The S&P 500 index returned +3.31% in third quarter of 2016 compared to -6.94% in the same quarter last year.
The third quarter return was all attributable to July’s performance as both August and September returns were slightly negative.
During the second quarter, I added three new positions, and reduced one position in the Prudent Value Portfolio.
The largest of the three purchases was Robert Half International, Inc. (RHI) in the staffing & outsourcing services space.
RHI provides specialized staffing and risk consulting services. RHI has staffing and consulting operations in more than 400 locations worldwide.
The company’s second-quarter earnings per share improved $0.04 over prior year’s Q2, but missed analyst expectations by -$0.02.
The market reacted negatively by pushing RHI down to 52-week lows where the portfolio was able to pick up shares at a fair price, in my view.
In the Prudent Value With Options Portfolio, I entered into four equity option transactions.
The largest transaction was a multi-leg buy-write of American International Group (AIG). The buy-write was deep-in-the money, where the call option was sold at a strike price much lower than the price paid for the underlying stock.
AIG is an American multinational insurance corporation with more than 88 million customers in 130 countries. AIG companies employ over 64,000 people in 90 countries.
A deep-in-the money buy-write is a bullish option strategy that is executed to benefit by earning dividends on distributed profits and a premium when the option expires or is exercised in-the-money.
In addition, the portfolio can benefit as a long-term investor if the option expires worthless/unexercised, thus owning the stock leg at a lower desired price (i.e., discounted stock price – net premiums collected).
- Prudent Value is an independent, fee-based registered investment advisor to individuals, high net worth individuals, trust programs, and charitable institutions. Our investment process is based on the work of Benjamin Graham and David Dodd (founders of modern securities analysis and first proponents of value investing). To this, we add Warren Buffett's approach to focus within our circle of competence. In short, we are value-focused investors looking for high quality assets at a discount price.