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**************************************************************************************************************** We will be the featured dinner speaker at the 2008 SMU Oil & Gas Investing Institutional Conference—and will discuss investing in the energy sector, the outlook, and the potential - June 10th and 11th, in Dallas: conference info. 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). And we welcome one new investor to the LSGI Fund this month.
Investment banker Matthew Simmons notes the 21st century energy crisis has arrived: presentation
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 this 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.
We presented a white paper on investment theory to finance students at Michigan Tech in mid-April—and explained why Warren Buffett and Charles Munger were so successful as active portfolio managers when they ran investment partnerships.
The FSN network interviews us on our outlook for the energy sector (4/5/08 first hour): interview
Matthew Simmons discusses investment implications of a world of where oil supplies are not growing as fast as they have historically.
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.
Investment banker Matthew Simmons discusses “The Risk of Peak Oil” - while Bidwell Agribusiness issues a new report claiming the agriculture sector is at the beginning of a structural change that will drive grain prices much higher, and last much longer, then most expect. Not a cyclical trend, a structural change in demand and supply—which could present opportunities for long term investors: Bidwell Report
‘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 published last week. Mr. Davis discusses investment trends and his new book in a recent interview.
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.
We are entering what has historically been the best season to be invested in the stock market. 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.
We tour an unconventional natural gas well in the Dallas/Fort Worth operated by Quicksilver Resources (KWK) - the best performing stock in our LSGI portfolio—and narrate a summary of the rig visit: KWK well tour - Dallas/Fort Worth Area
Energy Investment Banker Matthew Simmons discusses the outlook for the energy sector in a recent presentation—and long-time energy consultant Henry Groppe discusses price and production trends.
The biofuel boom has created opportunities in the agricultural sector in our opinion—and we discuss the outlook for crude oil and natural gas production.
We made a presentation to investors on the outlook for the energy sector last week. The outline of our presentation, made at the Park City Club in Dallas, is at the following link: presentation
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.
July 1st marks the 8th anniversary of the LSGI Venture Fund L.P. We have grown from one investor and a $100,000 portfolio eight years ago to 68 investors and a Fund portfolio valued at roughly $11 million. We now have investors in 18 states. Over those eight years we have been mentioned in the Wall Street Journal, Barron’s, Wall $treet Week with Fortune, The Dallas Morning News, Bloomberg, MarketWatch, and dozens of investment websites. We are grateful to our investors and to all who have assisted us as we have built our performance record.
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.
SMU’s Executive Education Department presented a conference on ‘Oil & Gas Investing: An Institutional Perspective’ in Dallas last week. We served as moderator and host. The dozen expert speakers left us with quite a bullish impression—a bullish take on the sector we have not seen in two decades—and one that raises the question of whether we are at the start of an investment mania in the energy sector.
As program moderator we summarize our impressions of the two day SMU program and discuss the investment implications for our limited partners (audio recorded 6/22/07 (12 minute commentary by SMU Adjunct Energy Law Professor Joseph Dancy)).
The SMU conference included a tour of a Quicksilver Resources (KWK) Barnett shale well being drilled in the Dallas/Fort Worth city limits (KWK is one of the best performing companies in the LSGI portfolio ever—a ‘10 bagger’—and in our opinion still grossly undervalued): picture tour of the KWK wellsite (pictures taken 6/20/07). KWK remains a buy in our book.
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.
Matthew Simmons discusses recent production declines in major oil fields—$300 a barrel oil, and potential impacts on the economy.
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?
The LSGI portfolio was seven years old as of July 1, 2006. Since the structure of our investment portfolio is essentially identical to the investment partnerships Warren Buffett ran in the 1950’s and 1960’s an interesting question arises:
Using the Capital Asset Pricing Model (CAPM) to review the returns for the first seven 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 seven years of running their partnership—(1) Warren Buffett and the Buffett Partnerships? or (2) LSGI Advisors and the LSGI portfolio?
Market researcher and author James O’Shaughnessy explains why small company stocks tend to outperform—and why he thinks small companies will continue to outperform larger capitalization stocks and index funds for the next decade — audio interview. His study supports our investment strategy and our small firm focus.
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.
The MTU students opened the NASDAQ on April 15, 2002, after placing first at the University of Dayton symposium in 2002. They placed third in 2003, and participated live on CNBC’s “Power Lunch” program! ************************************ We endowed the Commercial Law Fund at Oklahoma City University (OCU) School of Law - to assist the University with their educational programs related to investing, corporate governance, finance, banking, and related issues. The University and the Conference on Consumer Finance Law present programs on these issues. Oklahoma City University School of Law named us Distinguished Alumni in 1996. ************************************ 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
SMU Energy Law Center Michigan Tech Applied Finance Center CES Market Resource 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 May 12th |
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