November 2022 Update

With the holiday season upon us, I couldn’t help but snicker at the initial reporting on Black Friday online sales.  The piece correctly reports a new sales record but fails to account for inflation.  By my view, the 2.9% Y/Y increase is more likely a 3-4% retrenchment with inflation factored in.  One area worth monitoring is the increase in Buy Now Pay Later (BNPL) schemes.  Whether this is a last-ditch effort in making Christmas merry or a calculated financial play to maximize 0% interest is the question.  The answer should arrive in about six weeks in the form of late payment fees, returns and defaults.

Then there was the month end rally on the first part of Powell’s comments, “The time for moderating the pace of rate increases may come as soon as the December meeting.”  Ignored by the market (in my opinion) was the second part, “It is likely that restoring price stability will require holding policy at a restrictive level for some time.”  Meaning – expect continuing, albeit more moderate, increases into 2023 perhaps peaking at 5-5.25% (from the current 3.75-4%).  There remains a lot of potential pain in that 1% so any rally or celebration is premature.  I think we’ll have a clearer picture in Q1 2023. 

For the month, the S&P rose 5.38% and the portfolio rose 9.34%, largely due to good fortune in timing some transactions.  The portfolio is now (finally) positive for the year (2.09%) while the index remains underwater at -13.1%, increasing my lead to 15.19% with one month to go.

Dividends

November presented an increase of 5.17% over last year.  Dividends received YTD 2022 did surpass the full year 2022 dividends on November 21st so dividends through year end will only pad the results. 

New Positions

  • None

Positions Increased

  • WEC – underweight anchor position
  • HUM, UNH – rounding up fractional shares
  • FAF – contrarian play on housing
  • All others were a result of reinvested dividends

Completed Mergers

  • none

Positions Sold

  • LBAI – pending merger
  • YUMC – reducing China exposure
  • TAK – lack of dividend growth
  • SMG – troubled business

TAK and SMG were sold at a loss, LBAI and YUMC sold for a gain

Positions Reduced

  • none

Cancelled Mergers

  • none

Pending Mergers

  • none

Cash Position

  • Cash on hand increased from 0.55% to 3.77%. 

Spinoffs

  • ABB announced a delay in the Chargedot IPO due to “challenging market conditions”
  • Liberty Media (BATRA) announced the demerger of the Atlanta Braves.  Shares of the current tracking stock are expected to be exchanged on a 1:1 basis for Atlanta Braves Holdings in 1H 2023.

To elaborate a little on the increase in cash, some of the sale proceeds were placed into 3-month CDs yielding 4%.  As the 4% is greater than my 3.71% portfolio YOC, it made sense to use CDs with the part of my cash accrued for possible tax liabilities.

I did redeploy enough of the proceeds to maintain the dividend stream, so this move is more of a hedge against downside risk than anything else.

Summary

While essentially a flat month, we did attain some of the annual goals and positioned ourselves to beat the index (again) – assuming there’s no major collapse in the market in December.  Hopefully, your month was good as well!

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