Investor Faceoff: When Murray met Lesley

Lesley and Murray making money

By Paul Brent
Globe Investor Magazine Online, June 9, 2008

The month of May was one to remember. The S&P/TSX gained 5.6 per cent, turning into its best month in more than two years, led by a 10-per-cent-plus gain by energy stocks.

That's meant more gains news for our
Investor Faceoff contestants; retired journalist Murray Soupcoff, and 24-year old financial consultant Lesley Scorgie.

Both underperformed the TSX last month, but they have handily outperformed the TSX since the contest started last fall: Mr. Soupcoff's $100,000 virtual portfolio has gained $24,405 since the start of the Faceoff contest last fall, while Ms. Scorgie's investments are up $20,170. The TSX was up 6 per cent, not including dividends, from the contest's start in mid-September through the end of May.

LESLEY SCORGIE
Click here to view Lesley's portfolio

Ms. Scorgie's strategy has been simple: Make a few, well-timed moves and buy brand-name stocks. "I didn't do too much this month - just kept an eye on my larger names," she said.

On May 13, she sold her position in Petro-Canada (PCA-TSX) of 675 shares at $55.90 apiece, netting a profit of $7,449 since she entered the position in March.

Using some of those proceeds, she purchased 600 shares of Penn West Energy Trust (PWT.UN-TSX) on May 21 at $34.25 a share for $20,940. "Many industry analysts raised their target prices on oil and gas companies this past month so I'm reviewing the sector," Ms. Scorgie explained. "With energy prices at a premium right now, it will certainly be interesting to attempt to find an oil and gas bargain."

She is also sticking with her financial services stocks, despite subprime-related turbulence. She holds GMP Capital Trust, Bank of Montreal and Manulife Financial Corp.

"I'm hoping my GMP and Manulife Financial do something positive soon. They've been stagnant since I bought them. I do, however, believe GMP is a steal of a deal right now and my BMO didn't get beaten up too badly with all the negative quarterly reports last week."

MURRAY SOUPCOFF
Click here to view Murray's portfolio

Mr. Soupcoff continues to prosper with a portfolio heavily weighted to commodities, specifically gold, energy and agricultural stocks. He has had a good month with stocks such as Agrium Inc. and Suncor Energy Inc., but points out that his portfolio has the danger of not being diversified.

"My May results do show the risks and potential pain associated with overweighting a portfolio in a narrow range of sectors," explained Mr. Soupcoff. "I might have had a better month if I were more diversified into other sectors like financials and tech. In particular, a holding or two in such tech growth stocks like RIM and/or Apple would have sweetened the pie-and my results." That is not to say he is abandoning his commodity-themed strategy.

"I continue to follow the sector overweighting strategy I pursue in my own personal portfolio, expecting that the cyclical boom in most commodities - things in the ground of real worth - will continue in an era of rising demand from prosperous OPEC and BRIC [Brazil, Russia, India, China] countries and declining supply," he said. "[This is happening] during a time when the global worth of all kinds of financial instruments and real-estate has been brought into doubt by past over-inflation of paper values and over-leveraging of debt."

The busier trader of the two Faceoff contestants, Mr. Soupcoff remained true to form in May, making a bevy of trades. On May 5, he bought 1,000 shares of China Agritech Inc. (CAGC-Nasdaq over the counter) at $3.05 (U.S.) for a total of $3,050, purchased 1,000 shares of Hemisphere GPS Inc. (HEM-TSX) at $4.04 apiece, totalling $4,040 and bought 1,000 units of Ishare S&P/TSX Global Gold ETF (XGD-TSX) at $76.45 (Canadian) a share for $7,645(the contest does not convert currencies). China Agritech and Hemisphere GPS, both "fast-growing ag juniors," were picked up to profit from suddenly well-off farmers who are "buying more fertilizers and farm equipment to maximize their crop output," he explained.

On May 13, Mr. Soupcoff bought 400 shares of Cal-Drive International Inc. (DVR-NYSE) at $13.69 (U.S.) apiece for $5,476. "Cal-Drive is a hot small-cap U.S. energy-services equity (which primarily services the natural gas industry) which has been increasing profits thanks to the surge in natural gas prices," he said. "But it is fairly high risk since it is at new highs."

On May 15, reacting to the volatility in energy and agriculture, Mr. Soupcoff sold four holdings: 1,000 units of China Agritech Inc. for $2.12 for a loss of $930; sold 200 shares of Calfrac Well Service Ltd. (CFW-TSX) at $26.75 (Canadian) each for a profit on the position; sold 420 units of Converted Organics Inc. (COIN-US) at $9.41 (U.S.) each for a small profit and sold his 400 shares of Cal Dive International (DVR-NYSE) at $13.37 each also for a small loss.

"I'm going to follow the strategy I'm following in my own personal portfolio, and trim down my Faceoff portfolio to its core long-term agricultural, energy and gold holdings, selling recent fast-growth (but volatile and high-risk) small-cap purchases for temporary cash," he explained.

On May 20, he purchased 100 more shares of fertilizer producer Agrium (AGU-TSX) at $87.93 (Canadian) apiece for a total of $8,793. "Agricultural stocks have taken a short-term hit; therefore I will accumulate more Agrium (fertilizer stock) at these lower prices," he said of the transaction.

On May 21, he closed out his May activity with the purchase of 100 units of StreetTracks Gold Trust (GLD-NYSE) at $91.96 (U.S.) each for $9,196.

"As the U.S. dollar falls, and as the subprime mortgage crisis continues, and the threat of inflation in the U.S. reappears - gold, the traditional "currency of last resort" in unstable times - is starting to attract buyers again."

Mr. Soupcoff is confident that his Faceoff strategy, modelled upon his real-life portfolio, is a winner. He is just not sure whether it will keep him on top this fall when the contest ends.

"I'm very confident that this is a sound long-term investing strategy - three to five years," he said. "The only question is whether these factors will kick into high gear again before our contest ends in mid-September. "Certainly there is a good possibility that my "hard-assets" Faceoff portfolio could suffer from a continuing commodities correction in June and on into the summer.

Price wise, these commodity sectors have probably soared too high, too fast, accelerated by the activities of hedge funds and speculators. However, it's my strong belief that increasing demand, coupled with decreasing supply, will ultimately prevail in the long term, pushing the prices of these stocks back up to new highs."

Special to The Globe and Mail