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The All In Portfolio was up 5.27% this week. Since inception the portfolio is up 111.93%.
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All In Portfolio
Currently the All In Portfolio is only invested in one idea. This idea is up over 40% since I wrote it up and is currently up 31% since I purchased the stock in the All In Portfolio. The position only equals $19,652 of the nearly $50,000 portfolio.
In hindsight, I wish I would have allocated the entire portfolio to this position. There were forced sellers. The stock was trading at a multi-decade low. A corporate turnaround strategy had begun. And insiders were buying up the stock in droves. The setup looked incredibly compelling.
However, I couldn’t quiet wrap my head around the business model. I never really looked at an insurance company before and there were significant risks that I couldn’t fully underwrite. But I loved the setup and decided to take a small starter position that had potential to generate significant alpha.
I sold my entire position in this stock in my main portfolio that I manage, to allocate to a new idea I wrote up to subscribers that experienced a significant selloff. At the current price I will probably start trimming the position in the All In Portfolio soon.
Sure, there could still be significant upside given the absolute low price-to-tangible-book valuation. But as I stated before, I am not fully comfortable underwriting this company and the recent price increase is tempting me to allocate somewhere else, in a company I have a better grasp on.
New Stock Ideas
Most of my time this past month has been looking at retail names to invest in. I killed it earlier this year on the retail and reopening trade. The market was implying that most retailers had a low if not negative terminal value due to the shockwaves of COVID. Today it is more of a supply chain issue.
Retailers have been selling off as investors believe the supply chain will impact sales and more importantly increase costs. I think this is directionally right, but pretty short sighted.
Costs will increase and sales will be impacted as getting the right amount of inventory will be tough. But this is not the end all be all. Remember, the retailers who have survived COVID cut costs in a massive way. Most of these costs are fixed (corporate and lease expenses) and will not be coming back.
Should sales return to a more normalized level (which was seen in Q2) there will be massive operating leverage. A few basis points of supply chain costs shouldn’t impact merchandise margins in a big way.
Finally, all of the retailers I have spoken to have cut all promotional activity. Inventory is valuable and the customer wants it. During a high demand, low inventory environment, there is no need to be promotional with your inventory. If you have it you will sell it. Merchandise margins should stay relatively strong through the back-half and maybe beyond.
I am currently invested in two retail names (here and here for Pro subscribers) and looking to potentially invest in another one. I am still underwriting the investment situation and trying to decided how much retail exposure I want in my portfolio.
If anyone who is reading this is an expert in retail I’d love to speak sometime. I have really just started looking at the sector during 2020 and have been fascinated with the opportunities. Most people on Wall Street say retail is dead due to the Amazon effect. I think they are dead wrong.
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