Before the stock market opened yesterday morning (March 4) Ritchie Bros. Auctioneers (RBA) reported earnings per share of 20 cents and revenue of $97.1 million. The earnings number matched Wall Street projections but revenue 1% above expectations of $95.8 million. Revenue was up 19% for the quarter from the fourth quarter of 2008.
The number to watch, though, if you want to understand what’s going on at Ritchie Bros. is gross auction proceeds. That’s the amount of money that Ritchie Bros. collects for buyers in selling their items. Ritchie Bros. earns a commission on gross auction proceeds.
 Gross auction proceeds climbed 1% in the quarter from the fourth quarter of 2008 but fell 2% for all of 2009 from the 2008 level.
The problem was that while the number of items Ritchie sold grew by 12% in 2008, the average price of the equipment the company sold fell.
At the beginning of 2009 the company had expected a surge in the volume of equipment coming to auction as equipment owners, faced with the slowdown in the economy, sold idle equipment. The surge would be big enough, they figured, to more than offset any drop in price.
Well, the company got an increase in volume but hardly a surge. As best as Ritchie CEO Peter Blake can figure it, interest rates are so low and equipment lenders so willing to work out deals that many companies have decided to hold onto their equipment even though business is slow.
All this makes it very hard to predict Ritchie Bros. revenue and earnings in the rest of 2010. If the economy picks up, auction prices should rise, but the number of companies with currently idle equipment could well lead to fewer buyers at the company’s auctions. And if the economy picks up, it’s hard to see why the companies that have been holding onto their equipment through the slowdown would sell.
The shares have had a decent bounce off a low of $19.49 on February 18—that’s about 10% as of the $21.57close yesterday—largely because every analyst on Wall Street was busy preparing for the company to deliver below consensus earnings on March 4.
But I’d rather own a company where the trends in 2010 are more predictable—the larger economy is unpredictable enough, thanks. So today March 5 I’m selling these shares out of Jubak’s Picks with an 11.5% loss from my initial purchase price of $24.37 on December 3, 2009. This sell will build my cash position in Jubak’s Picks to 11%.
Full disclosure: I don’t own shares of any company mentioned in this post.
Jim
I am looking for a bank in austrailia to add into my div portfolio any advice
Golfer (great handle by the way),
I agree with TickTock. It’s a hypothetical portfolio. But I infer it’s hypothetical in that you start with X dollars, and can only invest what you started with, plus or minus your realized returns. It’s not real money, but its not a bottomless pit of money either, because that’s how the real world works. If you’re 100% invested, by definition you can’t keep buying without selling. You have to have cash to buy or it’s meaningless- then you’re Jim Cramer- buy buy buy. So what; it’s not real.
Few if any of us have a bottomless pit of investable funds.
In my view Jim’s picks are valuable because they are based on something that could be real. If he’s recommending a buy, it’s a buy relative to the benefit (or not) of holding cash.
So if you’re only parking cash for lack of a better place to put it (as you noted) and then find a better place, the next thing you want to buy has to be funded by the proceeds of something you sold. His portfolio works just like anyone’s would in reality.
If it’s not done that way, it has no relevance to a real world situation (and hence, not as valuable).
And his performance metrics are based on the entire portfolio- cash and stocks. Not just the stocks. So he takes a hit (as he noted he did last year) by holding cash, just as he would do relatively better in a down market by holding cash. Good or bad, relatively speaking, you get a true picture.
That’s why his commentary is so valuable. He keeps it real, even if the portfolio is hypothetical.
That it is still completely free is virtually inexpilcable in a world where knowledge and insight is such a valuable commodity. Thanks again Jim, for your extraordinary generosity.
btjlfr, I too follow Jim’s hypothetical cash position relative to the rest of his portfolio. I see it as an important indicator of how he feels about the 12-18 month future of the overall markets. The fact that he was nearly 40% in cash a year ago, and 11% now, tells me he is more confident. And based on past comments I also understand that he regrets being too cautious last year once the now obvious rally took hold. I appreciate his candor as compared to the typical stock selector on CNBC who always seems to have entered and exited at just the right moment which we all know is total BS.
Jim,
I notice that quite a few of the companies in your “watch list” are companies which figure in your “picks 50”, such as APA, BG, CEDC, ITUB, VALE. Doesn’t serve the purpose?
Plus, same question as southof8.
Thks
I got out of this one a long time ago, wasnt sure why I bought it in the first place hehe
I would recommend reading all the titles on the left had side of the page “Important Stuff.” Or buy Jim’s book!
Jim, thanks for this site. I’ve been following for a few months now and really enjoy it, although some of these strings of 20+ comments have me worried. That can’t be a good sign.
I want to take this opportunity to ask about the so called “cash position.” Is the Jubaks Picks not just a hypothetical list of picks, with no real money behind them? And if there’s no money there, then how could there be a cash position? Whenever a pick is added, or removed from the list, are there x number of shares associated with that transaction? Are all the picks equally weighted in this hypothetical portfolio, and do they rebalance periodically to returned to some predetermined asset allocation?
Well, you see where I’m going. If this was an actual fund, that I could buy shares of, then the cash position would make sense and have some meaning. And as far as Jim’s personal portfolio, where there are real dollars and real shares of stock, that’s really not our business anyway. And why does a cash position have to be an official statement of your current pulse of the market? For me, it just means I don’t at the moment have a better place to put it.
If any of you can shed some light on this for me, I’d appreciate it. I’m new to following these internet portfolios, and some of these comments just leave me scratching my head. Thanks.
Jim, thanks fort the cash position update. It’s been awhile since I’ve seen one. This strikes me as low relative to where it was just a couple months ago. Should I infer you’ve become considerably more comfortable with the market or are you looking for a short term bounce into the second half of the year?