Fat Pitch Financials Portfolio Performance Update

The Fat Pitch Financials Portfolio is one of the oldest aspects of Fat Pitch Financials, but it has been a bit neglected. Today, I hope to reintroduce you to my main model portfolio, update you on its performance, and discuss its future.

First, I should explain what the Fat Pitch Financials Portfolio is. It is my main model portfolio that I use to track my investments in value opportunities that I discuss here. It is a virtual portfolio (usually based on my actual trades) maintained at Marketocracy. The portfolio was established back on September 21, 2004 with a value of $1,000,000. My first trade was also on September 21, 2004 for 5,000 shares of Unilever PLC (UL).

I chose Marketocracy to track my investment decisions, because at the time it was the leading model portfolio tracking sites, could handle dividends, and portfolio performance could be shared publicly. You can visit the FPF Value Port public page to track my performance and confirm my results.

My goal has been to use this portfolio to help build my reputation with visitors to Fat Pitch Financials. I think the portfolio now has enough history to actually serve this purpose now. Many bloggers talk about their stock trading, but few back it up with third party verifiable statistics.

The FPF Port is primarily dominated by wide moat companies that were bought when those companies’ stocks traded at significant discounts in order to ensure a significant margin of safety. As you can imagine, these ideal opportunities do not come often, so activity in this portfolio is a rather rare event. This is probably one of the reasons I do not discuss this portfolio often. Frankly, this portfolio is rather boring.

Let’s dive into the boring details. First, let’s look at performance. According to Marketocracy, Fat Pitch Financials Portfolio has returned 23.41% since inception (Sept. 21, 2004). That is an annualized rate of return of 10.01%. This is a bit below the S&P 500 returns, but I need to point out that this account held a significant cash position and still has $211,162.47 in cash, which is 21.1% of the original $1 million investment.

Performance more recently has been significantly stronger. Over the past two years, FPF Port has returned 24.68% versus 22.78% for the S&P 500 Index. Over the last twelve months, FPF Port has returned 19.11% versus 13.51% for the S&P 500 Index. I am particularly proud of this performance, especially given the amount of cash still uninvested in this account. (My real accounts don’t hold nearly as much cash, but they started much earlier than 2004.)

Let’s take a look at the trades that made these performance numbers possible. The following table details all my trades since inception:

Type Close Date Symbol Name Quantity Price Net
Sell Nov 6, 2006 TY TRI-CONTINENTAL 1,680 $21.53 $36,166.43
Buy Nov 6, 2006 WU Western Union Co/The 2,290 $21.86 $50,058.00
Sell Sep 27, 2006 TY TRI-CONTINENTAL 1,580 $21.16 $33,431.77
Buy Aug 15, 2006 USG USG CORP 1,080 $46.55 $50,276.20
Buy Aug 2, 2006 H Realogy Corp 2,090 $24.06 $50,290.40
Split Buy May 25, 2006 UL UNILEVER PLC 9,000 $0.00 $0.00
Split Sell May 25, 2006 UL UNILEVER PLC 5,000 $0.00 $0.00
Buy May 1, 2006 MSFT MICROSOFT CORP 4,120 $24.30 $100,113.60
Buy Oct 10, 2005 MSFT MICROSOFT CORP 4,100 $24.50 $100,457.95
Buy Apr 20, 2005 TY TRI-CONTINENTAL 10,000 $17.40 $173,976.40
Buy Oct 4, 2004 MRK MERCK & CO 5,000 $34.29 $171,445.80
Buy Sep 21, 2004 UL UNILEVER PLC 4,000 $33.53 $134,108.40
Buy Sep 21, 2004 UL UNILEVER PLC 1,000 $33.58 $33,580.00

In order to gain compliance with Marketocracy’s fund rules, I’m only adding $50,000 positions in the future. My portfolio is currently too concentrated to be compliant with their rules, but I haven’t really cared about this feature/aspect of Marketocracy. However, now that I’m getting close to compliance, I figured I might as well play by their rules, which are based on mutual fund restrictions.

Of the seven positions I currently own, Tri-Continental (TY) really should be sold right away. I’ve tried to sell this position before, and I thought it was now gone, but some technical issue has kept it in the port. This isn’t a problem, since Tri-Continental’s performance closely tracks the market’s performance. Hopefully, this stock will be out of my port tomorrow.

Of the remaining positions that I hold in this portfolio, Unilever and Merck (MRK) have been my top gainers. Unilever has gained 45% since I purchase it and Merck has gained 32.3%. Amazingly, my lowest gaining stocks are both still generating positive returns. These stocks include Western Union (WU) gaining 10.3% and Realogy (H) gaining 8.4% since I purchased them. Both of these stocks are spin-off that I purchased this year. I am very pleased with the performance of all my positions currently.

One stock that I missed adding to this portfolio was Sally Beauty Holdings (SBH). I was going to add this stock the day I also purchase it for the Special Situations Real Money Portfolio, but Marketocracy was not ready to accept that stock symbol at the time. When the stock symbol was finally available, the price of Sally Beauty had taken off.

I plan on posting more regular reporting of the performance of the Fat Pitch Financials Portfolio. Expect at least a quick update every month in the future. Since the market is becoming richly valued and many of my positions have had significant gains, I plan on updating my intrinsic value estimates for each of these stocks over the next few weeks. I’m also working hard to find new fat pitch opportunities to put some of the remain cash in this portfolio to work.

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