The Impact of the Dollars’ Fall on Portfolios

A few years’ back the dollar fell significantly against other currencies around the world.  US citizens who don’t travel overseas may not have seen the impact, but the impact was real in terms of investors in that anyone holding overseas assets (Europe, Canada, Australia) saw a “double return” in that the investments themselves rose and the return after the currency surge was an even bigger boost.

Then the dollar rose against most other currencies, and there were discussions that the Dollar / Euro ratio would move towards 1/1.  In general, if anyone has a prediction about FX, treat it with more than a grain of salt, because the consensus is often very wrong.

ETF’s took notice of investors wanting to get the underlying return of foreign stocks without the impact of the US dollar vs their currency, and ETF’s like HEFA were created.  HEFA takes a non-US portfolio of large capitalization stocks from major markets around the world and hedges them against fluctuations in the US dollar.  While it isn’t a perfect mix (because the underlying weighting of stocks comprising each index are different), HEFA under-performed the Vanguard non-US stock  ETF VEU by a bit less than 10%.  This is what you’d expect because the dollar fell by about 10% when compared to a basket of major market currencies during the last 12 months.

In this case, buying HEFA hurt returns because the dollar fell against foreign currencies.  When the dollar falls, you are better off in foreign assets.  On the other hand, HEFA would have been a superior investment to VEU during all the times when the US dollar was strengthening.

Advertisements

Portfolio Review December 2017

For our portfolios I created a summary view in Google Sheets that updates automatically.  I also “save” performance every month or so (per above) so that you can see performance across time.  Note that this performance also includes additional investments and withdrawals so it isn’t “apples to  apples” but is still useful.  Generally we’ve gone up a lot in total since May along with the total market, and been pretty steady for the last couple of months.

Since moving portfolios to Google Sheets, I also centrally review “all stocks” and update yield (which cannot be determined via a Google Finance formula) manually.  At this time I also go through the stock news and review some of the stocks that may be performance outliers, as well as remove information on stocks that we no longer track (like TTM and SAVE).

Some of the stocks noted:

  • Dow Dupont (DWDP) – the merger has been completed.  The stock is likely to split into three separate companies.  I think we will sell now and take our gains and review the companies later that spin out.  This also saves us from having just a few fractional shares (Portfolio 3)
  • Juniper (JNPR) – there were rumors of a buyout for this network equipment maker.  This company is at risk of remaining independent due to the migration to the cloud.  It went up with the speculation (and back down when it didn’t occur).  Would like to get the sale premium or see it embedded in the stock price.  The problem is that if the sale doesn’t happen, the price usually goes back down (Portfolio 5D)
  • Siemens (SIEGY) – the European conglomerate has held up better than GE in the face of the power meltdown (companies are not buying turbines as often anymore they are moving to solar and wind).  They are likely to spin off their health care business in Europe.  May be a time to sell (Portfolios 3, 5D)

Buying CD’s Through a Brokerage Account

As part of my “basic investing plan“, this site describes how to buy CD’s through your brokerage account.

Buying CD’s through your brokerage is the same as buying them through your bank, except that you typically receive a much higher interest rate. When a bank sets up a CD or savings account and markets it to their existing customers, they typically pay their existing customers much lower than the highest rate available in the market.

Since CD’s are completely interchangeable, you can buy a CD from any bank. If the bank is taken over by the FDIC (Federal Deposit Insurance Corporation), you receive your money back plus accrued interest. During the last financial crisis many of my CD’s were redeemed by the FDIC in this manner.

You can select CD’s from the highest yielding bank. As long as the bank is insured by the FDIC and you are not past your insurance limit for that bank (typically $250k, although this can be higher if you look at joint minimums), you are completely insured by the Federal government and there is no risk of default as long as this program exists.

Here are the current yields for new issue CD’s. They will vary slightly but give a good idea of what you can receive over the next 5 years for no risk. New issues are bought at “par” or 100% of value.

CD yields

11/8/22 2.4% (5 years)

11/8/21 2.15% (4 years)

11/9/20 2% (3 years)

11/12/19 1.75% (2 years)

11/18 1.5% (1 year)

In these instances I am recommending “new issue” CD’s because if you buy an existing issue then it gets more complex. You will buy at some price other than 100% of par depending on interest rates and time outstanding and then you will potentially have gains or losses when or if you sell or hold to maturity. Since the differences are slight and the complexity is unneeded, I typically recommend buying new issues only.

If you need to sell the CD to raise cash for a purchase, you can sell them through the brokerage platform. You will receive a slightly higher or lower price depending on current interest rates vs. interest rates at the time you bought the CD. You will also receive a different amount based on accrued interest (because the purchaser will receive the payment, not you).

Stock Selections Completed, SNAP and the Summer Bull Market

We recently completed our stock buying for the fall of 2017.  We do the stock buying and matching in the fall so that beneficiaries can have the summer to make some money in order to do the match.

It is interesting that of the 6 stocks (and one ETF, IAU or gold) on the list, no one took Snapchat (SNAP).  This is interesting because while it is popular with many of the beneficiaries (they use it), they can segregate whether something is useful or whether it may be a good investment. I had Snapchat on the list because I felt that it had been beaten down by bad sentiment and poor results and because it was burning cash BUT that this also created the opportunity for a turn upward (may be at the bottom).  In the past I’ve been hesitant to put up stocks that are tied to products that the beneficiaries may use day to day because I didn’t want that to bias the selection process but it turns out I was wrong.

With Google Sheets it is much easier to track the portfolio real time.  I have a summary sheet set up like the picture in this post and I can just glance at it on my phone from the google sheets app.  I take snapshots of the values in each portfolio every month or so in order to see simple trends over time.

You can see our summer bull market in the results, although you need to mentally factor out the impact of $11,700 in contributions and $6000 in withdrawals across the period (net inflows of $5700).  Thus based on some simple math above, across the portfolio we saw an increase of $154,073 – $136,791 = $17,282 and then you take out the net inflows of $5700 to get a net increase of $11,582 divided by our base of $136,791 from about 6 months ago which is 8.4% and if you roughly double it (to get annual performance) you see annualized performance of roughly 17% in the portfolio during essentially the summer and most of the fall of 2017.

Sales for September, 2017

We are about to re-invest for the 2017 stock season.  Would like to clear out some of the stocks we no longer want to hold.

Portfolios One, Two and Three – no sales (we made some recent sales in Portfolio One).

Portfolio Four (M):

  • Sell Devon (DVN) – hit hard by recent down turn in oil prices
  • Sell Spirit Airlines (SAVE) – in a price war with much larger competitors

Portfolio Five (D):

  • Sell Spirit Airlines (SAVE) – in a price war with much larger competitors
  • Sell Tata Motors (TTM) – value driven mostly from non-India components (Jaguar and Land Rover)

Portfolio Six:

  • Sell Tata Motors (TTM) – value driven mostly from non-India components (Jaguar and Land Rover)

Portfolio Seven (G):

  • Sell Spirit Airlines (SAVE) – in a price war with much larger competitors

Portfolio Eight (K):

  • Sell Tata Motors (TTM) – value driven mostly from non-India components (Jaguar and Land Rover)

 

T+3 and Stock Sales

Many elements of our stock system are completely antiquated when compared with other facets of our modern society.  One of the most “old-school” elements is the T+3 rule for being able to withdraw cash from your account after you sell stocks.

The “T” is the transaction date.  You can withdraw cash from your account THREE BUSINESS DAYS after the date of the transaction.  That’s a long time… the type of process that made sense when these sorts of events were settled manually and / or with confirmations sent by the US mail.

Here is the definition per Investopedia:

The Securities and Exchange Commission (SEC) sets securities’ settlement periods. For example, with the three-day settlement period, a stock trade occurring on Friday is settled on Wednesday, as long as no holidays occur during that time. Otherwise it takes an additional day, due to the markets being closed on weekends and holidays. The three-day settlement period for stocks was established when cash, checks and physical stock certificates were exchanged through the postal system. Adequate time was needed for traders to efficiently buy or sell the stocks and send money to their accounts or stock certificates to the purchasers.

Although money is now instantly transferred electronically, the settlement period remains in place as a convenience for traders and brokers. However, most online brokers require traders to have enough funds in their accounts before buying stock. Also, most physical stock certificates no longer exist; securities are typically traded electronically and are backed up by account statements.

The broker we use allows you to buy other stocks after the sale… you can immediately re-invest the funds while they wait for the T+3 days until the stocks “officially” clear.  But if you want to actually withdraw the cash, you need to wait all 3 business days.

This practice makes no sense for many reasons, but it is is for the benefit of the industry so I don’t see it changing anytime soon.

New Google Sheets Analytics – Sector, US / Foreign, and Dividend Views

I really enjoy working with Google Sheets and the Google Finance portfolio functions.  Recently I moved tracking from excel to Google Sheets and sent links to the beneficiaries so that when they open the file, the stocks update automatically.  I made 8 of these sheets and sent them to each individual beneficiary, and learned a lot along the way.

There still is some manual and redundant work done within each spreadsheet and for me to track performance, I had to open each sheet individually.  Thus I went to work and built a summary sheet that taps into each of the 8 individual portfolios and shows performance against a 4/30/17 baseline (I just hard coded that baseline).

Recently I expanded that model to take each individual stock in any portfolio and make a consolidated view that included 1) sector information 2) US vs. Foreign 3) Yield 4) description of stock and reason for buying.  Now I can update that table in one place and re-do each of the portfolios 1-8 so that these fields are updated and consistent across each portfolio (I still have to do that, but I will in the relatively near future).  Here is a link to the data in PDF form.

 Portfolio 5/15/17 4/30/17 Change $ Change %
Portfolio One $42,377.71 $41,514.50 $863.21 2.08%
Portfolio Two $33,665.44 $33,334.33 $331.11 0.99%
Portfolio Three $17,972.62 $17,761.07 $211.55 1.19%
Portfolio Four $14,677.84 $14,625.89 $51.95 0.36%
Portfolio Five $14,479.56 $14,582.35 -$102.79 -0.70%
Portfolio Six $7,823.01 $7,834.26 -$11.25 -0.14%
Portfolio Seven $3,941.67 $3,879.91 $61.76 1.59%
Portfolio Eight $3,233.08 $3,258.89 -$25.81 -0.79%
Total $138,170.93 $136,791.20 $1,379.73 1.01%

Continue reading “New Google Sheets Analytics – Sector, US / Foreign, and Dividend Views”