McClure Investment Management, LLC: 2013 4th Q Market Commentary

Happy New Year?

McClure Investment Management, LLC

2013 4th Q Market Commentary

February 7, 2014

After an exuberant 2013 that saw prices surge 29%, January was a letdown with prices falling 5.7% as of Monday.  But, by today’s close, after some reasonably strong jobs data (unemployment ↓, labor force participation ↑), the S&P 500 had trimmed its’ loss to 4% for the year.

Graph 1

Ugly?  Sure.  But we’ve seen much worse.


Janet Yellen took over as Chair of the Federal Reserve on Monday and the DJIA welcomed her with a 326 point sell off.  We hope her stated objective of stabilizing interest rates while reducing (tapering) the Fed’s monthly stimulus from $85 billion down to $65 billion is successful.  Otherwise, there could be more trouble ahead.


Welcome to the Family

We have been slowly adding a position in Chesapeake Energy (CHK), an Oklahoma City based natural gas and oil company until a sharp pullback yesterday (7%) helped us pick up the pace.  The “bad” news was the CHK had formally decided to reduce its acquisitions (Cap Ex) in 2014 in order to proceed with a plan to reduce overall debt, i.e. they will now only spend what they earn.  CHK has great assets but has more debt than I would like and this plan combined with strong management makes for a compelling story.

Other Companies

Banks continue to be greatly undervalued.  As Europe continues its slow march toward financial stability, Citigroup stands to benefit more than any major US bank.  Citigroup has grown into our largest holding, barely edging out Berkshire Hathaway, and we’re looking forward to strong relative performance from both this year.

Of the stocks we hold at present, Cisco is the most undervalued.  While it hasn’t done much in the last several years, they are sitting on $48.2 billion in cash (with only $16 billion in total debt).  The downside to this company is extremely low at a current P/E of 11.7.  We’ll continue to patiently hold this one while collecting a 3.1% dividend.

Costco continues to do just about everything well.  This is a company that should do relatively well in any market.  We’ll be holding onto this one for the foreseeable future.

After a couple years of uphill struggle, New York Times has started to reward our patience.  Trading at a P/E of 12.9 and with a much lighter debt load, the future looks bright.  Our thesis that people will still pay for high quality writing and investigative journalism seems to be holding up.  My only concern is CNBC loudmouth Jim Cramer seems to agree with me on this one.  At least for today.

After solid gains in early 2013, MeadWestvaco’s margins may be coming under pressure.  I’m keeping that one on a short leash.

Other Stuff

Bitcoin has certainly grabbed its share of headlines in the last few months. Designed by an anonymous person to facilitate “peer-to-peer” transaction (person to person), Bitcoin is essentially untraceable and is not sponsored or supported by any government.  This, of course, makes it a favorite of drug dealers and other peddlers of illegal contraband.  While rumors of a Tesla being paid for with Bitcoins proved to be false, you can buy lemonade from two cute San Francisco girls with your Bitcoins.  But get your lemonade soon because Bitcoin’s largest exchange was shut down today.

The Sochi Olympics start today.  My favorite event is the Biathlon where cross country skiing is combined with target shooting.  I say throw in a two drink minimum for the competitors and you’ve got a sport that would rival the NFL for popularity.  The Norwegians tend to dominate the biathlon and I’ve heard it said that’s because they don’t have cars or police in Norway. I’m fairly certain that’s not true but I’ll be watching anyway.

And, Finally…

In November, after a few false starts, we began integrating transactional data going back to 12-31-2002 into the portfolio management software we adopted in late 2012.  I’m proud to say that mammoth undertaking is finished.  The two main takeaways are:

  1. Our stocks beat the S&P 500 by about 2% compounded annually for the last 11 years.  That adds up to a 24.3% excess return for clients who have been onboard that long.
  2. Most importantly, our clients actually realized our returns.  As we discussed at our client luncheon in May, mutual funds and hedge funds tend to attract new investors at market peaks and lose them in falling markets. (This is, in effect, buying high and selling low.)Graph 2

So while a fund may have a good track record, the investors in that fund may fare much worse.  (Note: The above is for illustrative purposes only.  Past performance is no guarantee of future results.  Are you listening, Seahawks?)  Our clients, however, exercising a great degree of patience (and/or apathy) have stayed put, not panicking at the lows (We’re talking to you, March 2009) or getting irrationally exuberant at the highs (October 2007) and have consequently reaped the rewards.

With the huge data integration project finished, I should have more time to provide more frequent (and shorter) market updated and comments.

As always, I thank you for you continued trust and patience in us and our investment process.

Best regards,


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