Generally I refrain from back-to-back posts with similar topics but decided to make an exception this week as the moving parts have kicked into high gear. My post last week addressed my uneasiness with cryptocurrency as well as my interest in the underlying blockchain technology. It appears that my view has some support as two blockchain ETFs debuted on January 17th (BLOK and BLCN) and one January 25th (LEGR). This should be followed by KOIN next week. Horizons and Harvest (HBLK) also have ETF applications pending. Grenadier penned a piece on Seeking Alpha that did some analysis on the first two. Four of LEGR’s top five holdings are included in either one or both of the originals so it will probably be similar. David Snowball highlights this sentiment in his piece There’s no idea so dumb that it won’t attract a dozen ETFs stating, “…there are no publicly traded companies that specialize in blockchain; there are mostly companies with a dozen other lines of business that have some sort of efforts going into blockchain.” This is 100% correct.
There have been many times where my opinion of cryptocurrency and blockchain have been sought. My thoughts have always been – and continue to be – that blockchain holds promise while Bitcoin and most of the other cryptocurrency contenders have little merit. Point of fact being I did add to my blockchain centric investments last month while refusing to play in the pure cryptocurrency sandbox. With the current euphoria I decided this week to at least frame my position a little while noting I could be either wrong, premature or both.
Curious minds have pondered the meaning of the Great Tax Reform Act of 2017, properly known as the Tax Cuts and Jobs Act of 2017. The debate has centered on whether repatriation or employee salaries or buybacks or dividend increases or debt repayment or capital investment. Until Walmart, announcements have centered on bonuses or hiring pledges. Not wages. Not anything, really, that is a truly lasting benefit to the working stiff.
And this week is no different. In a nod to the roughly 50% of population that own stock, Thursday, DST Systems announced they were being acquired by SS&C Technologies Holdings in an all cash deal valued at $84 per share. While M&A activity is not an unexpected byproduct of the tax bill, there were two noteworthy items in the release. The first being SSNC’s deal financing being a combination of debt and equity. Current SSNC shareholders will be facing some level of dilution. The second item is that the “significant leverage” will be attenuated through “cost synergies to stem from data center consolidation and reductions in corporate overhead”. This sounds like code words for force and facility reduction. Are there that many data centers on the company books?
Not being a SSNC shareholder (current or apparently future) appears to be a blessing in this merger. As a DST shareholder I will be happy to tender my shares (and vote my proxy in favor of) the deal. My only regrets are two: 1) Kansas City (for which I have a fondness) losing another company’s headquarters , and 2) that I didn’t own more shares.
My shares were purchased in four tranches with an average (post split) basis of $62.71. Total gain will be $21.29 per share or 25.3% total gain (annualized average gain would be about 11.7% depending on when it closes). Not too shabby a return and a good start towards equaling last years’ results. The merger is expected to close in the third quarter.
The only other negative is the (new) tax impact with these gains likely locking me into the higher bracket I was attempting to avoid. My philosophical observation being unless you’re extremely wealthy, the best way to avoid taxes is to make no money. A theory to which I don’t subscribe!
The upward trend continued this month with catalysts being the tax plan and holiday sales. My guess remains that the first half of 2018 will be good for corporations (i.e., dividends and buybacks) with a shift in focus later with deficits and mid-term elections playing a leading role. I remain convinced the yearlong weakness in the US Dollar will continue and expect to allocate more cash into foreign equities during the first half 2018. I will review this plan as my personal tax implications become clearer. For the month, the S&P index increased by .98% while my portfolio increased by 3.29% largely fueled by Financials (again). For the year the S&P increased by a stellar 16.26% while I came in at +20.58%! The S&P return with all dividends reinvested adds about 2.41% which my hybrid approach still beat.
As I wait for the last three dividends of 2017 to post to my account, my final accounting report will delayed into next week. Sure I could just accrue said dividends and release the report but where would the fun in that be? Especially since I can lay claim to being the first official victim of the new tax plan, aka the Tax Cuts and Jobs Act of 2017. As it’s not even effective yet, I guess this is the first – of probably many – unintended consequences to emanate from this bill. This week I’ll also cover my last minute 2017 moves and my first 2018 activity. But first …
On December 12th I celebrated the three year anniversary of this blog’s creation. Although still nothing fancy or glitzy (and probably never will be), I’ve settled into a weekly post routine that generally provides a monthly recap, occasional buy post, strategy brainstorm and/or general meanderings on topical subjects including taxes and or politics. The common thread tying all this together has been investing in general with an emphasis on dividends.
Over the years, I’ve seen blogs come and go, most recently Income Surfer. Some announce their closure and others just fade into the sunset. Of the 447 DGI blogs I encountered since I started, 257 remain active – perhaps less once I audit. That attrition rate (14.2% annually) is greater than I would have expected. The reasons, when known, range from losses in the market (generally high yield issues), lack of patience while the process takes hold (desire for instant gratification), realization of the time involved blogging and the inability to successfully monetize their efforts.
The other end of the spectrum includes the likes of Dividend Daze who embrace the opportunity for success without any illusions of grandeur. Happy Blogiversary by the way!
I would guess I reside somewhere in between. My start was literally therapy. Prescribed during rehab to assist in my recovery from a series of strokes. I visit – and read – a significant number of blogs weekly. I usually comment only when I feel my viewpoint is not redundant to other comments – and I have something worthwhile to add. This due to the effort required to type – what I could do before in 5 minutes now requires 20. You will not find stock analyses in my blog as I did lose most mathematical reasoning. The weirdness is, I can still do Algebra (ROI calculations for one). You will find strategy assessments albeit with a slightly jaundiced view.
A friend of mine calls a couple of times per month to run business ideas off of me (Devils Advocate scenarios). He claims that I can take a shine off an apple even better than I could before the strokes. Apparently there are some benefits – or perhaps I choose to see the positives in life (maybe both?).
Anyway my focus remains providing a map for my wife to follow when the time arises with a reduction in breadth and an emphasis on the central investing thesis. To those who have shared – and perhaps enjoyed – this journey I thank you for your support. To those I offended (unintentionally) I apologize and will attempt to be less offensive going forward.
As the season is upon us I wish you and yours a wonderful holiday and an even better 2018!
In a recent conversation with a friend of mine, the topic of cryptocurrency arose as he has started accepting Bitcoin in his business. Though more enamored over the possibilities of wealth through hoarding and/or trading, he began to look under the hood to figure out why I had a greater fondness for Blockchain over any cryptocurrency. His insight surprised me: “You’re like the sluice box salesman in the California Gold Rush.”
I choose to think of myself as a shortstop hitting singles rather than a home run hitter going for the fence, but his analogy was apt. I prefer to get a slice of many transactions as opposed to getting the big one. I play the percentages. He was able to visualize I place a greater value on the tools (mining), transport (exchanges) and utility (ancillary applications) rather than the commodity itself. Meaning, I’d rather sell the Levi’s than look for (and mine) the gold vein.
It appears the revisions to the tax plan being discussed will be slightly less draconian than previously announced resulting in a little lead time for portfolio adjustments. My guess (pure speculation) is the first half of 2018 will be relatively good but a little choppy. The last half I suspect we’ll be seeing a weaker dollar, a little uptick in inflation and minimal tangible results from the administration’s policies. Anyway, an emphasis on appreciation over dividends in a rising tax environment may result in tax deferral possibilities. This belief is the basis for next years’ strategy as subsequently outlined.
- Continuation of the primary portfolio strategy in regards to moving closer to the defined target allocations. One example of this was my first December purchase, KMB which is an Anchor holding of mine.
- With the tax bill still in an uncertain status, load the maximum allowable contribution to the IRA. These funds have been allocated and will be moved by month end. A small Canadian holding in my taxable account has been identified as my new IRA purchase which will probably be made in January (pre ex-div). A by-product of this will be a temporary overweight status in this issue. Since I don’t like redundant holdings across accounts, my smaller taxable holding will be sold post ex-div. This should shield more income from taxation (under current tax).
- Implemented (December 14th) my side strategy for 2018 titled Sluice Box which is a reference to the Gold Rush days. This represents about 1% of the portfolio and was created (and bought) in my Motif account (shameless plug). The emphasis is on Bitcoin, Blockchain, Growth and my first Swiss stocks with a couple of beaten down issues thrown in.
My 2018 strategy research began in earnest when I encountered Fortune magazines’ November 1st article, In Search Of ‘Vital’ Companies. Of the fifty companies listed, my selection process drilled into the dividend payers – albeit at low yields. Then on November 7th, Investor Place published The 10 Best Growth Stocks You Can Buy Now. I chose to ignore The Dividend Guy’s August 23rd launch of Dividend Growth Rocks as I tend to shy away from paid sites particularly when operated by one person with multiple pseudonyms. Besides, only one of his selections (Nordson – NDSN) was either not owned already or replicated in the other analyses.
Once the data was combined, I removed issues already owned and ones I had no inclination to buy. Basically I had to be convinced of the opportunity and that the price (subjective argument) remained reasonable.
The following table presents my 2018 picks and the primary reason. All but one are dividend payers and I front-loaded my purchase to 2017 to ensure receipt of CME’s special dividend (ex-div Dec 28).
|SLUICE BOX (Motif: 2018 Growth)|
|NVIDIA Corporation (1,2)||NVDA||7.30%||0.32%||Bitcoin chipset|
|CME Group Inc||CME||7.30%||1.76%||Bitcoin Futures|
|Cboe Global Markets Inc||CBOE||6.70%||0.86%||Bitcoin Futures|
|Intercontinental Ex. (1)||ICE||6.80%||1.14%||Coinbase investor|
|Microsoft Corp. (2)||MSFT||6.80%||1.98%||Blockchain (Azure, Ethereum)|
|JPMorgan Chase & Co. (2)||JPM||6.80%||2.68%||Blockchain (hyper ledger)|
|Veritex Holdings Inc||VBTX||5.90%||0.00%||emerging growth co. (JOBS Act)|
|Ottawa Bancorp, Inc.||OTTW||6.10%||1.10%||2-step conversion (growth)|
|Newell Brands Inc||NWL||6.50%||3.02%||Brands|
|Energizer Holdings Inc||ENR||6.50%||2.44%||Brands|
|Cognizant Technology (1)||CTSH||6.50%||0.84%||Future 50|
|Intuit Inc. (1)||INTU||6.70%||1.00%||Future 50|
|Novartis AG (ADR)||NVS||6.70%||3.21%||possible Alcon spin|
|ABB Ltd (ADR)||ABB||6.70%||2.91%||purchased a GE segment|
- Future 50 (also currently own: MA, V)
- Investor Place 10 (also currently own: V, SQ)
- Other Bitcoin/Blockchain indirect investments include: GS, IBM, WU, AMTD
At the very least it will be interesting to observe the Crypto phenomenon in more of a supporting role. I also need to acknowledge Dividend Diplomats whose research on NWL was enlightening.