Squirrel!!!

Dug (the dog), from the movie Up, 2009

Which is essentially a metaphor for being easily distracted. Which may be the answer to Buy, Hold Long’s comment on last week’s post. The more complete answer would be the final 10% is more complex than anticipated and other than one outlier (so far), the corrections to my cost basis has generally been within a couple of dollars – mostly lower. So yes, I recognize the need – and have the desire for – accurate reporting, but complex algorithms take a brain toll and to rest I hunt (figuratively) squirrels!

A thought can be like squirrels and one of my recent squirrels was compliments of Buy, Hold Long’s post (congrats on the good month, by the way) where he comments on his recent purchase, APN Asian REIT. His statement, “Take a look here to see how its going” is like telling me ‘hey, how about this rabbit (in this case, squirrel) hole‘. Simply irresistible.

Not a bad choice, in my view, but the fees, structure and liquidity raise a few questions mitigated by the historical performance and geographic diversification. As essentially a REIT of REITs (kind of like a reverse engineered Banker’s Bank), my adversity to fees (even reasonable ones) got me questioning why not a company with diverse real estate holdings (like Hong Kong’s Swire Pacific (SWRAY) with property in Hong Kong, mainland China and the US? Only then did I realize it was a moot point (squirrel) as APN Asia is not registered for sale outside of Australia and New Zealand.

Another type to consider is the rabid squirrel with one of the symptoms being unprovoked aggression or unexplained fearlessness. One of my ongoing diversions concerns the banks caught up in the ongoing investigations surrounding our illustrious president and his surrounding minions. While I have yet to identify a sound investing thesis, the list continues to grow. From a former board seat (Ivanka, SBNY), suspicious activity reports (FRC, RY), subpoenas (DB, COF) and questionable loans to Cohen and/or Manafort (CFG, STL, BANC). Perhaps most rabid being the private Illinois bank that allegedly loaned Manafort a sizable sum that representing about a quarter of their loan portfolio. I’m still waiting for the Fed’s answer to that one.

Then there’s the rabble-rousing one best illustrated by the Ray Stevens classic, Mississippi Squirrel Revival. From the ‘amen pew’ we hear from the Green New Dealers. While generally in agreement with their goals, I’m troubled by parts of their messaging. One area that has my sporadic attention is the topic of corporate welfare. I’ve been working on a file of subsidies granted since Trump took office. While far from complete, the initial findings are that the majority of subsidies are SBA loans for small businesses, which have roughly a 17.5% default rate. Next up are loans for hurricane recovery (as most of these are managed by the SBA, they are in the “corporate welfare” classification). Surprisingly, Federal research grants for alternative fuel sources (battery, solar) were granted by the Energy Department. The larger problem I envision is the fact that these subsidies are provided to large and small companies, foreign and domestic. Charities and religious organizations get a piece of the action as well. Inquiring minds are begging for an answer as to how this will be voiced through the upcoming election cycle. Although not directly an investing theory, my attempt is to identify foreign companies that have proven adept at being subsidized by the American taxpayer. It is another area that heeds Dug’s Squirrel! siren call.

Some of these ideas will bear investing fruit, most probably won’t. The larger question will probably be whether these types of subsidies are permitted under WTO regulations. But the research is enlightening and provides a welcome relief to the tediousness of spreadsheet formulas!

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Some Random Meanderings

Now that I’ve presented my 2019 game plan and my positioning moves planned for the last quarter, the time is ripe to see the strategies embraced by others.   First off the blocks was Credit Suisse with a projection of an 11% upside with some volatility.  I can’t disagree with the answer but question the methodology.  Their belief is the rise will mainly be on the backs of investors willing to pay up for quality (margin expansion).  My belief is that it will be riding the back of productivity increases as a result of the tax plan.  At least we both recognize that the Y/Y EPS growth rate is generally not sustainable.

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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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Moral Investing

Making the headlines this past week was the atrocious scene along our border.  Being an event driven investor, I had to at least take a look at the situation to – at a minimum – determine my exposure and whether strategy adjustments are  necessary.

I’m not a prude by any stretch of the imagination but (outside of ETFs) have never invested in tobacco stocks.  I have minimal exposure to wine and spirits.  While I’m not casting aspersions on those that do, I figure there are more than enough alternatives that better fit my preferences.

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Feb 2018 Update

The theme for the month was volatility.  A couple of ETNs cratered as a result of the high volatility causing investors to lose significantly when using these levered products.   “We sincerely apologize for causing significant difficulties to investors,” Nomura said.  Credit Suisse stated “investors who held shares of XIV had bet against at volatility at their own risk.  It worked well for a long time until it didn’t, which is generally what happens in markets”.   Caveat emptor.

During the month, the S&P index dipped into correction territory before rallying to close the month down 3.89%.  My portfolio sympathized with the index closing down 5.53%.  I never hit correction so my peak drop was less but I also failed to recover as quickly.  Probably an area to perform a root cause analysis on at some point.  Following back-to-back monthly losses against the S&P, I’m down 3.44%  to start the year. Continue reading

Volatility Returns!

With the wild ride in the markets this week, I perused some of the community’s blogs to gauge the reaction.  While not meeting scientific norms regarding sample size, I was surprised by the lack of reference to the pullback in 66% of them – including ones with posts as recent as yesterday.  Perhaps it’s a lack of funds to take advantage or the deer in the headlights syndrome.  One blog, Fully Franked Finance, had a timely piece a few days prior which stated the importance of a ‘shopping list’ – as many others also encourage.  I too, engage in a strategy which emulates  the ‘shopping list’ strategy.  So, what were my moves so far this month?

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Jan 2018 Update

The market came out of the chutes and barely looked back this month, the catalysts being the realization of the tax plan’s impact on corporate earnings and few earnings reports being significant disappointments.  The lower tax rates started trickling  into paychecks (average about 3.5%) but the average gas price nationwide increased by roughly 5% primarily due to the weakness in the US dollar  (caused in part by the prospects of increased deficits from the tax plan that haven’t been offset by jobs, productivity or GDP gains yet).  At least we can watch commercials touting unrealized benefits even though it is way too early for any tangible impact to  be realized.  Kind of makes me wonder a little.  For the month, the S&P index increased by 5.62%% while my portfolio value increased by merely 3.81% putting me behind by 1.81% to start the year. Continue reading