With the first half of the year behind us, it appears that it’s reassessment and reflection time. Tawcan is doing a three-parter on his review which got me thinking about my portfolio. We all know I’ve been sucking wind this year as being overweight financials came back to haunt me. Forget about the alpha and outperformance since 2014 riding the M&A wave. My mistake, in hindsight, was in not unwinding my positions with Biden’s election. Republicans generally are more favorable to mergers than Democrats. My second mistake was in failing to consider many banks positioning themselves in long-dated maturities in a rising rate environment. If not properly hedged, this is suicidal. This combination was (I believe) the root cause of my dismal 2023 as outside of Financials, the portfolio is pretty much on par with the indexes.
Tawcan’s soul searching was refreshing as we do hold 25 issues in common. Interestingly, of these, Tawcan and I diverge on only one, Manulife (MFC) and it is more of a personal preference matter rather than disagreement on rationale. Slight differences also occur usually on whether one of us is overweight. I also appear to be more cautious on Telus (TU) and he’s more cautious on TC Energy (TRP). For grins, I included the Schwab and Market Edge ratings as well. (I did drop BNS and CM’s rating subsequent to Tawcan’s analysis).
Part of the broadness of my portfolio came via the rise of thematic investing (Loyal3, Motif) rather than utilizing ETFs.
While the historical reasons for my financial slant are best summed in this post, the real question is, “What does the future hold?” To this end, my goals remain:
- Reduce the number of holdings
- Use short-term CDs to park excess cash waiting deployment
- Balance the portfolio to the strategy (reduce the underweight issues)
- Complete the ‘rounding up’ of issues that formerly had fractionals
Regional Banking was one of the themes I embraced. As of this past February, I must conclude that this strategy met its end. This isn’t to say that there will be no more mergers in this space, only that the former premiums enjoyed are no longer there. Therefore, as the environment changes so does the rationale for the strategy.
I had been methodically reducing the portfolio – generally when the market was advantageous (e.g., when I had both a capital gain and positive total return). With Tawcan’s analysis, the realization struck that total return could be key. As many of my positions are ancillary (and targeted for exit), even though Mr. Market is not cooperating fully in the present as long as my total return is positive a tax loss could be booked while achieving positive total return – particularly as most of these are long-term holdings. This is most pertinent regarding the issues that have stopped growing their dividend, but potentially applicable across the board.
My wife and I recently concluded we’re fully entering the final investing stage. We’ve been teetering between the Accumulation and Disbursement phase for a few years and decided to begin the approximately two-year countdown now that the granddaughter is in her final year (or so) of college. During the countdown period, we will realign some of the investments with a view towards maximum tax efficiency.
One example is: we will begin the full drawdown of her contributory IRA using tax-loss harvesting techniques to reduce the tax burden by perhaps half. As she has aged out of the maximum allowed for contributions, it makes some sense to use the tax offset. We will retain her Rollover IRA as she has a 401K that will ultimately be incorporated. As we’ll need a new car prior to embarking on the next phase, we’ll be moving stock from her IRA (which is not included in the reported numbers) to the taxable account (which is included) with cash then moved from the brokerage to a segmented account targeted for the new car. We are also looking to downsize the house as we get closer to the goal. So #2 and #3 may be at risk as I move large chunks of first Apple (AAPL) then Starbucks (SBUX) into the account. Also, to maximize cash, I toggled off the DRIP for all issues effective August 31st.
This explains why my posts have been irregular, but future ones should be more targeted on transactions. Next week: Month End reporting.
Seeking Returns 