Q4 Portfolio Update 12/31/22

I started my investment journey in December 2020 but, didn’t get majorly invested until 2022. When I first started the benchmark I chose to compare my performance to was the MSCI World Index using (URTH) the Ishares ETF as the barometer. I chose the MSCI World Index because if I wasn’t trying to pick individual stocks I’d probably put all my money in a very diversified global EFT. In 2022 the MSCI World Index was down around 20% vs 9% for my personal portfolio. However, I am only 65% invested so my cash saved me this year instead of being a drag.

My worst-performing investments in size were AF Legal, Marimed, and Trulieve which at this point I’ve convinced myself were mistakes. My best-performing investment was Consolidated Water which I sold two months ago.

For the quarter all my new positions were foreign companies not listed in the US. I had a much easier time finding value outside of the US in Q4 then in the US. Another thing I noticed was my high portfolio turnover. My target turnover is 4 positions a year or 20%. Actual turnover was 50% or 10 positions. So next year that’s something to work on. Below is my portfolio ending as of Q4 2022.

Company Ticker Allocation Average Price Per Share Price Now Percentage Up/Down Exiting/Holding/Adding
Banco Latinoamericano NYSE:BLX 9.11% 15.36 16.2 5.47% Adding
Good Times Restaurants GTIM 6.54% 3.79 2.24 -40.90% Adding
ONEX Holdings TSE:ONEX 6.88% 78.28 65.29 -16.59% Adding
Vinci VINP 9.05% 11.86 9.04 -23.78% Adding
Village Super Markets VLGEA 7.69% 22.61 23.29 3.01% Adding
Sutl Enterprise SGX:BHU 5.27% 0.471 0.5 6.16% Adding
Warner Bros Discovery WBD 0.61% 28.39 9.48 -66.61% Holding
Airtel Africa LON:AAF 6.12% 137.91 111.8 -18.93% Adding
Capri CPRI 6.02% 47.77 57.32 19.99% Adding
Six Flags SIX 7.17% 22.41 23.25 3.75% Adding
Nihon Falcom TYO:3723 4.93% 1240 1245 0.40% Adding
Aeroporto Guglielmo BIT:ADB 6.55% 7.74 7.8 0.78% Adding
Pacific Smiles ASX:PSQ 7.05% 1.43 1.53 7.33% Adding
ACEA BIT:ACE 6.82% 12.55 12.92 2.94% Adding
Marimed MRMD 5.03% 0.75 0.36 -52.00% Selling
Vodacom VDMCY 5.17% 9.5 7.07 -25.58% Selling

Column Meanings
Allocation: Percentage of portfolio put into the company on a cost basis
Average Price per share: Average price per share I paid for a company.
Price Now: This is the latest price of the company per the date of the last update
Percentage Up/Down: Percentage change from the purchase price.
Exiting/Holding/Adding: This represents if I’m adding or exiting or holding a position.

New Additions Since Last Update

Aeroporto Guglielmo Marconi Di Bologna SpA(BIT:ADB)
Link to Thesis(Link)

ACEA SPA (BIT:ACE)
Link to Thesis(Link)

Nihon Falcom(TYO:3723)
Link to Thesis(Link)

Pacific Smiles Group(ASX:PSQ)
Link to Thesis(Link)

Subtractions Since Last Update

Trulieve (TRUL)
I brought Trulieve around April 2022 due to a merger arb between Harvest’s stock price and Trulieve. By the time the merger closed Trulieve’s stock price was crushed. I’ve held onto the stock ever since hoping for a legalization boost to sell my stock. There were a number of mistakes in this investment.

1. Thesis Creep
I originally brought it to take advantage of the Merger Arb spread. After the merger I kept holding it, hoping the stock would go back up. This was my first mistake
2. Valuation
Trulieve was trading at 6 times sales when purchased. This was a ridiculous number which even at the time I thought was too high. But I did it anyway cause of Merger Arb.
3. Stock Deal
The Merger of Harvest and Trulieve was an all-stock transaction. This made the merger arb too risky and so it should have been avoided.

At least I’m finally out.

AF Legal (ASX:AFL)
AF Legal was a promising investment with a large TAM and strong historical growth. AF Legal was profitable on an adjusted basis and that was probably my first mistake. At the time of my investment I had just finished reading Outsiders and in the chapter, with John Malone, I read that he had created the EBITDA metric and at the time this was ridiculed. This made me put my guard down when it came to AF Legal’s adjusted numbers which was probably a mistake. It was downhill from the time of my purchase.

Events After Purchase

  1. On Aug 28th 2022, AF Legal came out with its 2022 annual results. The results were well below targets. Management blamed Covid and the tight labor market. At the time I thought nothing of it because another one of the companies in my portfolio Pacific Smiles Group also had bad numbers due to Covid. 
  2. On Aug 31st 2022, Grant Dearlove the CEO sold a large chunk of stock. Almost a third of his total shares
  3. On Sept 25 2022, The company announced a buyback which I thought was encouraging since the share price had dropped considerably. I don’t think they have brought anything back yet.
  4. On Oct 18 2022, The company announced a large merger with GTC Legal Group with an implied EBITDA multiple of 3 which seemed good. This merger though was on the larger end of equal-sized companies rather than the tuck-ins in previous acquisitions.
  5. On Oct 31 2022, AF Legals CFO resigns
  6. On Nov 6th 2022, Grant Dearlove the CEO announced his retirement. He is to be replaced by Peter John, Founder and Investment Officer of Westferry Investment Group. Peter Johns Through his fund owns about 10% of the company. Westferry Investment Group’s largest position is AF Legal.
  7. On Nov 8th 2022, AF Legal announced a correction to their annual report. The correction was to correct salaries and fees given to management. Previously the company had underreported salaries and fees.
  8. On Nov 24th 2022, The merger with GTC group was canceled. Apparently, The merger was canceled not by AF Legal but by GTC. GTC Legal Group managing director James Stevens said “GTC was fully committed to progressing the transaction and were, until now, ready to complete what we had considered being a merger of equals. Unfortunately, our assessment in the light of the accuracy of certain disclosures made to us by AFL is that we now believe the best course of action for our shareholders is to exercise our right to terminate”. That doesn’t sound good.
  9. On Dec 1st 2022, Peter John acquired 150k shares

It looks like Peter John the mutual fund manager is trying to turn around his biggest position. I’ve been burned on a small cap before that was getting a turnaround by a hedge fund manager. The company was called Liberated Syndication which seems to now have been taken private through a weird not filing SEC thing. If you don’t trust the adjusted numbers (which I now don’t) the economics of the business were not that good to begin with and with all the drama with the company this year I just decided to get out. The main lesson here is not to trust adjusted numbers that management feeds you.

Watchlist

There were a number of companies that I looked at in the Quarter that I liked but did not invest in for a variety of reasons however I may add them to my portfolio or at least watch closely

Natural Grocers (NGVC)
The company has struggled this year as same store sales went negative and margins were hit due to inflation. Natural Grocers though is trading at under 10 times my FCF numbers for the company which makes it pretty cheap. Also inflation for food items is coming down if you look at the numbers and same store sales is still well above 2019 numbers. The one thing I’ve always not liked about the company is the fact it devouts so much store space to vitamins and supplements which I feel are easily disrupted through online shopping.

BVZ Holding AG (SWX:BVZN)
A swiss company that owns a rail line that sends mostly tourists into the mountains. Addtionally the company develops real estate along it’s rail line. The company has recovered from covid but trades at a .7 times book even though historically they have achieved a 10% ROE over the past 10 years. There is a decent amount of debt on the company though. However most of it matures over 5 years from now. The only thing holding me back is the overvalued swiss currency.

Delfi Ltd (SGX:P34)
A chocolate company in Southeast Asia. Delfi has struggled in the past decade due to the Indonesian economy and currency. Also Delfi reduce the number of sku’s which affected revenue growth over the past couple of years. I like the company a lot though but, a part of me feels that this is a bet on the Indonesian Rupiah as in USD the companies revenue is flat since 2014. So if the Rupiah does well Delfi does well and vice-versa.

IHS Holding Ltd (IHS)
A tower company focused mostly in Africa. The only thing holding me back here is IHS’s large Nigeria exposure which I already have due to my investment in Airtel Africa. In the future I may add the company despite this as I think IHS is a pretty good company.

Things to Work on Next Year

  • Portfolio Turnover
  • Thesis Creep
  • Taking less risk

Related Posts

Portfolio 9/01/22

Portfolio 9/01/22

Summary of my positions as of 09/01/22. Also with additions and subtractions since the last update in July.