he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets. While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931. Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.
What a start to the final month of the year. At least there is a little something for everyone. First the CME tripped the first wave of circuit breakers in the futures market. Then the chartists found the S&P closed the week in a death cross. Then there’s news of a possible yield curve inversion. Lest we not forget, the most recent China issue which may or may not even be legal. While the Huawei issue is unfolding, Lighthizer continues to stir the pot by saying he considers March 1 “a hard deadline” otherwise the delayed tariffs will be imposed. Hmm … kind of like bringing a gun to a knife fight – or – perhaps the administration really believes that “free and fair trade” is an outgrowth of convoluted negotiations.
If week one is any indication, the traditional “Santa Claus Rally” will be delivering a lump of coal this year. Being the eternal optimist, I’ll argue Christmas isn’t here yet so I had to take advantage of the sell-off to do a little buying:
- First, I added to my ETF group. I accomplished two things with this:
- As the majority of these are foreign, they are underwater. Therefore, an ‘average down’ scenario.
- These all pay December dividends (one quarterly, three semi-annual and one annual) all yet undeclared. All are now captured.
- Second I executed a rebalance on a small portion of the portfolio. I chose a ‘rebalance’ as the fees were lower than the alternatives. End result being:
- Sale of BOKF. I had this issue in two accounts due to a merger, now it’s only in one, with the proceeds and accumulated dividends:
- Added to ADP, MMM, KIM, FAF as these are underweight target holdings
- Added to AVNS as they may have received a good price for the division sold to OMI
- Added to LARK and CASS – missing the ex-date for the stock dividends
- Added to BR, CNDT, CDK, FHN, JHG, KSU, PJT, WU, XRX – capturing WU’s December dividend
I still have another rebalance queued pending completion of a merger (might be into the new year) and then we return to normal operations.
I also will be selling my OMI – perhaps later in the month to see if Santa really exists!
A few days late since Easter got in the way with the markets being closed March 30th and dividends not being posted in a timely manner. FX transactions were also delayed impacting my final accounting for the month and quarter. This month the DOWs first quarterly loss since 2015 grabbed the headlines while the news getting my attention was the rising Libor particularly with its potential impact on adjustable rate mortgages and business loans. March saw the S&P drop 2.69% and for the first time this year my portfolio outperformed the index by registering a drop of 0.06%! YTD I still lag the S&P by 0.81%.
- Added to PWOD, WU and ABB
- Initiated a position in VLVLY
This is where my main focus resides. 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 amount of semi-annual, interim/final and annual cycles have been steadily increasing.
- March delivered an increase of 39.79% Y/Y fueled by dividend increases and purchases. In particular, my December buys were almost exclusively March payers.
- March delivered a 11.44% increase over last quarter (December).
- Dividend increases averaged 11.25% with 40.3% of the portfolio delivering at least one increase (including 1 cut (GE) and 1 suspension (DST see M&A).
- 2018 Dividends received were 29.3% of 2017 total dividends putting us on pace to exceed last year in early November.
Spirit Realty Capital (SRC) – Mar 6, Form 10 was filed publicly with spin completion targeted for 1H 2018.
Jan 13 – DST announced it was merging with SS&C for $84 cash per share. As part of the merger agreement, the dividend has been suspended – the merger received shareholder approval on March 28th. I expect the deal to complete in April or May.
Jan 31 – XRX announced a merger with Fujifilm for stock and $9.80 in cash.
A few others are rumored to be in play including Humana and Shire.
With my March call being spot on (… it appears we’re getting a preview of March Madness in the form of a Trump induced possible trade war.) the Paychex jobs data (small business) released this morning is keeping me in a cautious mood. Yes it is only a one month view showing fewer jobs – but small businesses are supposed to be the economic driver in Trump World. Perhaps it’s an aberration – but one to keep an eye on. Overall a good month in spite of tariff uncertainty.
Hope all of you had a good month as well.
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.
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.