2017 Year in Review

December 30th, 2017

Details of Monthly returns may be viewed at https://www.hedgeco.net/funds/overview/9896. You will need to create a login in order to view the fund details and monthly returns.

2017 was another successful year for the fund. It followed a similar path as 2016. Performance peaked in September, reaching a year to date return of over 130%. Results fell in October and November, before rebounding slightly in December. We ended the year with returns of 85.6%. While this rate of return is very good (so far the best year since the fund’s inception), we did expect slightly more. While we could have possibly increased our returns by trading our positions, we continue to operate under a buy and hold strategy, which has worked well for us over the last decade. The fund has a CAGR of 32.91% over the last 9 years.

Our largest holding from 2016 continued to drive the majority of our returns. For 2018, we again believe that this holding will outperform and deliver out-sized returns. We anticipate adding to this position on weakness.

Leverage at the fund was considerably reduced in 2017 and we anticipate reducing our leverage to under 3% by early 2018. (As of this writing, leverage is 5%). This will greatly reduce our carrying costs and should not adversely impact our ability to generate gains. We may increase leverage if there is a market correction and we identify buying opportunities.

We will note that while some parts of the overall market are extremely overheated, we also see many companies trading at modest or even low valuations. We believe the a market correction is to be expected, and while it will affect all stocks to some degree, it should not have much impact on our holdings, which are neither momentum stocks or tech related.

Continued prosperity,

Mario Rizzi

 


A Thought on Bitcoin and Crypto-currencies

December 13th, 2017

I hear so many people talking about Bitcoin and all the offshoot crypto-currencies. It is a massive bubble. I won’t call the top, although I think it is close. What people don’t realize is that everything seems like a great investment while it goes up. It’s only when it goes down, do people start to really examine what they actually bought.
 

There is no way to evaluate a crypto-currency. People are hoarding the coins, so it is not a real currency. It is a speculative investment, which they want to gain value and then sell to somebody else for a profit. We all heard about the guy who bought a pizza for like 1000 bitcoin a few years ago. He is resoundingly thought of as an idiot, for having spent those coins. But if it’s a currency then don’t you want people to spend it on transactions? It’s not a currency, because anybody who has it does not want to spend it. They might want to hoard it or sell it in the future for profit or use it to transfer money, but nobody would buy stuff with it unless they thought it would go down in value.

 

In any case, it provides no dividends and has no earnings (other than the appreciation, but this is not earnings). It has no history and if it’s so rare, then why do we have thousands of these different coins, all going up at the same time?

 

When it starts to fall, people will start to ask these questions.. They will start to wonder where the value is. There will be ups and downs, but once the confidence is lost, it will be a downward path, just as fast as it went up (or faster).

 

Another thing to note is that let’s say you bought 1 bitcoin at $500. You got lucky and held until now, and it is worth $16 000. You made 32 times your money. Great. If you want to sell that coin, you now have to find somebody with $16 000 who wants to buy it. And nothing has fundamentally changed with the original coin. It’s the same exact thing that you bought for $500. And now you need to find somebody willing to give you 32 times the capital in order to get your money out. It would be safe to assume that this will be considerably harder to do (32 times harder???) than when you bought the coin. And if there are many people looking to cash out, all with a low cost basis, and fewer people looking to buy in in those high prices, then the value drops, super fast. The sellers will come out and just hit all the bids until it goes to their cost basis. This will happen once confidence is lost. And confidence will be lost fast, once it starts.

 

In my opinion, this will be a mess of epic, once in a lifetime proportions. We might never see this calamity again.

 

One idea might be to short or buy put options on Nvidia Corp, which has been shooting up because it makes the graphics cards for the miners. I have not done this, but am considering buying 1 put option, just to say that I got in on the fall.

 

I’m pretty sure I will be correct about this.

 

Just wanted to share my thoughts,

 

Mario Rizzi

 

December 13, 2017

2016 Year in Review

January 1st, 2017

Details of Monthly returns may be viewed at https://www.hedgeco.net/funds/overview/9896. You will need to create a login in order to view the fund details and monthly returns.

2016 was a very good year for us. It could have and should have been a lot better, but we will gladly take a 44% return without complaining.

Generally we like to execute very few trades within any given year. We tend to position ourselves carefully, in high prospect stocks and then wait out minor turbulence, waiting for the highest returns over an extended time period. This past year was no different, however, it was a year of positioning, rather than waiting. We moved out of some long term holdings, realizing some sizable gains, and took large positions in 2 new companies. We feel that both these companies show a strong probability of outsizes gains. They have very strong management teams and good track records, however they have recently come under pressure due to “black swan” events. We have already seen strong returns from one of these companies in 2016, as their turnaround progresses. The other company might take a bit longer to show results, but we are confident that it will show good returns in 2017 and going forward.

Overall, in 2016, our fund experienced very strong results within the first 6 months of over 44%. By the end of September 2016 the fund was up over 80%. These gains were reduced in October and December caused by a fall in share price of our top holding. Although the holding ended the year well off its highs, it was still up almost 50% since we purchased it. We feel that in 2017 this holding has a strong chance of increasing further. It remains and will continue to remain our core holding in 2017 and we will add to our position if it should fall more.

Rizzi Capital is a small fund, but it continues to be one of the best performing funds in Canada and among the top in North America. It has offered consistent, positive returns over the last 8 years, and has beaten all North American markets significantly. We feel that an increase in our capital base would help us continue to outperform and perhaps even increase our returns. We will consider all opportunities to work with new individual and institutional investors in 2017.

Continued prosperity,
Mario Rizzi


Updates from 2014 and Outlook for 2015

March 1st, 2015

The Rizzi Capital portfolio delivered returns for 2014 of 25.3% This was just under our historical CAGR of 28.3%. All details concerning the yearly returns of the portfolio, including a month by month breakdown as well as dozens of portfolio ratios, average drawdowns and other details can be found at HedgeCo.net (You will need to sign up, for free, to HedgeCo.net in order to view all the data)

In 2014 the portfolio benefited strongly when it’s largest holding, Bell Aliant, was taken over by BCE. We had predicted that this would happen in 2014 and we actually even accurately predicted the takeover price. It’s another example of how careful research and good positioning can lead to over sized profits. More details concerning our predictions on this takeover can be seen here.

The majority of the portfolio is concentrated in 5 companies. We remain focused on Canadian companies which deliver stable growth and throw off a heavy dividend.

Although we do not actively purchase American based companies, we do follow the US market and enjoy making market calls on particular stocks, when clear dislocations are visible. We outlined some of these predictions on our SeekingAlpha page and, below,we will give a rough summary of how those predictions performed in 2014.

 

Accurate Predictions in 2014:

NETFLIX: It’s been a darling stock performer for the last decade, increasing in value by over 4000%. In January 2014 we saw trouble. We predicted that growth would stagnate and it was finally time to sell the stock. We were absolutely right. Netflix was a roller coaster in 2014 and in the end it was dead money.

INTEL: Intel had been a stagnant stock for the better part of 14 years, moving in a tight range and never gaining any traction. In March 2014 we called the bottom, almost to the day, and knew it was time to buy. The stock has been on a upward trajectory ever since. It was up over 30%, not including the dividends.

GOOG: Google has been a powerhouse since it went public, but we knew that the uptrend was getting long in the tooth. In January 2014 we advocated selling the stock. We were right again. Google stock shed over 6% in 2014

HP and MSFT: We predicted that both companies would have a good year. And they absolutely did, rising by 40% and 25% respectively in 2014.

IBM: Despite years of relentless stock price appreciation, we predicted that 2014 would be a very tough year for IBM. And it absolutely was. The stock dropped by almost 9% after our prediction. The fundamentals were clear in this case, but our prediction was definitely against the grain. We received a lot of negative feedback from readers after we made this call, but, in the end, we were right, and they were wrong.

 

As mentioned earlier, we did not have a position in any of the above mentioned companies. We are firm believers in investing in Canadian companies. Nevertheless, we understand the allure of American stocks and enjoy analyzing these companies and predicting future growth prospects. We use the same methodology when making investments in Canadian companies, and so far we have been richly rewarded.

 

2015

We see trouble in the Canadian economy, but we remain almost fully invested. Our companies have proven to be adept at driving shareholder value regardless of the general economy and also deliver strong dividends, which we re-invest as much as possible. Furthermore, we have some large positions in companies which we believe to be clear takeover targets. should a takeover occur at any of these companies, it will have a significant, positive impact on our overall portfolio returns.

Although we anticipate delivering a portfolio return for 2015 which might be smaller than in 2014, we still are confident in delivering positive growth and beating the performance of the TSX average once again.