Investment Activity Review-February 2013

Only a couple of trades were made in February, one buy and two sells.

Sold Tiffany (TIF) for 15.8% Gain
I decided to bank the profits on Tiffany even though I still like both extremes sides of the retail spectrum (discount and luxury). It was interesting that the company reported in December 2012 and warned that this year was going to be challenging especially in Europe and Asia. It was at this point I bought in at $58. The market and Soothsayers were particularly negative on the stock and frankly any stock as the Fiscal Cliff worries were dangling over the economy and the stock market. I believed and still do that Tiffany is still one of the true iconic luxury brands in the world and I still maintain the belief that the high net worth segment, especially those with newly discovered wealth in emerging markets will continue to scoop up exclusive, high-end brands such as Tiffany. I sold the stock as I thought the stock was going up too fast and decided to bank it. This marks the third time, I’ve turned over Tiffany for a nice double-digit profit and I won’t hesitate to pick it up again should it take another dip back.

Added to Apple position
Despite the continued piling on by the people who once couldn’t say anything bad about the company, I decided to continue averaging down my position and bought a whopping 2 more shares of AAPL! I’m now up to 8 shares, so you’ll be hearing more from me at the next shareholders meeting ;) If you can take a moment to pull away from the analyst and technology “expert” comments that are essentially pronouncing the company as bankrupt, it’s pretty hard to still ignore the fact the company sold 42 MILLION phones last quarter (how many did RIM sell?), saw sales in China go up 60 percent (yes those high margin phones the analysts are saying won’t sell in developing countries. They still have an impeccably clean balance sheet with no debt and $137 BILLION in cash. I still think they make the best, easy to use products (disclosure: I own an iPhone, iPad, AppleTV, Time Capsule, and a MacBook Pro and they’re all great) that integrate seamlessly into a variety of media. They just work. Alas the smart people who analyze companies don’t think it’s good enough. Short of pulling a Thomas Edison and inventing a life/societal altering product, it’s just not good enough. I’ve always thought the stock was priced for perfection so any nugget of bad news was going to hit the stock, however when you look at their performance, it’s just insane. Their Return on Capital levels are still incredibly strong. They continue to generate incredible Economic Profit. Not good enough. So the sentiment for a profitable company has gone negative. Our core driver is to buy great, well run companies that create tangible wealth and are selling at a discount, which often means out-of-favour. Samsung is the “Itâ€� product now. Someone has to show me it can integrate just as well as Apple’s ecosystem. In addition, if Apple is facing a world with lower demand for high end products, isn’t Samsung facing the same thing and won’t they be hit as well? As I’ve pondered all this, I’ve also tried to check in with my emotions to see if I’m letting my love of using their products distorting my view of the stock? It can be very easy to get into that trap. I’m down 16 percent since opening my position and so I will be looking to put a stop loss at the 20 percent. I’m also still would consider adding to the position to lower the costs.

Removed US$ Hedge Position
In the past several years a good chunk of my investments have been in US stocks. Why not with the Loonie at parity or better, it’s been a golden time to do some cross-border shopping and buy some great, global, brands at par. The flip side of buying foreign stocks is the element of currency risk. I took the decision of hedging ½ of my US$ positions. The reason being that if the US$ were to fall, the value of these US investments will fall. There are a lot of commentators that say you shouldn’t worry about currency fluctuations when you make decisions and that is true if you are buying a stock that you plan to hold for 20 years or some crazy long duration. If you are buying stocks for at 1 year, you can be susceptible to fluctuations that can really eat into your returns. Plus nothing stinks more than doing a lot of analysis to find great investment opportunities that result in the stock going up, but then losing the return on the account of some externality. Many will disagree on this, but I just don’t like losing a lot money if I make a decision that pans out. My logic in hedging has also stemmed on a long term thesis that the US$ will trend lower on the combination of increased government debt levels along with Central Bank that is clearly on a mission to devalue the US$ through its Quantitative Easing program. These elements logically in my mind should result in the US$ falling. The problem is the US doesn’t live in a bubble. The world is in the midst of a mass devaluing of fiat money in Europe and in Japan. The result being the US is still being deemed a safe haven with investors gobbling up Treasuries by the bucket load. The US$ has remained quite steady and even trended up. Even the Fiscal Cliff drama and Sequestering debates have not made any dents in the Greenback. Gold which should be surging has also languished. Logic and basic economic theory tells us the US$ should be falling but it isn’t and doesn’t show any sign of it. I made the decision that there’s no point in continuing to hedge. I really haven’t made any money off it. That was not the intentionI have been better able to control some of the currency erosion.