March portfolio update

Hello again,

It's been a while between posts as I've been sharing my stock writeups on Substack rather than on the blog. I do want to keep in the habit of writing quarterly reviews on the portfolio, and that's what I'm going to do again today.

In the first quarter of 2023, I've had a very good run. In his book, Ed Thorp describes a random pattern of favourable bets as being characterised by moderate losses followed by dazzling winning streaks. While the jury is still out on whether I have an edge over the market, it feels like I've been on one of streaks Thorp is talking about.

My PA was up 17.6% in the first three months of the year. My SMSF was up roughly 12% over the same period. My biggest winner was Jounce Therapeutics, a new position I started purchasing in March. Shortly after my purchases, a vehicle owned by activist investor Kevin Tang offered to buy the company at $1.85 per share plus a CVR. I bought a reasonable stake at around $1 prior to the announcement, and added much more after Tang disclosed his interest in a 13D filing. I didn't expect Tang to make an offer, however I did realise that Jounce's deal with RedX Pharma was unlikely to close. My thinking was that shareholders would vote against the RedX deal and that could lead to a potential liquidation. 

Jounce has now entered a merger agreement and it seems that the deal is likely to close. I initially sold my stake when Jounce traded up to $1.90, as the value of the CVR was uncertain. However, I ended up buying my whole stake back, plus more, after reading the transaction documents more carefully. JNCE has now disclosed that the CVR is likely to pay out 13.77 cents in the event that the company can successfully exit its lease obligations. (The company has signed a non-binding letter of principle with its landlord to cancel its leases, but hasn't signed a binding contract.) CVR holders are also entitled to 80% of the proceeds of any sale, licence or other disposition of Jounce's biotech assets. While the value of these assets is uncertain, they could be worth something. JNCE recently disclosed positive data from its phase 2 trial of JTX-8064, for example, and Tang has certain obligations under the agreement to seek to dispose of these assets.

I purchased my stake back at $1.86, which implied a value for the CVR of 1 cent. I still hold my shares today. Interestingly, JNCE is now trading at around $1.92, which could be due to the fact that there are some civil lawsuits filed against the company regarding its disclosures around the transaction. I don't see this being a huge problem, as JNCE has since filed additional information. These additional filings also highlight that the value of JNCE in a liquidation scenario is between $2.00-2.08, assuming they are able to break the lease and the company is liquidated by May 31, 2024. Considering all of this, I think JNCE remains very attractive at current prices.

My other big winner during the first quarter was another biotech position trading below liquidation value, Cyteir, which I wrote up on Substack. While the price has moved up substantially, I still think the stock is attractive, as it is trading well below cash value. I also made money in MTCR, another biotech which announced a liquidation, and OIIM, a special situation which I participated in.

I exited my position in US Masters Residential Property Fund (ASX:URF) while buying JNCE. I also exited a small position in YMIRLINK, a Japanese software business, for a small loss. I think YMIRLINK is attractive but I felt the company lacked a strong catalyst to close the valuation gap.

My portfolio is far more concentrated than it has been historically. This has worked out well in recent months, and I am happy with my largest positions. However, I'm hoping I can find equally attractive investment candidates to reduce the risks of overconcentration in the portfolio.

My PA was up 1.7% in January, 2.6% in February and 12.8% in March. 

	August 3, 2017	March 31, 2023	Since July 1, 2022	Since Inception	Annualised
G&W Portfolio	1.0000	2.1022	32.13%	110.22%	14.03%
Benchmark (SPAX2F0)	61,250.80	103,249.15	15.44%	68.57%	9.66%

My SMSF was up 3.7% in January, 1.5% in February and 6.5% in March. Note that my SMSF returns are unaudited and include fees and realised taxes (but not unrealised taxes). This is a rather messy approach so in future I may stick to reporting audited yearly results for my SMSF, which are a better indication of performance. 

The benchmark I use for both portfolios is the S&P/ASX 200 Franking Credit Adjusted Annual Total Return Index (Tax-Exempt), which is pre-tax.

	August 4, 2021	March 31, 2023	Since July 1, 2022	Since Inception	Annualised
G&W SMSF	1.0000	1.1457	31.88%	14.57%	8.57%
Benchmark (SPAX2F0)	98,123.18	103,249.15	15.44%	5.22%	3.13%