My 3Rs – Revitalize

In the first two posts of this series, I highlighted my thought process in basically the recent past and present.  Today will attempt to bring the investment landscape of the future into focus.  I will be the first to admit that I have a jaded view of the present – i.e., not being aligned with the economic views espoused by the current administration.  The upcoming midterms have the ability to shuffle the deck even further.  The assumption set I used (which easily could be argued with) is:

  • The current administration will continue to be embattled by prior missteps – primarily in vetting – (resulting continuing indictments and guilty pleas)
  • This could be further hampered by loss of one – or both – chambers of Congress
  • I (currently) anticipate no major activity regarding impeachment, 25th amendment or resignation

Basically a recipe for gridlock – which will put the brakes on some of Trump’s more polarizing policies.  Without a Democratic landslide, I don’t see a major rollback but also don’t see further continuation on a partisan path.  Therefore my view is a continuation of trade tensions (notably Canada and China), rising deficits and interest rates resulting in a slowdown in the US economy.  While the economy is currently growing, the metrics I am watching are debt levels (student loan and state government), the inability of rising wages to keep pace with inflation and savings rate.  Though the concerns are endless, a greater domestic focus tends to mitigate much of the risk but bring me to one conclusion: Regular Americans’ disposable income may be in shorter supply next year.

With this theory outlined, it’s time to fit the remaining pieces into my puzzle of a portfolio which allows for roughly 1/3rd allocation to conservative speculation.  Frankly, my outlook is a bet that the US economy has been front-loaded into the midterm elections.  The downside if incorrect is that I’ve added some slower growth positions.  If correct I’ve generated a little alpha.

Tariff Myself

In the spirit of the times, I completed the move of my Johnson & Johnson (JNJ) and Church & Dwight (CHD) positions to M1 Finance.  I plan to add Colgate (CL) as a new position in the near future.  With M1 being a no-fee broker, my intention is to add new funds whenever I purchase toothpaste, mouthwash or deodorant throughout 2019 with the aim for these companies to attain about 2%, 3% and 1% of the portfolio respectively.

Corporate Actions

I intend to ride the M&A wave in addition to selected spinoffs.  I rarely participate in IPOs but do make an exception from time to time.  I continue to add to my banks that have completed two-step conversions.  This month has seen activity in this area as follows:

  • added to GBNK and sold IBTX locking in a total gain of 46.4% (16.3% annual return).  Assuming their merger with GBNK completes I’ll be assigned more shares of IBTX than I previously had.
  • added to SHPG as they received another approval in their merger.
  • Initiated a post-IPO position (from the 30 day over-allotment period) in Amalgamated Bank (AMAL).  This due to their intention to initiate a dividend next quarter.

Averaging Down

Yes, there are times when I’m underwater on some investments, most of these being holdings of less than 1%.  It would be a fair assessment that something was amiss in my initial analysis as several of these are foreign caught in the cross hairs of the strong US dollar.  One reason I tend to scale in to investments is to take advantage of opportunities to average down when my  original premise remains intact.  These tend to be intermittent purchases.

There, in three parts, is my strategy going into 2019.  As my dividend goals for 2018 are close to being met, I am now starting the realignment process so I’ll be hitting the new year with a running start.

I’d love to hear your thoughts the processes you use!

 

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My 3Rs – Revamp

Last post in this series I highlighted my views from the rear view mirror.  Going into 2019 will see more changes than normal.  No I’m not selling any positions but changing the emphasis (allocation) on certain issues.  The game plan is for reinvested dividends and fresh money to gradually swing the portfolio into balance with the new targets.

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August 2018 Update

The markets took comfort by rising on a possible trade deal with Mexico with hopes of Canada being a slam dunk being dashed (until possibly next month) by the president’s own words (albeit off-record) that shot the negotiations down.  Kind of have to wonder about the art of that deal :).  Anyway, earnings were generally good with only a few surprises although several companies guided lower on tariff concerns and the inability to maintain the run rate that was accelerated by the tax plan.  I did come off the sidelines a little this month with mostly repositioning moves on the few dips.  August saw a rise in the S&P of 3.03% while my portfolio lagged a little by registering an increase of 3.02%.  YTD I’m ahead of the S&P by 1.06%.

Portfolio Updates:

  • Initiated GNBC (hedge on VBTX merger)
  • added to LUV on weakness
  • added to CHD (repositioning move – now overweight through the dividend)
  • Initiated MSCI on weakness (capturing their 52.63% dividend increase)
  • added to JNJ (repositioning move – now overweight through the dividend)
  • added to COBZ (merger approved by regulators)

DIVIDENDS

My main focus resides on dividends.  Market gyrations are to be expected but my goal is to see a rising flow of dividends on an annual basis.  I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • August delivered an increase of 53.11% Y/Y, the impacts being a Sep dividend paid in Aug (10%), last month’s rebalance (5%), dividend increases (5%), interim/final cycle (5%), purchases (1%) and the remainder being dividend reinvestment.
  • August delivered a 17.93% increase over last quarter (May) due to an interim/final cycle.
  • Dividend increases averaged 14.83% with 69.16% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 77.59% of 2017 total dividends putting us on pace to exceed last year in early November.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX

COBZ to merge into BOKF

GNBC to merge into VBTX (semi-reverse)

Summary

The Y/Y dividend result is a great illustration of the power of reinvestment – particularly in light of the fact that “fresh” money investment is minimal.  Next week will be the continuation of the 3Rs series which will highlight some of the moves I’m making going into 2019.  You might guess at a couple of them based on my portfolio additions.

Hope all of you had a good month as well.

Crazy Free

I decided to pause my 3Rs series to review one particular event of this past week.  No, not the political spectrum (guilty pleas/verdicts in the US and a new PM in Australia) but the bloodbath incurred in the discount broker space following JP Morgan’s announcement of the commencement of a free trade platform.  In the event you missed it, the Tuesday morning market shudder (per Seeking Alpha) was:

Online brokers slump in premarket trading after JPMorgan (NYSE:JPM) says it’s introducing a mobile investing app bundled with free or discounted trades.

TD Ameritrade (NASDAQ:AMTD) slides 6.5%, Charles Schwab (NYSE:SCHW) -4.9%,  E*Trade (NASDAQ:ETFC-4.5%, Interactive Brokers (NASDAQ:IBKR-3.5%.

JPMorgan +0.7% in premarket trading.

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July 2018 Update

The markets generally shook off potential tariff impacts, choosing instead to focus on earnings and GDP.  Any future concerns being tabled by investors to essentially celebrate the present.   Being a contrarian by nature brings out the caution signs when the market ignores some warning signals.  Tariff advocates Alcoa and Whirlpool took hits when they acknowledged the benefits anticipated were not materializing as expected.  Signs of profiteering are beginning to emerge.  The list of companies indirectly impacted continues to grow.  Technology had issues due in part to China exposure.  Perhaps I can be forgiven for seeing the glass half empty rather than half full.  This month had me on the sidelines with only one transaction to report.  July saw a rise in the S&P of 3.6% while my portfolio outperformed by registering an increase of 5.36%.  YTD I’m now ahead of the S&P by 1.06%.

Portfolio Updates:

Performed a rebalance on a portion of the portfolio.  I reduced the overage in DGX created in May and added shares to the others in this group (ABM, AMT, ARD, BLL, CASY, CHCO, KOF, CCE, CTBI, CCI, AKO.B, HOMB, IRM, LAMR, OUT, NWFL, OCFC, ONB, PLD, QCOM, SRC, SMTA, BATRA, UNIT, VALU, VER).  My DGX holdings remain higher than they were in May and the increase in dividends on this rebalance is negligible.

DIVIDENDS

My main focus resides on dividends.  Market gyrations are to be expected but my goal is to see a rising flow of dividends on an annual basis.  I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

  • July delivered an increase of 29.76% Y/Y, the biggest impact being a June dividend paid in July.   Pro-forma was 19%.
  • July delivered a 3.29% decrease over last quarter (April) due to an interim/final cycle (and would’ve been greater without the dividend move).
  • Dividend increases averaged 14.39% with 66.51% of the portfolio delivering at least one increase (including 1 cut (GE).
  • 2018 Dividends received were 70.19% of 2017 total dividends putting us on pace to exceed last year in early November.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

Spinoffs:

GE‘s rail unit to spin then merge with WEB

GE to spin 80% of the health business

Mergers:

XRX merger with Fujifilm cancelled (now being litigated).

SHPG to merge into TKPYY

GBNK to merge into IBTX

COBZ to merge into BOKF

GNBC to merge into VBTX (semi-reverse)

Summary

All in all a good month but it appears my continuing financial overweight is literally reaping dividends.  This probably needs to be addressed in 2019.

Hope all of you had a good month as well.

Organize – or not

It appears the current theme is organization.  I had to chuckle a little at Dividend Portfolio’s post as I could be the poster boy for his conundrum.   Although finding an elegant solution, I have to side with Mr Robot when he says, “Seems like a nifty feature. I’m afraid I can’t use it since I’m use the free version hosted on wordpress.”  Good old WordPress …   Me?  I have my directory in a Google Sheet and a couple of times per year I go through it all to ensure they aren’t not too stale.  The sites I personally frequent go on my front page allowing for ease of access.  I rotate these out periodically.  Cumbersome? A little.  But functional and the price is right.

Then I caught Mike’s post on decluttering his watchlist.  Now here I am, two for two.  It appears that Mike is ahead in the game since he completed his mission.  In a logical manner, no less.  There is one corner of my desk allocated to notepads.  Obviously I’m a serial procrastinator as several of these have been here for awhile.  Some I’ve entered into a spreadsheet.  Others I’ve discarded.  The remnants I’m still trying to figure out why I thought an idea was good to begin with.  Maybe by Christmas I’ll have the corner cleared.

Then there is always an outlier in the mix.  I could only shake my head the process detailed by Indian Value Investor.  He must have been an overachiever at an early age.  I have to admit he has me beat.  Hands down.  I think I made it through 30 or so reports this year, cross referencing maybe one.  I have, however, spent the better part of this week researching one question – scouring SEC filings, press releases and earnings call transcripts to find the answer.  Indeed the answer was found but only after the markets were closed.  At least that’s one idea I can execute next week.

As with investing styles there is certainly no ‘one-size fits-all’ in the DGI world when it comes to community, review and research.  And that is the beauty of it.

Next question: How much longer can I delay cleaning out the garage?  🙂