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**************************************************************************************************************** Forty percent of our LSGI Fund portfolio was included in the Fortune Small Business 100 list featuring 100 of the fastest growing public firms in the U.S. We publish a study on the impact of monetary policy on the performance of small cap stocks - a topic of both academic and practical interest to our investors: MTU white paper
We were interviewed on the impact of possible Gulf of Mexico hurricanes on energy prices. We think the impact of any hurricane could last for months—but the odds are only one in three a storm will impact production: article
Who would guess that oil and gas leases would be auctioned on e-Bay? We discuss the issue with Platts: article
We presented our research on the state of the energy markets to the 2008 SMU Institutional Oil & Gas conference last week. Our conclusion? The energy boom has just started: SMU white paper
Meanwhile developments in the energy markets remain positive for investors according to a recent report we prepared for our investors: Market Oracle
The Fortune Small Business 100 list was published in the July 7th issue—featuring 100 of the fastest growing public firms in the U.S. We own nine of these firms in our portfolio: (LSGI investors only) And we discuss one of our favorite plays in the Fortune Small Business article: FSB 100: A Farm Equipment Maker Goes Far Afield ************************************* July 1st marks the 9th anniversary of the LSGI Venture Fund L.P. Since the structure of our investment portfolio is essentially identical to the investment partnerships Warren Buffett and Charlie Munger ran in the 1950’s and 1960’s an interesting academic question arises:
Using the Capital Asset Pricing Model (CAPM) to review the returns for the first nine years of each partnership portfolio which active manager has generated more ‘alpha’ (excess returns over and above that expected by the market) in the first nine years of running their partnership—(1) Warren Buffett and the Buffett Partnerships? (2) Charlie Munger and the Munger Partnership, or (3) LSGI and the LSGI Venture Partnership?
The answer may surprise.
One year ago we published an article in Barron’s entitled “The Energy Boom Is Just Starting”. Crude oil futures prices were trading at $68 a barrel and natural gas prices were at $8.10 per thousand cubic feet. As we noted in the article global crude oil production gains have not kept pace with the growth in demand the last few years. Natural gas demand also continues to rocket upward. Hence the elevated prices. We expect the trends in supply and demand, and pricing, to continue. ************************************* Gasoline prices may not decline much this summer as we discuss the energy sector with financial journalists at the Chicago Tribune— long term global trends in the energy markets will challenge consumers and investors going forward.
Donald Coxe talks about the ongoing boom in grain prices and the agricultural sector: BNN interview (video clip). And we discuss panic buying, food riots, and export controls in our latest report to our investors.
Historical statistics indicate that active portfolio managers have difficulty beating the major market indexes—adding ‘alpha’ or excess returns—for their investors. That being the case, how did Charles Munger and Warren Buffett generate excess returns when they managed their investment limited partnerships early in their career? And how did the 75 year old daughter of one of Buffett’s best known finance professors give away over $100 million to the high school she attended years ago? We address these issues, and more, in a white paper presented to applied finance students at Michigan Technological University - Excess returns: Can active managers generate ‘alpha’?
We were the featured dinner speaker at the 2008 SMU Oil & Gas Investing Institutional Conference—last year we toured a Quicksilver Resources Barnett shale well in Fort Worth: KWK well tour - Dallas/Fort Worth Area
We were interviewed last week by the BBC on the agricultural sector: radio (in the first 5 minutes of the 90 minute program).
Investment banker Matthew Simmons notes the 21st century energy crisis has arrived in a recent presentation. And Simmons claims corrosion in pipelines and operating facilities onshore—and in steel structures offshore in the corrosive Gulf of Mexico—are raising safety and production sustainability issues.
For the third time in eight years the Michigan Tech Applied Portfolio Management team won the national championship in the value category in the University of Dayton investment symposium—and we award our 2008 LSGI scholarship to a MTU finance student.
We issue several LSGI reports last month to our investors: (1) agriculture firms should continue to do well as grain prices skyrocket, (2) the energy sector remains attractive for investors, (3) return persistence impacts portfolio returns in a surprisingly powerful manner, and (4) the long term weather forecast calls for a hot summer in North America—a real positive for our portfolio.
Matthew Simmons addresses the question of whether we are reaching the peak of fossil fuel production, and the implications for society and investors.
Will a drought in the Midwest impact corn prices—and biofuel production? We discuss this issue with EnergyTechStocks.com.
Our research on energy sector trends paint a very alarming picture, while the push toward biofuels and global demand trends could create food shortages that last for decades. Both trends are alarming in their nature and scope, and could present opportunities for our investors. As noted in the last LSGI Report to our investors, the LSGI portfolio grades an “A” overall using Louis Navelliers’ criteria and rating website.
‘The agricultural sector remains attractive as our research is referenced in a recent article, and we identify our “Best Idea for 2008” in the Dick Davis Digest.
We issue our projections—the three major market influencing events we expect in 2008, and discuss panic buying in the grain markets, all detailed with our portfolio in our monthly report to LSGI investors.
MSN Money interviews us for our best low cost investment idea: 5 Stocks at Big Mac Prices—and we discuss the outlook for the market in 2008 in a recent column: It Was a Very Good Year.
According to Ned Davis Research if an individual invested $1,000 in the S&P 500 index from November 1st to April 30th — the ‘winter season’ — every year from 1950 to 2006 their account would now be worth $38,799 before tax considerations. If, over the same 56 year period, an investor had invested the $1,000 in the S&P 500 index from May 1st to October 31st — the ‘summer season’ — they would have $916. During that 56 year period an investor using this seasonality strategy would have lost money. We examine the seasonality factor over a much shorter period than Ned Davis—the last eight years—to see if the excess returns have been arbitraged away in recent years or is still present to a degree that can be exploited by investors. The results of our study can be described as stunning: Seasonality study
*********************************** Volatility is a measure of risk according to modern portfolio theory, an interesting fact since we invest in what has been one of the most volatile sectors of the market historically (the stocks of small companies). Next month we will examine volatility, risk, return, and holding periods—and how these factors fit into our long term investment strategy.
The academic question we address in our July report is whether active portfolio managers can add value—or if passive investment in an index fund is a preferable investment strategy. To assist in reaching a conclusion on this issue we utilize the Capital Asset Pricing Model (CAPM) and other measures to review the performance of the Warren Buffett partnerships, the Charlie Munger partnership, and the LSGI partnership during the first eight years of operation of each. Although market data indicates most active portfolio managers add little if any excess value to a portfolio’s return, we find in some instances active managers generate substantial excess returns—and we attempt to explain why.
In the April 23rd issue of Barron’s we noted that “Global demand and supply issues should push crude oil prices well above $70 a barrel by the Fourth of July. Expect fireworks in the energy sector this summer, with a potentially explosive move to the upside” At the time oil was selling at $62 a barrel more or less. It is the Fourth of July - and crude futures are at $71.41 per barrel.
Admiral Rickover, the father of the nuclear powered Navy, discusses challenges of the Fossil Fuel Age—how energy powers our society and economy — in remarkable a presentation made in 1957.
The success of our quantitative stock selection methodology in finding small, young companies with growth potential, is mentioned in the Dallas Morning News Sunday Business Section. To use an analogy we are looking for a ’Michael Jordan in grade school’. We also establish a ‘Barron’s Challenge’ scholarship for a senior finance student in the Applied Portfolio Management Program at Michigan Tech next year.
We placed second in the Professor category of the 2006 Barron’s market challenge using our LSGI screens and research—outperforming the S&P 500 index by 78.5% in a six month period. In the 2007 contest just ended we also placed second and sixth overall—out of 1,976 portfolios, outperforming the S&P 500 index by 29.0%. For our efforts we were mentioned in an article in the Barron’s April 23rd issue. We are in the top 1% of portfolios performance wise both years —managing an active portfolio that mirrored the LSGI Fund portfolio. The odds of this happening by chance are similar to the odds of being stuck by lightning.
What makes someone as successful as Warren Buffett? A new study examines some characteristics of very talented individuals in a number of fields. What common characteristics do they share?
Can active portfolio managers beat the market? We present a white paper on this issue to finance students at Michigan Technological University—in spite of evidence otherwise, our thesis is that modern tools should allow an investor to generate substantial excess returns in an actively managed equity portfolio.
In theory our research should identify firms that have a high probability of outperforming the market—and using our LSGI research to construct a portfolio of attractive firms we placed second in the Professor category in the recent Barron’s Challenge.
We award scholarships to Michigan Tech finance students and initiate a work/study program for students at Upper Michigan’s Finlandia University starting next fall—and we become a supporter of Division I NCAA college hockey next season.
SMU Oil & Gas Environmental Law students can access the textbook at this link: SMU Spring 2007.
The “Kelly Formula” has been used successfully to allocate capital in the markets according to some academics. We review a new book on the issue—a mathematical system utilized for portfolio management—entitled Fortune’s Formula. ************************************ In a CBS MarketWatch interview we predict healthy gains one of the world's most volatile commodities—natural gas, while Wall $treet Week with Fortune magazine interviews us on our small-cap investment ideas. ************************************ Can the individual investor substantially outperform the major market indexes and the major public mutual funds? Applied financial theory predicts that they can - and historical market data supports this claim. We presented an outline last spring to recent finance graduates of Michigan Technological University's School of Business & Economics on how they can outperform the market—and maybe become the next Warren Buffett! ************************************ Can individual investors beat the market? A recent Federal Reserve System study using “extreme bounds” methodology normally reserved for examining complex economic systems examined 37 years of market data and found that a few factors were “robust” – statistically significant – indicators of above average stock market returns. Buying stocks with these characteristics should outperform the market – and are factors we utilize managing the LSGI portfolio. ************************************ Some of the best investments available in today’s lackluster markets exist among companies whose names you’ve likely never heard of. Micro-caps are an asset class that gets so little attention the experts can’t even agree on its definition, but there’s one point they all agree on: There are diamonds to be found in this very rocky region. We are interviewed by BuySide magazine on how investors can obtain a systematically exploitable advantage in this sector—and obtain excess returns. ************************************ We sponsor the Michigan Technological University School of Business & Economics Applied Portfolio Management (APMP) students in their annual quest to be named the best student money managers in the nation. The MTU students manage around a million dollars of their college’s endowment. ************************************ Long term investing still can be rewarding. Living quiet, unpretentious lives Mr. and Mrs. Othmer - a professor of chemical engineering and a former teacher - died a few years ago in their nineties. When the Othmer's died, friends were shocked to learn that their estate was worth $800 million! The Othmer story is not unique. They had one secret: they were early investors with Warren Buffett. ************************************ *****
LSGI Advisors, Inc. 1007 Beaver Creek Drive, Suite 105 Duncanville, Texas 75137 (972)-780-1805
Email contact: jdancy@lsgifund.com
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Educational Materials for the Investor Published online since 1994
Michigan Tech Applied Finance Center
* Please note:
The chart for the LSGI ‘model’ portfolio (‘LSGI portfolio’) represents estimated returns on a hypothetical investment made on April 1, 2001. LSGI portfolio gross returns represent performance after payment of the 1% annual administration fee and all related Fund costs and expenses, including accounting and legal expense, but does not reflect annual performance incentive fees. Net returns reflect returns to the investor after all fees, costs and expenses, including annual incentive fees. Returns of the LSGI portfolio will vary with market conditions, and past performance does not reflect potential future performance. The objective of the portfolio is aggressive growth. Data contained in this report is derived from sources believed to be reliable but we can make no guarantee as to the accuracy or completeness. The data contained herein has not been audited. The LSGI portfolio was established on July 1, 1999
Also please note that (1) past portfolio performance may not be predictive of future performance, (2) the LSGI portfolio exhibits above average volatility and therefore could be considered riskier than the major market indexes and more diversified portfolios, (3) the indexes and other portfolios we use to compare the LSGI Fund portfolio performance above are not similar in nature to our Fund since most of these portfolios contain larger capitalization firms and have many more positions in their portfolio, (4) the performance of the LSGI portfolio might be explained by certain sectors in which we are over-weighted (energy), and over-weight positions we have in certain companies, and (5) with our investment objective of aggressive growth investors could lose a substantial part or all of their investment.. LSGI Advisors Inc. may have positions in, and may from time to time buy or sell, securities mentioned herein without prior notice to investors or subscribers. |
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LSGI Portfolio Updates & Commentary: (LSGI investors only) - Week of June 30th |
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