One Earth orbit around the Sun is the traditional scorekeeping interval in this business, and that’s just fine with us, because The Energy Strategist had a pretty stellar year.

Twenty-thirteen began ominously, with a new and untested management team forced to play defense as several of the legacy holdings it inherited hit a rough patch. It’s ending with a dramatically overhauled portfolio that has begun to handily outperform the energy sector and the stock market, now that value traps have been replaced with undervalued stocks backed by the savviest big investors.

Gone are the royalty trusts, the Australian penny stock, the Brazilian and Italian clay-footed colossi  and several other costly chimeras. Recommended in their place are the bargain stocks that Warren Buffett, Carl Icahn and David Einhorn have been gradually accumulating. And alongside Chicago Bridge & Iron (NYSE: CBI) and Chesapeake Energy (NYSE: CHK) we have been profitably early on names like First Solar (Nasdaq: FSLR) and Gastar Exploration (NYSE: GST), which have proven improbably rewarding in a very short time yet could still go so much farther.

But enough chest-puffing; let’s look at some numbers. Keep in mind that until February this was a portfolio assembled almost entirely by prior management, so it makes sense to evaluate this year’s numerous new recommendations as a group, before tallying the performance of the  holdovers we’ve kept and those sold.

In With the New: Buys in 2013

* Range Resources and Southwestern Energy were recommended on April 24 but not included in portfolios. Their returns were counted in the New Buys Average above.

The total return for each investment includes distributions as well as capital gains from the recommendation date until Dec. 25, or until June 12 in the case of Geospace Technologies, the only 2013 new buy that has since been sold. The average return of 13.6 percent was achieved during an average holding period of less than six months. On an annualized basis, that works out to approximately a 28 percent rate of return, in line with the year-to-date gain by the S&P 500 and well above the 22 percent advance for the Energy Select Sector SPDR (NYSE: XLE).

But of course the table above doesn’t tell the whole story, because we didn’t start 2013 with a blank slate. We started it with some excellent ideas inherited from our predecessors but also with way more than our fair share of their mistakes. Separating the leftover wheat from the chaff was part of the major challenge we faced early on, and if that job hadn’t been done well the portfolio would have underperformed despite all the new winners. Fortunately, we can report that we aced that test.

Here are the total returns, including distributions, of the 2012 portfolio holdovers we kept:

Tasty Leftovers

And here is the performance of the holdovers we discarded in the course of the year, both before and after the sale:

Garbage Out

We’re not tracking distributions in the table above, because there’s no point. Or rather, the point is that this is the group that made our year. Nearly half the discards came in that first pre-Valentine Day  purge, which rid us of the eventual losers of 62, 46, 46, 41 and 31 percent of that day’s valuation. On average, our Sells were up 3.2 percent year-to-date before the sale and down 5.7 percent since the sale through Christmas, in a bull market for stocks. 

Liberating capital from these value destroyers early on should have freed it to be deployed into concurrent Buy recommendations that fared much better. But simply escaping those booby traps was victory enough. Step one in making money is not losing money.

Of course, not everything went our way. We were fast to dismiss the campaign against Linn Energy as a tempest in a teacup, and while it’s certainly looking like we were right, we wish we’d stepped aside before the Securities and Exchange Commission got involved, even though it ultimately turned up nothing. The accounting allegations shouldn’t have distracted us from the operating issues that ultimately took their toll on Linn and from the rapid debt accumulation on its balance sheet.

Inevitably, in the course of winnowing the portfolio laggards we missed out on a few impressive relief rallies. We also missed out on roughly half the year’s outsized gains by US Silica by selling too soon, though fracking sand supply still looks like a low-margin commodity business with low barriers to entry over the long run.

But then we also dodged the albatross that Eagle Rock would soon become; its 28 percent haircut in the last six months would look much worse without last week’s bid for its midstream assets by a stronger partnership.

Undoubtedly your mileage varied. But  clearly our advice delivered value. And while it’s nice that the year-end percentages look nice, it’s even nicer that recent subscribers had a chance to stock up on several of the biggest winners at attractive near-term junctures. EOG is up nearly 30 percent since we raised its buy below target well above the market price in mid-March. Core Labs has gained a bit more than 30 percent since a timely upgrade to Buy in late April.

Timing was also our friend when playing the refiners. We downgraded Marathon Pete after its hard winter sprint, then gave the green light to buy again at a lower price before the recent rally.

More broadly, we warned in May that “with sentiment extremely bullish, this market isn’t going to run away to the upside without putting so many recent converts to a test or two first.” The S&P 500 dropped 5 percent over the next five weeks. On Oct. 24 we recommended taking profits in the biggest winners out of the sense that “a correction may be in the offing sooner rather than later.” The SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) proceeded to drop 9 percent through mid-December, allowing us to scoop up some promising small fry ahead of the recent recovery.

Like the fine print says, part performance is no guarantee of future results. But we guarantee that we’ll bring the diligence and initiative that served us well this year into 2014 and beyond. We’re excited about all the opportunities ahead, including first and foremost the opportunity to preserve capital. Thank you for making us a part of your journey.