Fat Pitch Financials Portfolio Update for January

The Fat Pitch Financials Portfolio weathered the stormy market in January pretty well. The portfolio was down only 1.18% versus a decline of 6.00% for the S&P 500. There were no new trades in January for the Fat Pitch Financials Portfolio, so my positions are the same as what I reported for the Fat Pitch Financials Portfolio at the end of 2007.

There were a couple of names that I was interested in buying, but I anticipated that market would go down further after the international market plunge on Martin Luther King Jr. Day. However, the U.S. markets have held up pretty well as a result of significant cuts in the Fed rate and the development of an economic stimulus package by Congress. I am a bit remiss in not putting some of the $491,061.96 of the portfolio’s cash to work. At a minimum, I should have average down a bit on a couple of my positions. The lesson learned is that one should always do their homework, so you can be ready for the temporary market fluctuations.

One of the names that I did actually add to recently (on December 31, 2007 to be exact) was McGraw-Hill (MHP). I’ve been meaning to write up my analysis of McGraw-Hill, but fellow blogger Mike Price contacted me shortly after I bought McGraw-Hill. Mike had produced a detailed research report on McGraw-Hill and wanted to have it published on Value Investing News. Value Investing News has recently started accepting full length articles on a ad share basis. I didn’t want to post an article about McGraw-Hill while I was reviewing Mike’s research.

Mike published his McGraw-Hill research this morning on Value Investing News, so now I feel more comfortable talking about it now. The conclusions of my analysis are fairly similar to that of Mike’s. I ended up valuing McGraw-Hill at around $76 using a slightly modified version of my Fat Pitch Finder spreadsheet. Mike used a different method of valuation, but came up with a similar value of $72.82 per share. He used Mohnish Pabrai’s approach to valuing stocks using a discounted free cash flows, and several other methods. I encourage you to read Mike’s research report on MHP. The main difference with my method of valuation is that I model free cash flow growth for wide moat companies using a linear trend. I often base the linear trend of off a linear regression of the past 10 years of free cash flows for a company. Most other models use an exponential growth function, which is simply a percent increase from the previous year. I believe that using percent growth rates tends to overestimate the growth of most mature businesses. My use of a fixed dollar amount of growth each year is a bit more conservative. However, in the case of McGraw-Hill it appears that using either approach gets you to a similar number.

The Fat Pitch Financials Portfolio closed out the month with a balance of $1,375,445.21. My return since inception is 38.18% versus 29.94% for the S&P500. My annualized return is now up to 10.09%. These numbers are okay, but I hope to start edging out the S&P500 by a wider margin in the future. The key to doing that will be to wait patiently for fat pitch opportunities in excellent companies with sustainable competitive advantages.

Disclosure: I own shares of McGraw-Hill (MHP).

One thought on “Fat Pitch Financials Portfolio Update for January

  • February 5, 2008 at 1:07 pm
    Permalink

    Nice job. And thanks for the Mike Price link. I think he brings a young person’s clarity to value investing.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


20 mg professionele Cialis


Beste prijs voor 20 mg Cialis


Goedkoopste Cialis 20mg inclusief verzendkosten


Goedkoopste Cialis 20mg Aanbieding


Type Cialis 20 mg


Cialis 20mg Laagste prijs


Cialis 20 mg postorder


Cialis 20 mg tabletten


Cialis kost 20 mg


Cialis dosierung 20 mg


Cialis Professional 20mg pillen


20 mg Cialis snijden


Generika Cialis 20mg


Generika Cialis Soft 20mg


Generika Cialis Soft Tabs 20mg


Vardenafil 20 mg Cialis


Cialis 20 mg, Tadalafil goedkoop kopen


Cialis dosisuren


Goedkope Cialis 20mg pillen


20 mg dosis Cialis recept


Bestel 20mg Cialis goedkoop online