The model portfolio is composed of international investments and is priced in US dollars. All foreign currency holdings are converted to US dollars, based upon closing currency valuations as of 12/31/11. Views are solely that of the author, and will differ materially from conventional analysts as well as the investing public at large. The purpose of the model portfolio is to monitor performance of investments written about in this blog, and is not to be construed as research. The blog is written for entertainment purposes only, and does not represent investment advice in any way, shape or form. Always consult an advisor prior to engaging in any investment activity.


Ticker Share Shares Share  Dividends Gain/Loss    
Symbol Price  Held Price Paid Quarter    
  09/30/11   12/30/11 in quarter      
Chraui.b $2.40 2795 2.52   5.00% $6.02 3073 5.5 368.76 -8.6    
APFC 7.33 3817 7.34   0.00%    
PAC 33.21 1335 33.76 458.3 1.60% 0.232 131000 0.254   9.50% 1.43 3900 1.15   -19.60%    
BJCHF 0.405 61454 0.502        323.41 24.00%    
AKZA.AS 44.4 741 48.36 270.17 8.90%    
FLL 2.74 27200 2.63   -4% 75.46 453 68.68   -9.00% 14 1707 13.26 363.74 -5.2    
PVD 57.09 1200 65.42 1769.64 15%    
KAZ.l 12.3 7000 14.41   17.10%    
GSH 14.81 1919 17.64   19.10%    
ASR 49.72 822 55.94   12.50%    
NVO 99.52 625 115.28   15.70% 28.04 935 29.57   5.40%    
CAJ 45.25 500 44.04   -2.70%    
DEG 58.44 488 56.35   -3.60% 54.81 528 63.98   16.70% 40.86 1698 39.88 329.65 2.40% 43.68 1300 46.43   6.30%    
FMX 64.82 1238 69.71 630.26 7.50% 14.07 6540 13.63   -3.10%    
MA 317.16 307 372.82 46.05 17.50%    
TSO 19.47 2333 23.36   20% 0.606 84000 0.682 1944.4 12.50%    
CHL 48.71 1200 48.49 1216.8 -0.50%    
CVI 21.14 6232 18.73   -11.40%    
SNY 32.8 1150 36.54   11.40%    
KMG.L 14.66 2536 14.81 177.52 1.00% 1.15 14000 1.28   11.30%    
KSU 49.96 2200 68.01   36.20%    
CBD 30.78 1700 36.43 69.7 18.40%    
BYD 4.9 6000 7.46   52.20%    
BFM 14.9 1440 15 288 1% 7.91 1649 12.14   53.50%    
cash     59316.2        
Value on 09/30/11 1764996          
Value on 12/30/11 1928398          
gain/loss in quarter     9.26%      


The blog model portfolio generated a 9.3% return for Q4, 2011.


At the close of Q4, 2011 and after taking into account all commissions, fees and foreign dividend withholding taxes, the account was valued at $1,928,398. 


The blog model account generated first quartile performance in the 4th quarter of 2011.    In absolute terms, the portfolio was #3 among 16 total funds in the representative peer sample.


For the year to date, the blog model portfolio declined 8.1%; the portfolio started the year off with a value of $2,100,270.  Appraised against the peer sample for the year to date, the portfolio remained first quartile at #4 in the rankings. 


No fund in the sample posted a positive return in 2011.  The Fidelity Contrafund (FCNTX), a large cap domestic (American) fund, down roughly 1% for 2011, was the top performer among the peer group.  American Funds Fundamental Investors (ANCFX), another US domestic large cap fund, was down 3.6% and was #2 for the year. Dodge and Cox Stock Fund (DODGX), a US domestic large cap fund, was down 5.7% on the year and was #3.  The blog model portfolio, by way of contrast, represents an internationally themed account.


Returns of the representative peer group for the quarter were as follows.

1.     TWWDX ($14.89).   5% in 4th quarter. 

2.      ABIYX ($10.61).     -1.7% in 4th quarter. 

3.      DODGX (($101.64).  10.7% in 4th quarter.

4.      DODFX ($29.24).  1.6% in 4th quarter.

5.      ANCFX ($35.39).  10.5% in 4th quarter.

6.      FCNTX ($67.46). 8.1% in 4th quarter. 

7.      BLUEX ($22.99).  6.9% in 4th quarter.

8.      UMBWX ($27.97).   4.9% in 4th quarter. 

9.      TGVAX ($24.06).  3.9% in 4th quarter. 

10.   HAINX ($52.45).   4.6% in 4th quarter. 

11.   CGMFX ($25.65).  5.6% in 4th quarter. 

12.   OSMAX ($18.67).  -4.5% in 4th quarter. 

13.    PRMSX (28.51).  -4.7% in 4th quarter.

14.    NTKLX ($32.51). -1% in 4th quarter.

15.    SAHMX ($8.97).   0% in 4th quarter.  


Overall, the peer group sample closed out Q4, 2011 with an average quarterly return of 3.3%.


Global equities only partially recovered during the 4th quarter of 2011.

On the heels of the largest single quarter equities rout in recent memory, the 4th quarter represented a flight to safety.  Investors committed to holding equities rebalanced portfolios and moved money from foreign holdings to US domestic holdings.  They also made a qualitative shift, changing from small cap to larger cap investments and from cyclical investments to non-cyclical. 

The peer group has been specifically selected to encompass much of the world.  I vetted a select list of large domestic US funds, large internationally themed funds, small and mid-sized international company funds, as well as some noted transactional funds.  Upon review of the peers, it is abundantly clear that the top performers were American large cap funds. The worst performers were small international funds and cyclically oriented trading funds.   The relative outperformance/underperformance of various equity classes corresponded quite closely to classic behavioral patterns noted after periods of fear.   Large company funds beat small company funds in 2011.  US domestic funds beat international funds in 2011.  Riskier asset classes were bested by conservative asset classes in the year past.

Almost all investors, be they retail or institutional, will be looking at year over year statements with a measure of chagrin.

Morningstar, the esteemed fund data provider, has posted a list of their top candidates for fund of the year (domestic) and fund of the year (international) for 2011.  Only 2 of the 10 names posted positive returns on the year. 

The numbers for many are actually far worse than the raw data implies.  Since 2008, a surprisingly large number of guru type names have found themselves under significant pressure to generate performance metrics, similar to returns generated during periods of positive sentiment.  Early on in 2011, some succumbed to external pressures; they made wholesale style shifts at what was the absolutely worst time to do so.  Several with portfolios of largely blue chip non cyclicals shifted bellwether stocks for cyclicals, in anticipation of making a 60% plus type return.  Still others bet the farm on a cyclical recovery in the banking, investment or insurance sectors.  At least on a temporary basis, those bets have failed to pan out.  Still more hoped to participate in a continuation of the precious metals run, only to come smack dab against a substantial change in global commodities margin requirements.    The price paid for a lapse in discipline in 2011 was a substantial loss of capital.  There will be many leading mutual fund houses printing rather dour, apologetic statements of account.

This author is a big more sanguine on the global picture.

I think that there are two points missed in the reviews put forth by the various global prognosticators. Those who focused exclusively upon the various geo-political or geo-economic crises that had periodically occurred throughout the past decade noted that these crises have lowered expectations and reduced  growth. 

However, a case could very convincingly be made that, on the whole,  these very same crises have reduced inflationary pressures throughout the past decade.  Periods of consistent global growth and restrained global inflation represent optimum conditions for well managed multinational corporations to ply their trade. 

The second point missed among pundits, and a consistent theme in most of this blog’s quarterly reviews, has been the apparent disconnect between global equity valuations and the rise in global GDP. 

On Friday, March 10th, 2000, the S&P 500 index was 1498.58.  Over the course of the subsequent 11+ years, The S&P 500 never surpassed its 2000 high at any fiscal year end.    At the end of 2011, the S&P 500 closed at 1257.6, a decline of 16.1% from the peak.   In short, for indexers, the equity market has been more than a lost decade. 

However, the global economy is a full 78% larger at the end of 2011 than it was at the start of 2001.  Global GDP, on a PPP basis, is likely to surpass $79.8 trillion in 2011.  At the start of 2000, global GDP was $44.9 trillion on a PPP basis.  That represents a compound annual GDP growth rate of 4.91%.  In 2011, global GDP appeared to have grown by roughly 4%.  This number is neither the trailing ten year average of 4.91%, to be sure, nor does it represent the economic meltdown purported.   But, it should also be noted that global GDP revisions in the last 3 years have been revised higher after all data has been compiled.  It might very well be demonstrated that 2011 was yet another fine year, in a series of fine years.

It stands to reason that many well run companies made substantial capital investments to participate in that growth rate of the past decade.  A number are currently reaping the benefits of those investments and are reporting substantial economies of scale, in the form of EBITDA margin expansion.

Anecdotally, I can report that the steady growth in the global economy is, in fact, not news to most. Many investors do claim to be aware of the this data.  The point that they tend to bring up is that they don’t personally hold enough well run non-cyclical multinational companies to experience an appreciable improvement in their overall return.   I can only respond by asking; "what's the holdup?"   

It is my contention that global secular themes, over time, handily trump regional economic or geopolitical crises.

By the end of 2013, should current GDP trends continue, the global economy will be about 2X the absolute size from a starting point of 2000. That is a LOT of growth.  Multinational companies with means and discipline have been investing heavily during the past decade to capture their fair share of this expanding global market.   For businesses featuring stable EBITDA margins, that would appear to suggest a substantial increase in profits. For businesses that are fully capturing secular trends, this type of global economy is the perfect business environment. Yet, the S&P 500, largely an industrial index, is now selling for about 10.1X my 2012 EPS estimate.    

The blog model portfolio has $59316.2 US of cash on the balance sheet for current investment.

$49,725 US was credited to the account in late December 2011, on a going private transaction from M&F Worldwide (MFW). This cash augments dividend payments from various investments held within the blog.  Other than the modest incremental investment previously noted with Novo Nordisk, at the start of Q4, 2011, there was no other activity within the portfolio.   


On Monday, January 2nd, 2012, the blog model portfolio will be making the following investments:


     A.  6,000 shares of Hainan Meilan Airports ( will be purchased.  Passenger traffic rose 15.8% in 2011.  An organic expansion is underway to triple the main terminal capacity.  Based upon fiscal results released through Q3 2011, Hainan Meilan appears likely to post EBITDA growth well above the revenue growth rates.      With a full service commission, the total capital to be used to purchase these shares looks to be in the $4,192 US range.


     B.  265 shares of Hamburger, Hafen und Logistik,  ( will be purchased.  HHFA operates the largest container port in Hamburg and is expanding their container port in Odessa.  Hamburg is one of the most important ports in the world for the movement of goods to/from Europe and Asia.  With a full service commission, I estimate that the net needed to purchase 265 shares to be in the range of $7,936 US.


  1. 200 shares of Royal DSM, NV ( DSM is the world’s largest producer of vitamins and nutritional additives.  Business has been brisk and the company looks to have the potential to generate record normalized EBITDA from continuing operations in 2012.  Assuming a full service commission, I estimate that the capital required to purchase these shares may be in the range of $9,386 US.


  1. 278 shares of Grupo Aeroportuario Del Sureste (ASR).  ASUR operates the Cancun International Airport terminal, among others.  Passenger traffic in 2011 looks to be up in the very high single digit range and passenger traffic growth rates in Q4 accelerated over the prior quarters of 2011. EBITDA margins have been expanding.    The company is a substantial generator of surplus operating cash which has been returned to shareholders through steadily growing dividends. I estimate that the capital required, inclusive of a full service commission, may be in the range of $15,651 US to complete the purchase.


  1. 300 shares of Kansas City Southern Railroad (KSU). Kansas City Southern operates a very successful Mexican rail line that connects to the United States.  KSU has the sole rail concession to the rapidly expanding container port of Lazaro Cardenas in Mexico.  A further staged expansion of the container port will be completed in late 2012 and a bulk port terminal operation is now being constructed.  Despite predictions of global woe for transports by pundits, KSU container traffic continued to improve throughout December 2012.   I estimate that the 300 share purchase, with a full service commission attached, may represent a capital investment of $20,503 US


  1. 81 shares of Guangshen Railways (GSH).  GSH operates a highly profitable high speed line in China.  The balance sheet is rapidly delevering after a significant asset purchase some years ago.  GSH purchased a largely freight based trunk line from the Chinese government for about 7.2X EV/EBITDA.  New equipment had to be added and capital improvements made to make the line more efficient.  The last of the debts associated with this purchase from the Chinese government could be repaid within a year, based on my forecast.  EBITDA margins are rising and the balance sheet is the strongest of any publicly traded railroad of consequence on the global markets.  There is potential for transformative acquisitions in the years to come.   Inclusive of a full service commission, I estimate that adding 81 shares will represent an investment of about $1528 US.


These incremental purchases will use up the bulk of the cash now on account.  When further dividends are credited to the portfolio in Q1 2012, I will, of course, continue to report any further activity.      


My outlook for 2012?


To be sure, there will be further geo-political crises of some note.  I predict that Europe will eventually cease to be the epicenter of the current uncertainty.  With 27 sets of government technocrats working night and day to solve the problems widely reported in the Mediterranean region of Europe, something will get hammered out.  The issue is not a lack of resolve, but of expediency.  Investors invariably expect quick solutions to protracted problems; things just don’t play out that way.  With the exception of planned capital economies, such as those of Singapore and China, governments tend not to be proactive; western democracies tend to react and triage.  There are plenty of resolutions in the offing, and much of Europe is fiscally sound, but to expect a 2012 permanent solution is optimistic.

No, I expect that any new crises will come from left field, well away from the eyes of the public.  Perhaps it will be a new emerging markets crisis with a possible starting point in India.  That nation has a myriad of fundamental economic issues.  Indian issues range from a free falling currency, endemic corruption, corporations that consider generally accepted acounting principles to be loose guidelines instead of actual rules, an appalling lack of corporate governance and a socio economic system that operates largely as an aristocratic kleptocracy.  It might be that  Russia will represent the nucleus of a geopolitical crisis in 2012; a starving rural population may attempt to revolt against Moscow autocrats.  The media may declare 2012 to be the start of a new cold war.    There is absolutely no shortage of potential bad news on the radar.  Should bad news not be immediately forthcoming, no doubt a global scare can be manufactured and distributed readily enough.

Do I worry about the continued uncertainty that geopolitical or geo-economic crises will pose on equities?  Worry is a fruitless exercise. Prosperous businesses make capital decisions every day to build new plants, purchase new equipment and to expand their operations.  These decisions are made EVERY day; all the while, sucessful companies make capital investments in the face of the same sour sentiment that tends to hold back equity investors.   We all need to be a bit more dispassionate about the manias and more mindful of the self interested parties that benefit from periodic pandemics declared by the media.  

On the plus side, it is relatively easy to forecast continued global economic growth on a GDP basis. Taking into account the fact that there was not a single year of negative global GDP growth in the past 11 years, it would be a real stretch to take stock in anyone who would predict such an opposite outcome in the year ahead.

My objective is to own lesser known, primarily non-cyclical businesses with fortress-like balance sheets.  These businesses should be leaders in clearly defined secular trends and should also be selling at forward EV/EBITDA multiples below peers. The model portfolio presently owns plenty of secular growth stories for the years ahead.  It is my hope that investment conditions will remain choppy for a while to come so that I may add to these positions plus initiate new holdings, for the long term.  Only in periods of panic, uncertainty and negative sentiment do long term fundamentalists have opportunities to add to their portfolios at attractive valuations.