My 3Rs – Reflection

When I was younger the 3Rs represented basic school subjects Reading, Writing (‘riting) and Arithmetic (‘rithmetic) probably with origins in Colonial times. Yet it is apropos today in that I too use the 3Rs (albeit in a different context) in my investing strategy. My 3Rs being Reflect, Revamp and Revitalize.

About this time each year, I begin an attempt to determine what surprises are in store for the upcoming year. I begin by reflecting on the current year to understand what went right and wrong – and why.  I then revamp (or tweak) the approach retaining my core 26 holdings strategy.  Finally I revitalize the side thesis to identify the non-core side trips I’m willing to pursue. In three parts, I’ll present my 2019 strategy. This isn’t to say my horse sense is better than anyone else, only that my belief is that some aspect of current events can translate into actionable ideas.

My portfolio is segmented into three primary tiers which are targeted as follows:
Anchor – 3 holdings at 6% each
Core – 10 holdings at 3% each
Satellite – 13 holdings at 1.5% each

These are further separated by pay date with one anchor per quarter. The others are managed to ensure I get a payday (generally) every week of the year.

The additional theory being ⅔ of the portfolio being solid and stable with the other ⅓ available to pursue concepts.

This year has 58.42% allocated within the guidelines so I’m a little remiss with hitting my targeted ranges. This was due primarily to two factors:
I considered the market to be generally overvalued
A continuing pursuit of corporate actions

The overvaluation piece stems largely from decision to go overweight financials a few years back. With CCAR, Fed rate hikes and regulatory changes being tailwinds this choice paid off, the downside being the out-of-balance allocation which will begin being addressed in Part 2 (revamp) of this series.

Perhaps the biggest crack in my crystal ball was being blindsided by tariffs, both literal and rhetorical. The impact to me (thus far) was primarily in a stronger than expected US dollar which has extended my investment timeline a little on the foreign holdings – particularly ones in Latin America. Case in point for diversification.

Going into 2019, all I see is choppy waters. Like Mark Cuban I doubt the sustainability of the current economic strength. I concur with his thesis that we are mortgaging our future for results today. Unlike Mark, I haven’t moved largely to the sidelines. He does however, have more at risk than I.

Therefore my game plan is to:
Realign my primary 26 stocks to de-emphasize the financial sector
Work on getting the targets in sync with reality
Place an emphasis within my stash available for theoretics on Consumer Staples. Not a         broad brush across the sector but targeted towards necessary purchases.
Continue with selective M&A and corporate action arbitrage activity

The downside to this approach is twofold. First is the alternative view that the economic boom has only just begun. The second is that the president could change his approach on a whim (politely referred to as a negotiating ploy). Returning to basics and targeting household necessities mitigates this risk in my view.

Next week: My 2019 Portfolio Revamp

2 thoughts on “My 3Rs – Reflection

  1. You have a very well-considered approach to your investing Charlie. I must admit mine has much less of a top down approach – I’ll take good value wherever I see it!

    I’m also struggling to see how the US can keep powering along the way it has over the past few years, but I thought the same about 12 months ago. Moving to the sidelines is a tricky game to play. Not only do you need to get the timing right when you move out, but then you have to get the move back in correct again! Glad you’re staying in the game 🙂

    Cheers, Frankie

    Liked by 1 person

    • The approach probably has more to do with where we are on our paths – you are still in the accumulation phase while I’m more into (kind of leaning into) the distribution phase. There is always (perceived) value to be found so a word of caution – if you get carried away you wind up with a broad portfolio – mine is 200+.

      Your assessment matches mine on market timing angle – over the years I’ve wound up on the wrong side as much as the right. I’ll leave that game to the technicians. But I do enjoy playing the strategy angle as I like what/if scenarios.

      On the US … who knows. The current situation defies any logic I gained over the years – so it’s a wild card, but since I spent my entire working life steeped in logic (Business Analyst, Program Management, HQ staff), I’m not likely to change my tune in the near term.

      Appreciate the visit!

      Like

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