Fat Pitch Financials Portfolio Relative Performance Since Inception

Performance Numbers

For the six month period ending March 31, 2010 my fund outperformed 98.1% of the other funds on Marketocracy. For the  1 year period ending March 31, 2010 the FPF Port outperformed 94.6% of other funds on Marketocracy and 82.5% of other funds over a 2 year period.

Portfolio Holdings as of April 30, 2010

Trades in April:

On Apr 20, 2010 I bought 20,000 shares of  NovaMed Inc (NOVA) for $3.60 per share, or a total of $71,912.82.

As of the close of the market on February 26, 2010, the Fat Pitch Financials Port had a value of $1,248,266.02. That is down 1.03% since I last report on the Fat Pitch Financials Portfolio in January 2010. Of this amount, $152,614.90 was in cash and $1,095,651.12 was invested in stocks.

Returns as of February 26, 2010

Positions as of February 26, 2010

On February 19, 2010, I sold 112 shares of  Western Sizzlin Corp (WEST) for $8.96 per share for a net proceeds of $1,003.58. I was hoping to sell my entire holdings at $9.00 but the Marketocracy order filling volume requirements prevented that from happening. The main reason I wanted to sell these shares of Western Sizzlin was because the company had announced that these shares would be converted to debentures as part of the merger with Steak N Shake (SNS). I was unsure that Marketocracy would be able to track the debentures, so I decided for tracking purposes it might be best to sell this position in this portfolio. That didn’t happen, so it will be interesting to see how Marketocracy will handle this.

March 2010 Update

As of the close of the market on March 31, 2010, the Fat Pitch Financials Port had a value of $1,355,298.57. That’s up an amazing 8.57% over the past month! The Fat Pitch Financials Port held $1,202,522.81 in stocks and $152,775.76 in cash at the end of March.

Over the past twelve months, the portfolio was up an amazing 78.09%. Since the portfolio’s inception (September 2004), the portfolio has returned 35.14%. On an annualized basis, the return is a respectable 5.60%.

Current Positions as of March 31, 2010

Fat Pitch Financials Portfolio One Year Price History (as of April 6, 2010)

As you can see from the graph above, over the past year the Fat Pitch Financials Port has been outperforming the major indexes. I hope I can continue to maintain this trend throughout 2010. No new trades occurred in March, but given the dramatic price rebound the market has experienced over the past 18-months, I am starting to consider selling some positions.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks. The objective of this portfolio is to invest in companies with wide moats that are selling for prices that provide for a significant margin of safety.

Over the past 12-months the FPF Value Port is up 60.84% versus just 30.10% for the S&P 500. The orange line in the graph below shows how the Fat Pitch Financials Port relative to the major indexes.

Price History for the Fat Pitch Financials Portfolio (as of January 29, 2010)

As you can see, the Fat Pitch Financials Port has outperformed the major indices since the end of last spring. According to Marketocracy, the Fat Pitch Financials Portfolio has outperformed 79.2% of all other Marketocracy funds over the past 2 years.

Returns as of January 30, 2010

Since inception in September of 2004, the FPF Value Port produced an annualized return of 4.37% versus the 1.12% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 3.24%, but I hope to increase this margin substantially over the coming years.

Current Positions as of January 30, 2010

There were no new transaction in January. I’ve been waiting patiently for the market go into another panic. I looks like that could happen now in February.

The major news in January is that Destination Maternity (DEST) finally turned a profit in quarter one. It also looks like Kraft (KFT) is going to Cadbury (CBY) regardless of Warren Buffett’s advice to the company. Finally, I also reported on Premier Exhibitions Investor Day Presentation in January. I’m hoping that I’ll find a fat pitch opportunity in February to put some of the $153,474.32 in cash remaining in this portfolio to work.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks. The objective of this portfolio is to invest in companies with wide moats that are selling for prices that provide for a significant margin of safety.

The FPF Value Port returned 42.44% versus just 26.47% for the S&P 500 in 2009. The orange line in the graph below shows how the Fat Pitch Financials Port relative to the major indexes.

Fat Pitch Financials Portfolio 2009 Performance

As you can see in the chart above, my portfolio began recovering more quickly than the market indexes after the March low. I’m hoping the Fat Pitch Financials Port will continue this trend of outperformance into 2010.

Since inception in September of 2004, the FPF Value Port produced an annualized return of 4.00% versus the 1.84% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 2.15%, but I hope to increase this margin substantially over the coming years.

Fat Pitch Financials Portfolio Performance Since Inception (As of December 31, 2009)

Fat Pitch Financials Portfolio December 31, 2009

Total Value: $1,233,461.25 Cash Value: $154,312.72 Stock Value: $1,079,148.53 Shares: 100,000 Price: $12.33

Fat Pitch Financials Portfolio Style Allocation

Marketocracy also provides a style breakdown for its portfolios. According to the table above, the Fat Pitch Financials holds mostly value stocks. The 11% allocation to large cap growth stocks is attributed to my Kraft (KFT) and eBay (EBAY) positions. As far as the size of the companies held, the FPF Port is balanced between 51% allocation to large cap stocks and most of the remaining allocation split between small and micro cap stocks. I’m thinking that I should look to see if I’m missing any opportunities in mid-cap stocks.

Fat Pitch Financials Portfolio Positions by Sector and Industry

The Fat Pitch Financials portfolio holdings are predominately in consumer discretionary and information technology stocks.  These two sector categories make up 81% of the portfolio. Unfortunately, I held 10% of the portfolio in financials, but thankfully they recovered nicely at the end of 2009. My 3% position in the health care sector seems a bit scimpy, but given the changes in the health care sector given the government’s reform efforts it might actually be prudent to see how the changes shake out.

There were no new transactions in December. The only real change was the 20 to 1 reverse split that Steak N Shake (SNS) conducted. I think that reverse split was kind of silly, and it has given me some reservations regarding my Steak N Shake investment.

I look forward to 2010 and hope to continue beating the market.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

I launched this paper portfolio back in September of 2004 on Marketocracy with a virtual starting balance of $1 million and a per share value of $10. I created this paper portfolio shortly after I started the Fat Pitch Financials blog as a way my readers could track my stock picks. The objective of this portfolio is to invest in companies with wide moats that are selling for prices that provide for a significant margin of safety.

Year-to-date the FPF Value Port is up 36.00% versus just 24.07% for the S&P 500. The orange line in the graph below shows how the Fat Pitch Financials Port relative to the major indexes.

Price History for the Fat Pitch Financials Portfolio (as of November 30, 2009)

As you can see, the Fat Pitch Financials Port has recently pulled ahead of the S&P 500 and Nasdaq.  According to Marketocracy, the Fat Pitch Financials Portfolio has outperformed 93.9% of all other Marketocracy funds over the past 2 years.

Returns as of November 30, 2009

As you can see in the table above, the FPF Value Port gained 2.68% in November, whereas the S&P 500 gained 6.00%. Over the past 12 months, the Fat Pitch Financials Port gained 38.81%, outpacing the 25.39% total return for the S&P 500 over that same period. Since inception in September of 2004, the FPF Value Port produced an annualized return of 3.14% versus the 1.50% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 1.64%, but I hope to increase this margin substantially over the coming years.

Fat Pitch Financials Portfolio Style Allocation

Marketocracy also provides a style breakdown for its portfolios. According to the table above, the Fat Pitch Financials holds mostly value stocks. The 11.8% allocation to large cap growth stocks is attributed to my Kraft (KFT) and eBay (EBAY) positions.  As far as the size of the companies held, the FPF Port is balanced between 54% allocation to large cap stocks and most of the remaining allocation split between small and micro cap stocks.

Current Positions as of November 30, 2009

My strongest performing position continues to be Microsoft (MSFT). The roll out of Windows 7 seems to have gone well. I just upgraded to a new Windows 7 Profession PC and I like what I see so far. It will be interesting to see how Windows 7 sales impact next quarter earnings.

The only activity to note this past month was the spin off of Steak N Shake (SNS) shares from Western Sizzlin (WEST). The portfolio received 2,687 shares of Steak N Shake.  Western Sizzlin will also soon cease trading and be converted instead into callable debentures with a face value of $8.07 that pay 14% interest annually.  I just realized that Marketocracy might not be able to handle the debentures, so I might have to sell off the Western Sizzlin position soon to keep the performance tracking somewhat accurate.

I still have $153,999.38 in cash available in this portfolio to start one or two new positions if I discover any opportunities. If the market relapses, I’ll be ready to pounce.

Disclosure: I own shares of Western Sizzlin (WEST), Steak N Shake (SNS), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

Since I last reported at the end of  May on the Fat Pitch Financials Portfolio, the portfolio has recovered from a balance of $946,732.78 to its closing value on October 30, 2009 of $1,146,935.59. That’s up over 21% in five months. Year-to-date the FPF Value Port is up 32.45% versus just 17.05% for the S&P 500. The orange line in the graph below shows how the Fat Pitch Financials Port has done over the past year.

12 Month Price History for the Fat Pitch Financials Port (as of October 31, 2009)

As you can see, the strongest recovery occurred from March through May. Since the beginning of August, the portfolio has been rather flat, except for the rally that occurred in mid-October.

Returns as of October 31, 2009

As you can see in the table above, the FPF Value Port gained 2.66% in October, whereas the S&P 500 lost 1.86%. Over the past 12 months, the Fat Pitch Financials Port gained 25.27%, outpacing the 11.49% total return for the S&P 500 over that same period. Since inception in September of 2004, the FPF Value Port produced an annualized return of 2.66% versus the 0.38% return of the S&P 500. I’m proud that I’m beating the S&P 500 by 2%, but I hope to increase this margin substantially over the coming years.

For the six month period ending September 30, 2009 Fat Pitch Financials Portfolio outperformed 84.3% of the other funds on Marketocracy. My goal now is to get into the top 5% of funds tracked at that site. I hope to do that by deploying the remaining $155,814.29 in cash in my fund in some great fat pitch opportunities as the current market recovery falters.

Current Positions as of October 31, 2009

My best performing position is currently Microsoft (MSFT). At one point it seemed like I was the only value investor talking about Microsoft. However, lately I’m starting to read that many other investors are starting to get interested in this industry giant. The roll out of the new Windows 7 operating system will be a major milestone for this company. I’ll have to watch closely at how it turns out.

Disclosure: I own shares of Western Sizzlin (WEST), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), Wells Fargo (WFC), USG (USG), and Premier Exhibitions (PRXI).

In terms of performance as of the close May 29, 2009, the Fat Pitch Financials Port was up 2.2% in May. The S&P 500 was up 5.5% over the same period. Over the last 12 months, the portfolio is still down 26.52%, but the S&P 500 was also down 32.47% over the same period. Finally, the portfolio is still down an annualized 1.22% since inception back in 2004, versus -2.30% for the S&P 500 over the same period of time.

Value: $946,732.78 Cash: $84,246.68 Stock Value: $862,486.10 Total Shares: 100,000 NAV: $9.47

Returns as of May 31, 2009

I did not add any new positions in May. I did, however, begin to sell off my position in Concord Camera (LENS). The company is in the process of liquidating. Normally, I would wait for that process to come to completion, but I’m not sure if Marketocracy will properly account for the liquidation payouts after the shares stop trading. For tracking purposes, I decided my best bet would be to sell this position. Due to the volume trading restriction imposed by Marketocracy, it will probably take several weeks for this position to be sold off.

I still have $84,246.68 left in cash in this Marketocracy portfolio that originally started out with $1 million. If the current market recovery falters, I will likely become fully invested. A summary of my current positions in the Fat Pitch Financials Portfolio as of May 29, 2009 are presented in the table below.

Disclosure: I own shares of Western Sizzlin (WEST), Grupo Aeroportuario del Pacifico (PAC), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), USG (USG), and Premier Exhibitions (PRXI).

A lot has changed in terms of the value of the portfolio since that time. On February 27, 2009, the Fat Pitch Financials Portfolio at Marketocracy ended with a value of $697,681.47. By the end of March, the portfolio had rebounded back to a value of $759,967.14. Now as of April 30, 2009, the portfolio has come back to life with a closing balance of $929,103.81. That’s an amazing 33% improvement. The orange line in the chart below illustrates this rebound. It also shows how the portfolio is now climbing faster than the indexes.

In terms of performance as of the close April 30, 2009, the Fat Pitch Financials Port was up 22% in April. The S&P 500 was up only 9% over the same period. Over the last 12 months, the portfolio is still down 29.13%, but the S&P 500 was also down 35.31% over the same period. Finally, the portfolio is still down an annualized -1.64% since inception back in 2004, versus -3.48% for the S&P 500 over the same period of time.

Returns as of April 30, 2009

There was actually some trading activity in April. As I reported earlier, I bought shares of Grupo Aeroportuario del Pacifico (PAC) as fears of Swine Flu, or H1N1 as it is now being called, got out of hand. So far this airport stock has held firm, since I bought shares on April 28, 2009 for $20.28 per share. If the concern regarding H1N1 flu continues to decline, I expect Grupo Aeroportuario del Pacifico will recover back to the mid-20s. As I wait for this wide moat stock to recover, I’ll collect at least an 8% dividend.

I still have $85,729.71 left in cash in this marketocracy portfolio that originally started out with $1 million. If the current market recovery falters, I will likely become fully invested. A summary of my current positions in the Fat Pitch Financials Portfolio as of April 30, 2009 are presented in the table below.

Current Holdings as of April 30, 2009

Disclosure: I own shares of Western Sizzlin (WEST), Grupo Aeroportuario del Pacifico (PAC), Broadridge Financial Solutions (BR), Microsoft (MSFT), Western Union (WU), Kraft Foods (KFT), eBay (EBAY), Concord Camera (LENS), McGraw-Hill (MHP), Destination Maternity (DEST), Sotheby’s (BID), Pfizer (PFE), US Bancorp (USB), USG (USG), and Premier Exhibitions (PRXI).

Shares of Grupo Aeroportuario del Pacifico ADR (PAC) fell over 17% in price on April 27th after news that the WHO elevated the flu pandemic risk level. This likely short duration health risk event has created an opportunity for value investors to take advantage of the fear by being greedy and buying up some of these shares on the cheap. I added shares of PAC on April 28th to the Fat Pitch Financials Portfolio for a net average price of $20.28 per share. I announced the trade on Twitter since I was press for time on Tuesday. This position is now approximately 5.5% of the Fat Pitch Port by value.

While there is the potential that short term risks associated with swine flu might increase, it is unlikely that this will impair the important transportation infrastructure assets of Grupo Aeroportuario del Pacifico, S.A.B. de C.V., also referred to as GAP. GAP is particularly attractive since it is less exposed to the tourism industry than the other airports that operate in the eastern coastal vacation areas of Mexico and its shares provide a better relative value.

Grupo Aeroportuario del Pacifico operates twelve airports throughout Mexico’s Pacific region, including the major cities of Guadalajara and Tijuana, the four tourist destinations of Puerto Vallarta, Los Cabos, La Paz and Manzanillo, and six other mid-sized cities: Hermosillo, Guanajuato, Morelia, Aguascalientes, Mexicali and Los Mochis. The Mexican government commissioned GAP to manage these airports through 2048, and the company currently faces no competition in its geographic area. The shares are listed on the Mexican Stock Exchange under the ticker symbol GAP and it also has an ADR on the New York Stock Exchange under the ticker symbol PAC, which are the equivalent of 10 GAP shares. Shares started trading in February 2006.

As of the recent first quarter financials for the period ending March 31, 2009, earnings per ADR share for the past trailing twelve months are $1.96 per share. Given yesterday’s closing price of $20.95 the P/E is 10.7. The enterprise value to EBITDA ratio is a very reasonable 7. The trailing dividend yield is an attractive and safe 8.8% and the forward dividend yield is likely to be over 10%. The potential of earning a 10% yield while waiting for this perfect storm to blow over is very attractive.

Net income for the first quarter decline 6.6% from the prior year, but that is less than the -25.8% change that occurred in fourth quarter of 2008. While it is likely the second quarter will be as brutal as the fourth decline of last year or worse, it is very likely this cash cow will keep producing. GAP had a 64% EBITDA margin in FY08 and an operating margin of 41.5%. Those fat margins provide a nice buffer to the challenges ahead.

The real value opportunity here lies in the balance sheet. The price to book ratio is 0.59. There is $2.81 in cash per share of PAC. The company has a very low debt to equity ratio. As things settle down in Mexico and the global economy recovers, we see no reason why GAP would not eventual trade at least at a price to book ratio of at least 1 or more. Therefore, my target price is $35, which is where PAC traded at last June.

Here are some other key financial statistics for Grupo Aeroportuario del Pacifico adjusted to ADR shares and the U.S. dollar (using 10 shares per ADR and 0.0726 dollars per Mexican peso):

Stock price: $20.95
Discount: 40%
Shares outstanding: 56.1 million*
Market Cap: $1,175 million
Cash & short term investments: $158 million
Debt: $113 million
Enterprise value: $1,130 million
Dividend (trailing): $1.85 per share
Yield: 8.8% 
Total debt/EBITDA ttm: 10.4
EPS ttm: $2.20
P/EPS: 9.5
FCF ttm: $87.1 million 
EV/FCF: 13.5
Sales ttm: $249 million
P/Sales: 4.5
Book value: $1,971 million
P/Book: 0.59
Cash/Share: $2.81 

*There are actually 561 million shares but I divided that by 10 to adjust everything in terms of the ADR.

Disclosure: I own shares of Grupo Aeroportuario del Pacifico (PAC).

When the markets closed on February 27, 2009, the Fat Pitch Financials Portfolio at Marketocracy ended with a value of $697,681.47. This was down 10.6% from the previous month. Year-to-date, the portfolio was down 19.33% while the S&P 500 was down 18.18%. Since inception, the portfolio has returned -30.43% versus the S&P 500 return of -28.74% over the same period. The bottom line is that I’m slightly lagging the S&P 500.

Fat Pitch Financials Holdings as of February 28, 2009

Disclosure: I own shares in each of the companies mentioned in this article at the time this article was published.

The Fat Pitch Financials Portfolio ended on January 30, 2009 with a balance of $780,416.28. This is down 9.76% since last month, but the S&P 500 was also down 8.43% over the same period. Since its inception on September 21, 2004, the Fat Pitch Financials Port is down 22.18%, while the S&P 500 total return over the same period was -20.25%. On an annualized basis, the Fat Pitch Financials Portfolio is returning -5.58% per year. That’s not the type of returns one wishes for.

Fat Pitch Financials Holdings as of January 30, 2009

Disclosure: I own shares in each of the companies mentioned in this article at the time this article was published.

In 2008, the Fat Pitch Financials Port lost -38.33%. This is not the type of performance I expected, but the S&P 500 also returned -37.00% according to the statistics provided by Marketocracy. Thankfully, the last month has been much better. The Fat Pitch Financials Portfolio gained 8.87% in December, but the S&P 500 returned 10.97% over the same period. As you can see in the chart below, the Fat Pitch Financials Portfolio has been following the major indexes closely.

The one positive thing to report is that over the last quarter the portfolio returned +8.87% versus +10.97% for the S&P 500. I’m hoping this is a sign that I’ll break free of the S&P 500 and start on a positive trend. I still have a 15% cash position to put to work and help this portfolio climb out of the hole its in.

Below is a list of the portfolio’s current positions and their ugly return numbers:

Finally, I should report the performance numbers since inception. The Fat Pitch Financials Port has returned -13.76% so far versus -12.91% for the S&P 500 over the same time period. This comes out to a negative 3.4% annualized return. Not the type of investment returns a value investor hopes for, but I also have to remind myself that this portfolio is only four years old. Several professional value investors have also struggled over these past few years. I’m going to be working real hard in 2009 to boost the five year performance numbers for the Fat Pitch Financials Portfolio. Return here next year to see if I’m able to turn this portfolio around.

Disclosure: I own shares in all the companies mentioned in this post.

Given the reports that Mark Sellers was winding down his hedge funds, I didn’t expect him to see him take on any new shareholder activist roles. However, Sellers still holds 16.3% of Premier Exhibitions’ shares, so it looks like he decided to hold onto his position in this company and extract some value from this beaten down stock. I don’t blame him for holding tough on Premier given the potential value in this company.

Thankfully, Sellers Capital LLC is coming to the defense of Premier Exhibitions’ shareholders. Mark Sellers is hoping to replace four members of the Board of Directors to unlock some value from the great assets held by Premier Exhibitions and maybe salvage the operating portion of the company. Unsurprisingly, the special committee of ”independent directors” opposes Sellers actions. Sellers responded this past Monday with a press release calling “for the committee to disclose all of its conclusions and all of the matters and allegations involving Mr. Geller that the committee reviewed and considered.”

I’ll be following these developments closely and I’ll keep you posted when I hear anything new about Premier Exhibitions.

Disclosure: I own shares of Premier Exhibitions.

I originally started this paper portfolio at Marketocracy with a balance of $1 million back on September 21, 2004. Until this current financial crisis hit, I had kept this portfolio above water. Since October, however, the portfolio has struggled to stay in positive territory. I guess I shouldn’t feel too bad about this, since I’ve been reading a steady stream of articles on Value Investing News of professional value investors also facing huge portfolio declines this year.

Year-to-date the portfolio is down 39.5%, very close to the S&P 500 decline of 37.7% over the same period of time. The most disappointing performance statistic is the portfolio’s total return since inception. The Fat Pitch Financial Port is down a total of 15.39% versus -13.83% for the S&P 500. My alpha has dropped to zero and my annualized rate of is -3.91%.

There were no trades in the month of November. I was tempted a few times to enter the fray after a few of the big declines, but each of the rallies after were based on insignificant news events. I think tax loss selling in December will continue to suppress the market and allow me more time to make wise picks. Since nothing has changed, the table below of the current portfolio holdings and their current returns will look similar to the one posted last month, but with larger losses:

Disclosure: I own shares in all the companies mentioned in this post.

Fat Pitch Financials Portfolio versus the Major Indexes Over the Past 12 Months

There was only one transaction in the month of October. On October 3, 2008, I added shares of Wells Fargo (WFC). I added 1,400 shares at $34.85. At the time, I thought with the government’s bailout plan would stabilize the price of shares in the financial sector. I was also pleased to see Wells Fargo taking advantage of the situation to further build its economic moat by acquiring Wachovia (WB). As is typical for a value investor, it appears I was a bit early in this purchase. However, I still have high hopes for Wells Fargo.

The table below lists the current holdings of the Fat Pitch Financials Port. As you can see, shares of Premier Exhibitions (PRXI) have been crushed since late August. Revenues from their exhibits have been down due to a change in vendors, exhibit relocations, and the economic down trend in consumer spending. To top it all off, Mark Sellers is winding down his hedge fund, and he was a major holder of Premier Exhibitions. Its hard to believe know that Premier use to be one of my best performing positions. In retrospect, I should have sold some of the position after share price rebounded after the negative 60 Minutes piece on the company.

I’m also surprised at how far USG has declined. I guess it is really no surprise now that it appears to the bursting of the housing bubble has impacted the general financial sector, and now likely caused a global recession. It appears the worst case scenario is playing out for USG and even Buffett didn’t see this coming.

Finally, Sotheby’s (BID) has also declined dramatically. Talk of a collapse in the contemporary art market seems to be playing out. With the financial crisis impacting Western collectors wealth and declining commodity prices impacting the formerly growing Eastern art buyers, the art market is now definitely slowing down. I still believe that the market is being a bit short sighted in its pricing of Sotheby’s and I’m even tempted to add to this position at this point. The only thing keeping me from doing this is my difficulty in estimating the impact of recent auction guarantees and bad loans based on art works. Once I getter a better handle on that, I’ll feel more comfortable considering more shares.

Disclosure: I own shares in all the stocks listed in the above table. I do not currently own shares of Wachovia.

Investors in Concord Camera have been calling for the liquidation of the company for several years in order to unlock the cash value of its assets. In fact, the Everest Special Situations Fund L.P. took an activist role this year and issued letters back in May and September calling for the sale or liquidation of the company.

Sadly, the well compensated CEO, Ira Lampert, dithered for years on taking action to unlock the value of Concord Camera. As a result, the value of assets have gone down. In the press release announcing the liquidation of Concord Camera, it notes that the company got caught up in auction rate securities. Concord will be marking down the value of those securities by by $5.1 million to $17.1million as of September 27, 2008. In addition, the value of the company’s property in China has likely significantly gone down in value as a result of the current worldwide financial crisis and the general decline in PRC property values. All I can say is that the timing of this liquidation couldn’t have been worse.

I originally was attracted to Concord Camera since its shares use to trade for less than 2/3 of net current asset value. Now I’ll be lucky if the liquidation value comes near my purchase price. My rough take is that the company as of May 29, 2008 had $31.1 million in current assets. Of those current assets, $14.4 million was in inventory, which I now guess is worth a bit less than half that. Therefore, I’m estimating the liquidation value of current assets to be about $24 million. Then adding in the $17 million in auction rate securities, and discounting the $8.6 million in property, plant and equipment to $5 million, I get total assets of $46 million. I left out the other assets and liabilities associated with the Fuji Photo Film licensing agreement. Leaving that out, I’m estimating total liabilities to be $22 million. Therefore, net assets are about $24 million. Dividing that by the 5,913,610 shares as of May 9, 2008, I’m getting roughly $4 per share, and this estimate is likely generous.

At least some value will finally be unlocked from this poorly managed company, and there are plenty of net-nets out there now to choose from if I decide to replace this one with another in the Fat Pitch Financials Portfolio. Thanks goes out to Elchanan Maoz of the Everest Special Situations Fund for helping this liquidation finally happen. I’ve learn a few things from this experience and I will definitely be more careful in examining management a bit closer the next time I consider investing in company trading below net current asset value.

Disclosure: I own shares in Concord Camera and may likely trade those shares in the near future.

I am pretty excited about this news, since I bought shares of Wells Fargo last week in part on the thought they would be able to acquire Wachovia. With the acquisition of Wachovia, Wells Fargo will have a massive retail banking footprint in the United States. Wells Fargo will end up with bank branches covering both the West Coast, and now with Wachovia, also the East Coast.

Wells Fargo branches

Wachovia coverage

It is likely that I was a bit early buying Wells Fargo last week at $34.85. It might be time for me to consider adding more on Friday or to even pick up WB instead if those shares provide an arbitrage discount. However, so many other stocks are trading very cheaply that I also have to consider other opportunities as well. I’m starting to feel like I’m being pelted with pitches at this point. It’s getting hard to spot which are the fattest pitches.

Disclosure: I own shares of Wells Fargo (WFC). I have no positions in Citigroup (C) or Wachovia (WB).

I based my decision in part on the news that Warren Buffett had bought shares of Wells Fargo for his personal accountas well as for Berkshire Hathaway (BRKa). I trust Mr. Buffett’s judgement of Wells Fargo’s management and financial health and believe his personal purchase of this stock sends a strong signal of good an opportunity this is.

I also gained great insight into the culture and operations at Wells Fargo from conversions I had with VIN member Nick several months ago. Nick used to work for Wells Fargo until he switched careers just a few months ago. Meeting great people like Nick and networking with them, is just one of the many benefits I’ve experience by creating Value Investing News.

I only wish I could get Wells Fargo at a cheaper price. It is likely that Mr. Buffett picked up shares below 30. 

After the market closed today, I also realized that I probably could have bought shares of Wachovia (WB) instead of WFC in order to eventually get shares of WFC at a discount due to the merger arbitrage discount associated with stock swap offer. As you probably heard, Wells Fargo agreed to buy Wachoviatoday, over the protest of Citigroup (C). Wachovia shareholders will receive 0.1991 shares of Wells Fargo for every share of Wachovia stock they own if the deal goes through. If Mr. Market goes crazy again, I might fill my position in Wells Fargo by buying Wachovia shares if the spread remains. Apparently, William Ackman already owns shares of Wachovia and he will be speak about Pershing Square’s investment in Wachovia at next week’s Value Investing Congress. I’ll be sure to share with you what he says.

Disclosure: I own shares of Wells Fargo & Company. No other stocks mentioned are owned.

The following table provides a breakdown of my current holdings and their performance:

Fat Pitch Financials Holdings as of September 30, 2008

The total value of this paper portfolio was $1,188,528.29 (11.89 per share) on September 30, 2008. Of that amount, $1,005,728.36 was invested in stocks and $182,799.93 remained in cash.  The cash position still represents 15% of the portfolio.

This past month this portfolio saw quite a bit of activity compared to normal.  On September 17th, I added additional shares of Sotheby’s (BID) to the account at an average cost of $20.79 per share. Then on Septemeber 22nd, I started a new position in eBay (EBAY). I’ve been looking to add a few more stocks given all the chaos in the market.  I’ll let you know how that develops.

It looks like I’m overweight auctioneers given the addition to my Sotheby’s position this past week and now my new position in eBay. My loose thesis is that the current financial crisis will cause distressed businesses and individuals to liquidate assets. Auctions are a quick and efficient way to liquidate assets. While auction prices might decline, volume will likely increase. I’ve also seen some signs that there is a new trend towards frugality. Most importantly, auction marketplaces exhibit the network effect, where the more people use the service, the more valuable it becomes. This network effect can provide a market leader with a massive sustainable competitive advantage that effectively builds a wide moat around the company shielding it from competitive forces. The network effect is working in eBay’s advantage in both its online marketplace and its PayPal electronic payment system.

Yes, I know eBay has plenty of warts, but it also has one hell of a wide moat. Over the past few years eBay has made several misteps, most notably the acquisition of Skype and fluctuating auction listing price structure, but the company still continues to be the undisputed leader in online auctions in the United States. Also, its PayPal online payment service is one of the standard methods small businesses and individuals use for online transactions. I use it almost every day.

With Meg Whitman’s departure earlier this year, there is the potential that eBay will once again focus on its strengths and core business under the new CEO, John Donahoe. He has been been tweaking listing prices, payment policies, and is capping shipping fees. It appears the overall goal is to improve the buyer experience on the site, even though these actions might further alienate some sellers. There is also a rumor that eBay is considering shedding Stumble Upon, which it only purchased last year. I would also like to see it unload Skype, but it will likely be harder to find a buyer for that service.

While I’m sure many other value investors might still balk at the price of eBay shares, I find the shares to be trading at a reasonable discount at this point. If the shares continue to decline, I will be able to add more shares since I’ve only bought a half position at this time.

There is more that I would like to write about my new eBay position, but I have a nasty head cold. Hopefully, I’ll wake up in the morning with less stuffed up sinuses and a clearer head.

Disclosure: I own shares of eBay.