe I should have waited until the impacts of the reduced share count were felt before selling.

On March 24, 2010, I sold the 4,999 shares of Kid Castle Educational Corp. (KDCE) in the Special Situations Real Money Portfolio. I sold the shares for $0.17 per share, just a penny below the tender price of $0.18 that the company was offering. I’d rather have the certainty of cash in hand rather than wait weeks for the last penny, so I sold at $0.17. The total proceeds from this stock sale came to $842.86. I bought these shares on October 21, 2009 for a total of $606.83. My total return for this trade came to 38.90%. The average annualized return given the trade took 155 days is about 91.6%.

So far this year, the Special Situations Real Money Portfolio is up 8.6% year-to-date. Overall, the portfolio is up 180.00% since inception on October 19, 2004. The internal rate of return or average annualized rate of return is still an impressive 31.27%. If you’d like to learn more about the positions I’ve been trading in this portfolio, follow my research on new special situations, and participate in our exclusive community of stock workout aficionados, consider joining my premium service, Fat Pitch Financials Contributors Corner.

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