The Uproar Fund End of 2014 Update (Plus, a New Stock Pick)

Oh hey, it’s the Financial Uproar fund of FUN. Are you all literally grinning like this guy right now?



Okay, maybe not.

When we last visited the Uproar Fund, the value of it had declined approximately 1%, on account of it only having three positions and being approximately 75% cash. That’s slowly changing, as you’ll see. I’m rapidly getting to the point where the fund only has 60% cash. It’s so exciting.

Let’s go through each holding individually, taking a closer look at each individually. The results are as of December 31st closing prices.


Purchase price: $6.295
Dividends received: $0.15

Current Price: $7.71
Result: +24.8%


Reitmans announced it was closing all of its Smart Set banner stores back in November, either shutting them completely or switching them over to another one of the company’s brands. Smart Set is a chain for younger women, and it consistently hasn’t done as well as the rest. People make fun of my Reitmans shares because the stores aren’t filled with cool clothes. They have no idea of how right they are.

The company also came out with earnings in December, which were good. Sales were up a bit (excluding closed stores), and so were gross margins. Earnings came in at $0.20 per share, compared to $0.09 last year. Not bad, considering that wasn’t even the holiday quarter. Plus, low gas prices obviously help. What’s a more discretionary item than women’s clothes?

Danier Leather

Purchase price: $9.11
Dividends received: N/A

Current price: $6.00
Result: -34.1%

Well, at least Reitmans went up.

Danier comes out with earnings in about three weeks, and if I don’t see some sort of improvement, I’m going to punt the stock from the fund.

I viewed it as sort of a slow motion take private transaction. They’d be a break-even (but cash flow positive) company for a few years, and then use the cash to buy back shares. Eventually the founding family would just take the company private, pissed off at the lack of respect the market was giving it.

Instead, the company has pissed away a good chunk of its cash by reporting some truly terrible results lately. I’m afraid that they’re going to be one of the victims of Canada’s retail crunch.


Purchase price: $3.1988
Dividends received: N/A

Current price: $3.50
Total gain: 9.4%

Ah, micro-cap MRRM. It went up from $3.00 to $3.50 one day on 100 shares of volume. Thank you, whoever did that. You are truly doing the Lord’s work.

There’s not much to say about the company that I haven’t before. Still waiting for it to pay out all the money it currently invests for some reason. If you strip away that cash, it’s stupid cheap. You’re paying something like 6x earnings ex-cash for a company trading at less than half of book value.

Penn West

Purchase price: $3.275
Dividends received: $0.07

Current price: $2.43
Total gain -23.6%

Penn West is the 2nd biggest holding in the fund. I purchased 1,000 shares at $4.10 in late November, and an additional 1,000 at $2.45 on the 31st of December. I got a $0.14 dividend for the first 1,000, hence why I counted it at $0.07.

Penn West will soar when oil recovers; It’s just a matter of it actually happening. Based on the value of the assets, it’s stupid cheap. Tangible book value is $11.11 per share, debt is a manageable issue (at least for now), and there are some pretty sharp dudes in charge. Insiders have bought something like 400,000 shares at the same time I was. These are all good things.

We just need oil to recover. Can you guys go bomb Iraq or something?


Stock Amount invested Amount now
RET.A $12,590 $15,720
DL $5,466 $3,600
MRRM $5,758 $6,300
PWT $6,550 $5,000


The total amount invested so far has been $30,364. The total amount of securities is 30,620, for a return of approximately 1% on the amount invested. Add in the almost 70% cash, and we’re basically looking at a flat quarter.

Kind of a meh verdict, but that’s okay. It’s still a mostly cash portfolio. I’ll be more apt to compare the results to the indexes when it’s fully invested.

Bonus! New Uproar Fund stock

This stock isn’t much of a surprise to those who follow the blog. It’s Hudson’s Bay Company. I won’t talk much about it, since I’ve already said a bunch of words about it.

I picked up 200 shares of the company at $22.99 on Tuesday afternoon during the carnage. I’m of the belief that the real estate alone is worth about $40 per share, and the retail business itself is worth about $20 per share. The target price is a little conservative based on the sum of the parts, but it pays to be conservative. I’m looking to sell at $50 per share, which is more than 100% above my purchase price.

Oil: It’s Getting Nasty (Plus A New Uproar Fund Stock)


Oil, in 1980s WWE form... These guys are probably dead.

Oil, in 1980s WWE form… These guys are probably dead.

Financial Uproar: where else can you get totally non-topical pictures of obscure 80s references?

In case your head is so far up your own ass that you haven’t been paying attention, the price of oil is getting crushed. After hitting a peak of nearly $110 per barrel in the summer, oil has been falling faster than my self esteem while watching the latest Channing Tatum movie. DAMN HIM AND THOSE PECS. As I type this, the price of a barrel of crude is flirting with $65. That’s bad, especially for a lot of marginal producers.

Naturally, your boy Nelly has been cruising the balance sheets of some of the worst offenders. And for the most part, here’s the deal — if oil stays low for 2-3 years, they’re all toast. Most have a cost somewhere in the $50-$70 range. Even if your cost is $60 and you’re selling oil for $65, that doesn’t leave much room to do stuff like pay a dividend, acquire new reserves, or even do a whole lot of expansion.

So oil companies are left with a couple choices. They can either be proactive and start cutting projects now (which I guarantee is happening behind closed doors), or they can say everything is hunky-dory and wait until the last possible minute, decimating their dividend. We’re not there yet, but look for it to happen at about the end of Q1, 2015. Those dividends will be more slashed than your tires after you cheated on your lady. Anything above about 4% now is at risk.

Every contrarian is asking themselves the same question — where are my keys? I swear to God, if one of you kids took them…

I mean, when’s the price of oil going to stabilize?

I don’t have the answer, but I think that a pretty huge contrarian indicator has just emerged. His name is Murray Edwards, and he’s the Chairman of Canadian Natural Resources, which was either first to name themselves or everyone else wasn’t on the ball. Here’s what Edwards had to say about oil:

“Prices could spike down to $30, $40. It got down to $35 in 2008, for a very short period of time.”

Now in ol’ Murr’s defense, he also said that oil wouldn’t stay at such low levels, just that it could hit it. He went on to say it would stabilize at $70 or $75 per barrel.

I think he’s onto something, other than the $30 ridiculousness. If oil touches $30 in 2014 (or 2015), you all can come back and laugh at me. I give Kim Kardashian a better chance of winning a Nobel prize.

Let’s take another quick look at Penn West, a stock I wrote about a few weeks back. If oil stabilized at $75, how bad would things be for it? The answer, not very.

There are a couple of reasons. First, the Canadian Dollar has declined compared to the Greenback. It’s gone from above par in 2010-13 to $0.88 now. That’s like a 10-15% boost in oil prices right there. Suddenly $75 oil becomes $82-$85 per barrel oil, at least compared to 2011.

And secondly, Penn West has turned into a much better producer. It’s sold off marginal assets, cut costs, and looks to be in pretty good shape — assuming oil recovers some. Debt isn’t really much of an issue until 2016, and that’s assuming it can’t find a buyer for any of its other assets that are on the market. It has some $1.6 billion worth of joint projects it signed with Asian producers back in 2010 that are next to go. Even in a less than ideal market, these still have value.

Because of all that, I took the plunge and did a little bottom fishing, buying 1,000 shares for the Uproar Fund on Friday at $4.10 per share. Penn West will represent about 4% of the portfolio going forward. Don’t be surprised if I buy a couple more energy names over the next few weeks going into Christmas, although they probably won’t be of the same risk/reward profile. There are some really interesting small-cap services companies.

The play on Penn West is simple. I’m betting oil has a modest recovery during the first part of 2015, and then settles at $70-$80 per barrel. The company can survive until prices go back up again, when it should hopefully be a huge winner. My sell target is at tangible book value, $11.11 per share.

A Quick End Of Quarter Update On The Uproar Fund

I’m running late today, on accounts of I had to spend some time in a giant metal tube. Flying discount carriers seems like a good idea at the time, until you, y’know, actually have to do it. But I digress.

Let’s talk a little about the Uproar Fund. During the 3rd quarter it added one position, Danier Leather, at $9.11 per share. It makes up approximately 5.5% of the fund.

Danier Leather

As of the time of this writing, the stock hasn’t done well, thanks to it releasing some pretty crummy earnings a couple weeks after I bought. The stock has kept falling, and currently sits at $8.00 per share. I’m down a little over 12% on that one.

Outlook: I still like Danier, and the company has shrunk to the point where it’s a net-net. Investors are paying $8 per share for just the company’s current assets (less liabilities), getting the rest of the business for free. Things look bleak now, but I’m still confident it’ll recover. I’m currently adding to my position outside of the Fund.


MRRM has also been a disappointing performer, falling down to $2.60 per share. I’m less concerned about the share price for that one compared to any of my other selections, since all it takes is a few hundred shares to pull the price down. If I remember right, it was 600 shares that pulled the price down from $2.90 to $2.60.

Outlook: Still patiently waiting for the business to recover and for management to pay out some of the almost $2 per share worth of long-term investments it keeps on the balance sheet for some reason. This stock isn’t for the faint of heart, it could take years for management to figure it out. But I think it could certainly be worth double what it is now in 3-5 years. Still, I’m down approximately 19% on the name. Not sure if I’ll buy more, just because I’m pretty happy with the size of position I have.


Finally, some good news.

Reitmans is the largest position of the fund, coming in at 12.2% of total assets. A couple of weeks ago it reported a rock solid quarter, beating estimates on the top and bottom lines. The stock popped nicely on the news.

These days, shares trade for $6.57. I also received a $0.05/share dividend, my second as a shareholder. I paid $6.295 per share, meaning I’m up 5.9% including dividends.


As of the market close on Monday, here’s how the Uproar Fund has performed.

Stock Buy Price Current Price (including dividends) % Gain or Loss
RET.A $6.295 $6.67 5.9%
MRRM $3.1988 $2.60 (18.7%)
DL $9.11 $8.00 (12.2%)

Let’s look at some dollar values, to put it in perspective.

Stock Amount Invested ($) Current Value (including divs)
RET.A $12,500 $13,340
DL $5,466 $4,800
MRRM $5,757 $4,680
Cash $76,277 $76,277
Total $100,000 $99.097

Since the beginning of the year (yeah, an imperfect measurement, but screw it), the TSX is up almost 10%, while my fund is not. But hey, I’m not discouraged.

Stay tuned in the future, I’ve got some more nano-cap stock fun. Value is starting to pop back up, and there are some interesting names showing up. In fact, I could even add to the fund. Soon too.

New Uproar Fund Stock: Danier Leather

Because apparently all I invest in is retailers, the newest stock in the Uproar Fund is Danier Leather (TSX:DL).

Danier Leather is Canada’s leading retailer of leather outerwear, accessories, handbags, etc. The company has 90 locations, split between malls and dedicated buildings it refers to as “power centers.” Approximately 2/3rds of revenue comes from shopping mall locations, while 1/3rd comes from power centers.

Unlike many companies in the clothing industry, the company owns all its own manufacturing facilities in China. This allows it to continue to supply high quality stuff, and control the quality of the merchandise in house. This is a big deal with you’re selling something high end like leather products.

It also means that the company has to invest in the factory every now and again. It did so in 2013, which led to some less than stellar earnings numbers. The company sees an opportunity in selling leather handbags for under $200, which is all part of its grander strategy — to increase sales of its accessory business from 25% of its revenue to 40-50% of total revenue. Accessories might not have quite the sticker price that coats do, the lower price tag seems to be working. Sales were up 5% in 2013, compared to a decrease of 6% in 2012 and 4% in 2011.

The balance sheet

Like just about every stock I buy, Danier Leather has a practically sexually arousing balance sheet. The company is sitting on $15 million in cash, compared to a market cap of just over $35 million. Total assets are over $68 million, with just a hair less than $12 million of total liabilities. The company doesn’t have any debt.

This gives it a book value of $14.35 per share. As I write this, shares are at $9.15. That puts shares at a 37% discount to book value. If you don’t get excited about that, you’re probably not a value investor. Go buy some Vanguard fund or something.

The income statement

I’m too lazy to look this up completely, but Benjamin Graham (you may have heard of him) argued for using something called “normalized earnings” when valuing beaten up companies. I think Graham suggested that you use the average of 10 years worth of earnings to figure out what the company earns in a typical year. I’m kinda lazy, so I go with five. Here’s Danier Leather’s last five years’ net earnings.

  • 2009 – ($0.37)
  • 2010 – $1.28
  • 2011 – $1.55
  • 2012 – $0.83
  • 2013 – $0.33

Average earnings over the last five years — $0.72

Right now, shares trade at about 12.5 times normalized earnings. You’re also getting a company that trades at less than 65 cents on the dollar. If the stock just recovers to book value, you’re looking at 50% upside.

The kicker

I’d look at buying Danier Leather just for those two reasons alone. At some point in the next few years (I’m thinking soon, if the accessories business takes off), the market figures out that shares are cheap, and some catalyst sends them forward.

But wait, Nelson the Shamwow guy says, THERE’S MORE.

Danier is aggressively buying back shares. Let’s look at average share counts over the last five years.

  • 2009 – 5.1 million
  • 2010 – 4.6 million
  • 2011 – 4.7 million
  • 2012 – 4.6 million
  • 2013 – 3.8 million

The company has eliminated about 25% of all shares outstanding over the last 5 years, and currently has pledged to buy back 145,000 shares in 2014. The reason why so many shares got repurchased in 2012 was because management did something called a “dutch auction,” where they asked shareholders to sell their shares back to the company at somewhere right around the 30-day average. Quite a few investors participated, as you can see.

Let’s assume that the company continues to buy back 145,000 shares a year over the next five years. You’d be looking at a share count of approximately 3.1 million, give or take a few. Both book value and earnings per share would increase by 20%, without doing a thing. Meaning, you’re buying a company that in five years has a potential book value of nearly $18 per share, and earnings potential of about 95 cents.

Or, to put it another way, you’re getting the equivalent of a 4% dividend, just in the form of buying back shares. Normally I’m pretty meh about share buybacks (since companies tend to do them when the market is high), but I’m quite okay with this one. Buying back shares at 63% of book value is a pretty good use of capital.

My position

As a reminder, The Uproar Fund is a $100,000 portfolio, which will end up being invested in 10-15 worthy companies. So far, Reitmans is approximately 12.6% of the fund, and MRRM is approximately 5.5% of the fund. Click on either of those two links to read the write-up on each company.

I purchased 600 shares of Danier Leather, for an average cost of $9.11 each. That gives the company a weighting of approximately 5.5% of the fund.

The current three positions make up just less than 24% of the total assets of the fund. The rest is held in cash.

Many pundits are calling for a market correction. I’m generally one of them, I think shares of a lot of different companies are a little frothy. But overall, I don’t care about the market. There isn’t a whole lot of value out there, but I’m finding some. As long as I can find it, I’ll continue to invest in it.

The Uproar Fund: Q2 Update

Hey, remember how I ragged on people for updating everyone on their goals, even though nobody cares? And yet it’s apparently somehow different when you start a vanity project like trying to beat the market even though nobody really cares about that? Well, let’s just say how I TOTALLY GET IT, YOU GUYS.

When we lasted visited the Uproar Fund, I was adding 800 more shares of MRRM (original write-up here), to bring my total investment in the company to about 5.5% of the Fund. A bit has happened in the meantime, and it’s not exactly positive.


Reader Andrew emailed me to tell me about the news, and then I never emailed him back, like a big jerk. Does this count as an email back? Anyway, he had some news about the company’s attempts to find someone to buy them out:

The third-party detailed assessment concluded that at this time, the cash flow and health of the business cannot support instituting a regular dividend, a share buy-back program, or a going private transaction.

This is one of the risks of investing in a company like MRRM. Management is sitting on more than a third of the company’s market cap in stocks and bonds. There’s no reason a publicly traded company should be doing that. Either use that money to pay down debt, invest it in new businesses, or give it to shareholders. Paying somebody to manage that money is just silly. And since the Chairman controls 60% of the company, there’s nothing shareholders can do. You’re more screwed than a guy nicknaming his girl bubbles.

I’m still positive on the company, even after this setback. I’m just not as positive as I was. I’m happy to hold my position, and I think that management does turn the thing around. This is the type of investment you tuck away and wait for a catalyst.

Original purchase price: $3.1988
Current price: $3.59
Gain/Loss: +12.23%


To review, I paid $6.295 per share for Reitmans, and it makes up 12.6% of the fund. How’s it been doing?

Actually, quite good. The stock was chugging along, hitting highs of nearly $7 before it came out with recent earnings. They were, in a word, craptacular. Is that only one word? Let’s go with it.

Shares immediately fell close to $1 each, before recovering slightly. These days, the share price is $6.02, which represents a small decline.

I still really like Reitmans, and I’d buy more if it wasn’t already 12.6% of the Fund. Management is rock solid, and they own a bunch of the company. Famed value investor Prem Watsa owns a bunch of shares too. Like MRRM, this is the kind of company you buy now, and tuck away for a year before checking it again. Short term events — like crappy earnings, which they blamed on the weather — will just drive you nuts. It’s really easy to punt a company like this because of stuff that won’t matter in five years.

The ladies tell me that the company’s stores are doing a better job filling the racks with clothes that are a little more hip, so I’m excited about that. Underperforming stores continue to get closed down, but there won’t be many of those left. Management knows what to do, it’s just that these types of turnarounds take time.

Purchase price: $6.295
Current price $6.02
Dividends received: $0.05
Total gain/loss: -3.57%

Watch list

There are several companies I’ve put on the watch list, which I’ll be profiling at a rate of about one a week for the foreseeable future. There are some interesting names, including a company looking to join the crude by rail party, a housing supplier, a newspaper, and a maker of canned goods. I’m about to vomit in excitement.