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Year in Review: 2013

Chandan Dubey

Chandan Dubey


I wrote a year end review last year (The Year That Was - 2012) and found it a useful exercise. Unfortunately, the article was not detailed enough and lacked a lot of information about my holdings. I will try to address the issue in this one.

But first, let me write my year-end portfolio of 2012 and 2013, side by side.


The first thing to notice the amount of cash I have. It has grown steadily throughout the year as I have continued to reposition my portfolio. This cash is a by product of continued selling of the businesses that had become overvalued or were outside of my circle of competence and a general lack of opportunities in the market.

My performance, on the other hand, has been quite satisfactory. My portfolio is up 29% this year, after withholding taxes on the dividend. The high level of cash obviously had a significant drag on the performance. The return on the invested capital is closer to 52%.

The second thing to notice is the lack of overlap in the portfolio. I sold every position except ArcelorMittal (MT), Tesco (LON:TSCO) and Intel (INTC). Roche and ABB were sold because they had become quite overvalued. Transocean (RIG) and Hewlett-Packard (HPQ) were sold because I lost faith in their management. I sold Bank of America (BAC) and Banco Santander (SAN) because try as I may, I was unable to learn enough to feel comfortable about these companies. The rest (EONGY, ORAN) were eliminated because I could not convince myself that I have an edge over the professionals in gauging the undervaluation of these companies. I felt that it was better to find other opportunities. I eliminated Alcoa (AA) in favor of ArcelorMittal (MT): One less company to worry about.

One significant change in my portfolio has to do with the weight I have been assigning to “owner operator” management. In particular, ArcelorMittal, Altius Minerals, Lamprell, Bouygues, Nam Tai Electronics and Fortress Paper are all run by management who have significant stake in the company. In most cases, their interests are aligned with the shareholders and they make decisions which are in the long-term interest of the business instead of building empires and chasing stupid and overvalued acquisitions. In short, they behave like owners of the business as can be gauged by the history of their decisions. I find that a good owner-operator management provides an additional margin of safety to my capital.

I have made only one major acquisition this year: Altius Minerals (TSX:ALS), a company active in mineral resources. Altius, founded in 1996, is stewarded by 40-year-old Brian Dalton, who has a fabulous track record in allocating capital. The business model of the company can be split into two segments (a) project generation and royalty creation, and (b) investment and royalty acquisition. It opportunistically buys “interesting” land for cheap when the commodity market is going through rough phases. It then partners with mining companies to finance the discovery of minerals on the land. If found, it sells the rights to building and running the mines for an equity stake and royalty on the sales from the mine. This way it gets out of the capital-intensive business of building and running the mine for a stream of cash flow until the mine keeps producing. The cash flow from the first business segment is then invested in acquiring royalties and buying significant stakes in natural resources companies with a view of long term capital appreciation. The management owns 10% of the company and has had a fabulous track record with the book value being compounded at 43.7% for the last 11 years or so.

My reasons for buying the other stocks can be found in their respective articles. See the pitch for Bouygues, CAF, Fortress and Lamprell.

This year will be quite significant in my life because I will be completing my Ph.D. and probably moving to a different country in search of a new job and a new life. Meanwhile, I wish for a significant correction so that I can get rid of the substantial cash that I have accumulated. If the opportunities continue to elude me, I am happy to hold the cash.

About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

Rating: 4.0/5 (15 votes)


The Science of Hitting
The Science of Hitting premium member - 3 months ago

Good read Chandan - have you wrote much about WTW on here? I'm looking for someone to convince me to move on (with the debt doing a good job at that), but I keep getting interested :) Thanks!

Cdubey premium member - 3 months ago

I am not convinved by WTW. This is why I have a very small position. 

Even without the debt, the business itself is very competititve. I might even decide to get out of WTW soon.

I would strongly recommend looking at Altius.

Cdubey premium member - 3 months ago

I sold WTW and added more Altius.

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