Category Archives: Investing

Portfolio performance check-up

It’s been a few years since I’ve done one of these but this caught my eye this morning. The green dot represents my portfolio performance vs. risk for the last 5 years. Notice anything strange? Yes, I’ve had a good run with annualized returns of 20.38% over this period but I was also taking on a lot more risk than is prudent. Suffice to say I’ve taken some actions over the last 20 months or so. Now I’m sitting just above the Moderate risk portfolio and I gave up perhaps 3-4% of return to do so. I’ll keep monitoring it over the next few years but I think that’s a good trade off and didn’t want to push my luck. Don’t let things go on auto-pilot… take a look once in a while!

Brexit is wreaking havoc on my 401K

Ok UK citizens, why do you have to wreak havoc on my retirement investments?  It’s not a surprise to anyone how the markets reacted to the shocking news of the United Kingdom leaving the European Union – it tanked globally.  British markets were hit particularly hard, with some shares in the FTSE suspended from trading and the pound sterling at its lowest against the dollar in over three decades.  My own 401K fared just as worse, taking a hit of around 3.5% the first day and continuing to do so until just last night when it rebounded just a bit.  A lot of this is fear of the unknown but I think Brexit itself is containable and things will recover.  It’s what happens if Brexit threatens the break-up of the rest of the EU that people should really worry about.  Before this, I was so sure Brexit would be a non-event that I took my 20% cash holding and went into equity… I should have waited.

A good time to invest?

It’s been a volatile 2014 thus far in terms of investing.  The market went down quite a bit and then recover.  The S&P 500 made a new record high but even with that it’s been down for the year.  Some are nervous if this economic recovery can continue given the unwinding of the Federal Reserve unprecedented monetary policy (quantitative easing 3/QE3/”the taper”).  That’s understandable as prices have not given anyone much confidence.  Toss into that mix Ukraine’s abrupt change of government and Russia’s aggression in the Crimea.  Now people are really nervous.  The Russian rouble have marked a new low against the dollar and markets around the world are reflecting this jittery.

But perhaps because of all of the above now’s the perfect time.  The famed Warren Buffett did say to be greedy when others are fearful and we’re getting close.  It’s worth looking at this market to uncover some undervalued issues and see if you would like to allocate some of your capital there.  Speaking of Buffett, Berkshire Hathaway’s annual report and letter to shareholders have been released.  They are all worth reading for the serious investor who wants to be well informed.  You can find back issues of both on Berkshire’s website and they are worth more than their weight in wisdom.  The part I find very interesting in this year’s annual report is the bit about pensions.

The bottom line is not to look at this as a time to worry… it may just be an opportunity in disguise.

Target (TGT) is a good investment

Target Corporation Store (TGT)

Target (NYSE: TGT)has taken a beating since the whole credit card hacking debacle in late 2013.  They went from a high of $73.50 to under $55.00 – a drop of over 25% in just a few months.  Yes, Target was responsible for the hacking and yes, they may take quite a hit from consumers for it.  But being punished to the tune of 25% was a bit of an overreaction.  The company is still strong and should recover.  Any liability should be minimal.  Target responded properly and took responsibility so I think this will blow over.

Target has a strong balance sheet, a strong history of paying dividends, and has a good image with consumers.  At current prices, the yield is about 2.85%.  Even if Target comes back halfway to its 52 week high, it’s still a gain of over 16%.  There’s no reason it can’t get there and perhaps even more.  I believe in it so much, I took a position in it in late January and it now makes up 9% of my personal portfolio.  This is a pure value play for me – I think it’s just dirt cheap and took a much bigger beating than it deserved.  If you’re waiting for a decent retail stock, Target might just be the right opportunity.

YTD Return

Speaking of retiring, my retirement account is sitting at -2.5% YTD.  I always thought this year was going to be flat in a sideways range or down.  Comparatively speaking, that’s better than the general market, the NASDAQ excepted.  Klarman says not to compare your performance to the market, i.e. don’t put too much stock in relative performance – think absolute performance, and he has a point.  You should always judge an investment on its own merit.  I hate being down, even if better than the market as a whole.  But since my time horizon is long, I’m still feeling great about the investments that I’m holding.  I do have a large position in cash and that’s OK.  But if things are going to go south, I hope they go big.  I want to do some bargain hunting.  Analysts are calling for a 10% correction, but what do they know?  I’m hoping for a little panic so I can pick up stuff cheap.  Not a big, herd wide panic that will put a halt quickly to everything, but just enough so quality issues become undervalue enough that they’re a good pickup.

Once recent pickup for me has been Target based on the same rationale.  The whole credit hacking debacle really did a number on Target.  I believe their response is right on the money.  They didn’t shy away or make any excuses and accepted responsibility.  The exposure for them should be manageable.  Yet the market beat them up pretty bad, putting them at a new 52 week low.  Even if they can get halfway back, it’ll be a nice return.  In the meantime, I’ll collect my dividends and hold onto a quality retailing company.

Retiring early

I’ve had this dream of retiring early.   Perhaps when I reached 30.  At age 24, everything in the world seems possible.  Recently I’ve learned that quite a number of people have actually done it.  Some have done it by age 30 and others by age 38.  One goes by the name of “Mr. Money Moustache“.  The trick to retiring early is to spend less now.  It doesn’t mean to deprive yourself of everything but it does mean figuring out what really matters and what makes you happy.  I knew a guy early on that I suspected has retired early.  In fact, I’m confident of it.  And he was this way.  You just have to figure out how much you’re earning and do what you can to sock as much away into a retirement and separate brokerage account as possible.  The retirement account will allow you the tax deferred growth while the brokerage account will allow you to invest for immediate access should you need it.  And you will at some point when you retire early since tax rules do not allow you to withdraw from a retirement account early unless you make substantially equal periodic withdrawals over your expected life expectancy.  However, you wouldn’t want to tap into that immediately and let it grow tax deferred as long as you can before you begin to do so.

For me, it’s too late to retire at age 30.  But it may not be too late to retire substantially early.  Call it age 50 for now.  Once you do retire though, plan on withdrawing roughly 4% or less of your portfolio per year.  It’s been shown that amount will allow you to have your savings outlast you.  Typically when you do retire, your spending goes down a little bit anyways, regardless of your actual age when you do retire.  Now I just have to convince my wife that we need to spend less!

Stock picks for 2012

Last year at about this time, I selected 4 stocks from the Dow 30 as my picks for 2011. It’s now time to see how they did. They were McDonal’s, Intel, IBM, and DuPont. Bought in 4 equal amounts, the cost basis were:

MCD – $49.8K (650 shares at $76.60)
INTC – $50.0K (2400 shares at $20.85)
IBM – $50.2K (340 shares at $147.48)
DD – $50.0K (1000 shares at $50.03)

All were purchased on 01/03/2011. Total cost basis: $200,039.

At the end of this year (12/30/2011), the market values were:

MCD – $65.2K ($100.33 a share)
INTC – $58.2K ($24.25 a share)
IBM – $62.5K ($183.88 a share)
DD – $45.8K ($45.78 a share)

Total value = $237.9K ($231.7K in equities & $6.1K in dividends). Total gain for 2011: 18.90%. By comparison, the Dow 30 was up 5.53% in 2011 and the S&P 500 was flat at -0.04% for 2011.

For 2012, I’m buying these 4 stocks from the Dow 30 in equal dollar amounts:

MRK, INTC, CVX, and WMT (Merck, Intel, Chevron and Walmart). The only remaining stock in that basket from last year is Intel, although both DuPont & IBM were close in making the cut again. Check back next new year’s to see how these stocks fare. If I can beat the market next year as well, awesome. Good luck investing!