Portfolio Update October 2020

All of the beneficiaries have made their contributions and they have been matched and it is about time to select new stocks for fall 2020. There were some delays because one of the portfolios was moved from the trustee to the beneficiary and then we had to set up agency and connect to other accounts. These sorts of activities generally take a long time with external financial institutions and require a few interactions with support so they demand patience and focus. We are still working through a few tweaks even now.

Performance Oct 2020

Before we select stocks for 2020, we will look back on performance so far. Our low, like most portfolios, occurred in March 2020. Since that point, ignoring new investment, we are up 46%. If you take into account the portions of the portfolio that are in cash or bonds, our portion “in the market” is up even more, at 56%, in about six months (half a year).

Given that the long term expectation of stock market performance is 6-7%, we basically received perhaps 8 or so years of returns in six months, albeit from a reduced base (measuring from the lowest point in the markets).

This performance shows the importance of remaining in the market during risky times – if we had sold off and gone into cash / bonds during the lowest point, we would have missed out on this period of exceptional gains. On the other hand, we have no expectations of the future and equities could have entered an era of low gains and poor performance such as occurred after the dot.com crash near the year 2000 or the 2007-8 financial crisis.

Stock Performance as of August, 2020

Performance as of 8/3/20

Our portfolios have continued to do well, as they are composed of many of the same stocks that are driving the NASDAQ higher. During the months of June and July, our portfolios increased between 5 and 17%, with the primary differentiator across portfolios being the percentage invested in high growth (mainly tech) stocks and the percentage in cash and more conservative investments. We also have seen a fall in the US dollar which could increase the relative appeal of foreign stocks over time (they have generally lagged far behind their US equivalents).

Portfolio Performance as of June 2020

Our portfolios have recovered most of the losses and are back near the peaks from February 2020, right before the Covid rout. We also recently picked stocks and made adjustments in many of the portfolios. Since all the sheets are connected in Google sheets, I generally pick a weekend and update all the stocks in the portfolio, and then do the individual “sheets” for each of the 8 portfolios from common data (the files are linked).

It seems strange to show such good stock performance at a time when there is disruption and looting in the streets but often markets are not linked for whatever reason. These stocks are heavily weighted towards information technology and / or “platform” companies (including fintech and payments) as are most portfolios that have held up well.

Portfolios as of 5-31-20
Portfolios as of 5-31-20


Portfolio Performance As of May 2020 and Replacement Stock Selections

The stock market has recovered almost all of the losses incurred with the pandemic.  From peak to trough (Feb 2020 to March 2020) we lost about 23% of our value.  Today, we are down about 7% from peak.  Our percentages do not completely align with the market because some portfolios hold up to 20% cash and some bond investments (BND ETF from Vanguard) and Gold (IAU ETF ticker).  This performance generally aligns with riding the market down and then back up again.Portfolio Performance May 10 2020

Whether by luck or design, our portfolios did not hold most of the industries that bore the brunt of the Covid impact, like airlines, hotels, and commodities. We did have some stocks that we recently sold in some of these hard hit areas.

I reviewed the rest of the portfolio and we are continually “pruning down” the list of stocks that we hold. There are about 30 stocks held across the portfolio right now, down from about 40 or so in the relatively recent past. This does not include ETF’s.

The stocks that have driven the most value in the portfolio that are not bought across all the portfolio (because every beneficiary selects individually) are:

  • Electronic Arts (EA) – videogames
  • Mastercard (MA) – electronic payments & credit cards
  • CME Group (CME) – financial services
  • Alibaba (BABA) – Chinese e-commerce giant
  • Nvida (NVDA) – semiconductors
  • OKTA (OKTA) – SAAS provider of security services
  • Paypal (PYPL) – electronic payments
  • Procter & Gamble (PG) – iconic brand company
  • Taiwan Semi-conductor (TSM) – semiconductors
  • Union Pacific (UNP) – Railways
  • Gold ETF (IAU) – tracks price of gold

If the portfolios that are selecting new stocks don’t currently own one of the stocks listed above, they may want to consider buying them.

New stocks for May 2020:

  • Carrier (CARR) – manufacture and sale of Heating and cooling systems (HVAC).  Recently spun out from a conglomerate
  • Facebook (FB) – owner of Facebook, Instagram, and WhatsApp seems to have recovered from past controversies
  • Cloudflare (NET) – security and edge networking has been growing with the crisis

Stocks To Pick:

Portfolio Four – select three stocks

Portfolio Five – select two stocks

Portfolio Six – select one stock

Portfolio Update April 2020

The markets have moved up and down since the lows hit in March, 2020. The government has taken a number of moves to shore up the market, including reducing interest rates, back-stopping some industries, and even buying some corporate debt instruments and ETF’s. After some incredible moves up and down, the markets are back to about where they were at the end of Q3 2019.

Portfolio April 12, 2020
Portfolio April 12, 2020

Our stocks mostly went down with the overall market, although some performed better. Specific sectors, like energy and airlines, were particularly hard hit. The Coronavirus is making us reconsider our core assumptions in light of how the market has been performing recently. We may sell out of some sectors to avoid potential further declines.

Portfolio One:

  • Exxon Mobil (XOM) – while well run and with a good dividend, the energy sector is facing significant challenges with reduced oil prices and this stock has been stuck and declining for a decade.  Consider selling.
  • Toronto Dominion (TD) – this is a well run Canadian Bank with trading exposure.  However, banks face unknown challenges with debt defaults and trading commissions have recently evaporated.  Consider selling

Portfolio Four:

  • Oracle (ORCL) – Oracle is famous for being ruthlessly well run and has held up well in the market turmoil.  However, they piled on debt to keep up earnings per share through stock buybacks and are generally passed by in most areas of Technology.  Consider selling
  • Nucor (NUE) – A good company with a good dividend that hasn’t risen in many years even in a favorable regulatory environment.  Consider selling
  • Royal Dutch Sell (RDS.B) – large European oil & gas producer hit hard by oil price downturn.  Consider selling
  • Westpac Banking Group (WBK) – large Australian bank hit by recent market turmoil and other issues.  Has been stagnant or falling for many years.  Consider selling

Portfolio Five:

  • Baozun (BZUN) – Chinese e-commerce enabling company has been down for some time in terms of stock price.  Poised to be successful in future growth.  May want to consider selling
  • Canadian Imperial Bank of Commerce (CM) – Canadian bank with high dividend that has been down more than the market.  Consider selling
  • General Motors (GM) – US car maker hit by reduced demand for cars and fight with the president.  Consider selling
  • Siemens (SIEGY) – German industrial company that is spinning off components and hit with market events.  Consider selling.  May look at buying pieces of the company later post restructuring

Portfolio Six:

  • Baozun (BZUN) – Chinese e-commerce enabling company has been down for some time in terms of stock price.  Poised to be successful in future growth.  May want to consider selling
  • Royal Dutch Sell (RDS.B) – large European oil & gas producer hit hard by oil price downturn.  Consider selling
  • Exxon Mobil (XOM) – while well run and with a good dividend, the energy sector is facing significant challenges with reduced oil prices and this stock has been stuck and declining for a decade.  Consider selling

Portfolio Seven:

  • Baozun (BZUN) – Chinese e-commerce enabling company has been down for some time in terms of stock price.  Poised to be successful in future growth.  May want to consider selling
  • General Motors (GM) – US car maker hit by reduced demand for cars and fight with the president.  Consider selling

Portfolio Eight:

  • Baozun (BZUN) – Chinese e-commerce enabling company has been down for some time in terms of stock price.  Poised to be successful in future growth.  May want to consider selling
  • General Motors (GM) – US car maker hit by reduced demand for cars and fight with the president.  Consider selling


Portfolio Updates March 2020

It has been a difficult period for markets in March 2020 with the economic impacts of Coronavirus.  The markets are generally down about 30% which is reflected in our portfolios, below.  Activity is also changing quickly and there isn’t a clear pattern or floor on stock prices.  Our total value of $164k is about what it was 2 years ago in mid-2018.

Portfolio Performance March 2020
Portfolio Performance March 2020

I am now in the process of reviewing stocks that have either performed significantly better than the market or significantly worse.  A quick review of the portfolio has some stock categories that are facing major headwinds:

  • Oil and gas stocks have not only been hit by the market reductions, they’ve been battered by the decrease in oil prices down near $20 / barrel, an unprecedented number we haven’t seen in almost 20 years.
  • Auto stocks are sensitive to demand and have a heavy capital intensity.  They have been hit very hard by this situation
  • Fortunately we did not have any airlines or aircraft manufacturers in the portfolio, or any hotel or cruise ship operators.  These industries may be facing something near extinction in their current forms
  • Only a few stocks have bucked a near-30% decline – grocery retailers like Wal-Mart and some drug stocks (within our portfolio).  Some of the tech stocks are also holding up reasonably well and may in fact be bargains
  • European and Asian stocks are getting a double-whammy in that the US dollar is increasing in value.  This compounds their losses
  • We did not have a lot of exposure to banks, but did have some Canadian and Australian banks for currency diversification.  The governments may intervene but most banks are likely insolvent when you look at the likely level of defaults and decreasing value of their loans and underlying assets

It is important to remember that we started these portfolios literally on September 12, 2001 – the day after 9/11.  In the long term, equities and investing have been good to us and the method of the trustee making a deposit and then matching the beneficiary means that in almost all conceivable cases the beneficiary would lose “net” on their contributions.

However, it is time to revisit investment assumptions and refresh approaches to sectors and countries.  A 30% reduction in values and an economic reset is an excellent time to re-think for a go-forward plan.

Portfolio Six Updated February 2020

Portfolio 6 is 7 1/2 years old.  The beneficiary contributed $4000 and the trustee $8000 for a total of $12,000.  The current value is $14,858 for a gain of $2,858 or 24%, which is 4.7% / year when adjusted for timing of cash flows.  See details here or at the link.

During 2019 we had 2 sales for a long term capital loss of ($307) and dividends of $221 for tax purposes (see 1099 for exact values these are estimates).

The stocks on watch for this portfolio are

  • Exxon Mobil (XOM) – while this oil and gas company is well managed and has a high dividend, the stock price has not improved in many years and the large oil companies were hit recently with the reduction in commodity prices.  Will be painful to give up on this stock but am considering it
  • Royal Dutch Shell (RDS.B) – like Exxon Mobil, this integrated oil and gas company pays a very high dividend but has not improved in many years.  It also was hit by recent commodity price drops
  • Baozun (BZUN) – Chinese e commerce company is well run but has been hit by recent geopolitical events

Portfolio Two Updated February 2020

Portfolio 2 is 15 1/2 years old.  The beneficiary contributed $8000 and the trustee $16,200 for a total of $24,200.  The current value is $46,438 for a gain of $22,438 or 93%, which is 7.3% / year adjusted for the timing of cash flows.  See a summary here or at the link on the side.

The ETF’s in the portfolio are doing well.  We sold the ETF IBB this year for a $200 gain, and had some small gains paid out from the ETF HEFA (Vanguard ETF’s don’t pay out gains or losses) as well as dividends.

There is a lot of cash at $12,799 with $5100 in the bond fund (BND).  May want to consider putting some of it back in the market or in the gold ETF (IAU).

Portfolio One Updated February, 2020

Portfolio One is our oldest portfolio at 18 1/2 years.  The current value is $55,208 vs. investment (net of withdrawals) of $21,000, for a gain of $34,208 or 163% which is 7.7% / year adjusted for the timing of cash flows.

In 2019 we only had one sale for a loss of ($364) and dividends of $679 (use the exact amounts on the 1099 tax form).

The stocks are currently doing well.  Exxon Mobil (XOM) is the laggard of the lot, as traditional energy stocks have been hit by declining crude and natural gas prices and an aversion to this sector by investors.  It is difficult for me to recommend selling this stock because it is well run and has a strong history of management discipline but we may consider it.

Portfolio 1 Price Momentum


Consolidated Performance Through February 2020

The portfolios are up about 5% for YTD 2020.  This is roughly in line with benchmarks – US markets are up around 5% and non-US markets are down 3% (down 2% when you take out the additional impact of the strengthening US dollar).  The markets have kept rising after the large gains in 2019 and with the headwinds of many international events.

Consolidated Portfolio Performance Through Feb 2020

Consolidated Portfolio View, December 2019

Trust fund performance December 2019
Trust fund performance December 2019

We run eight portfolios that range in age from 4 to 18 years.  The portfolios are primarily invested in individual US and world-wide stocks, with approximately 17% of the $203,475 in cash / bonds.

The 8 portfolios combined have grown about 18% during the year 2019 (not including additional contributions).

This is a bit lower than the 29% return for VTI (a proxy for the US market) and 21% return for VEU (a proxy for the non-US market) weighted for cash (since we have 17% cash & bonds, we are only 83% in the market),  but reasonably competitive.  An average benchmark for us (split between US and non-US) and weighted for equity participation would be about 20%.

Don’t forget dividends… often when people look at market performance they focus on the share prices and not the total returns.  Our portfolio in total across all 8 beneficiaries returns about $4000 / year in dividend and interest income or a 2% yield.  While this seems small in a time of rising markets, dividends & interest are a substantial component of total market earnings over time.

These results have been satisfying but our eyes are substantially on the long term.  The markets have been moving up but they could turn and as such we will remain watchful.

Portfolio One Updated October, 2019

Portfolio One is our longest lived fund, at 18 years.  The beneficiary contributed $3000 (net of withdrawals) and the trustee $18,000 for a total of $21,000.  The current value is $50,749 for a gain of $29,749 or 146%, which is 6.8% / year adjusted for the timing of cash flows.  You can see a summary at the link on the right or here.

Right now the portfolio has 20% cash and 18 individual stocks, which are doing well.  To date, dividends have contributed $8,171 to our returns which is 27% of our total returns.  Often dividends are ignored when you just look at price trends but they are significant in the longer term.

Stock Selections for 2019

This year we will have two lists of stock selections.  The first list will be a small list of new selections for 2019, split between US and foreign companies.

The second list will have stocks that are from existing portfolios to choose from, splits between US and foreign companies, if the individual portfolio doesn’t already have these stocks (we want diversification until you get to 15 or so stocks).

New Selections for 2019 – US:

  1. OTKA (OKTA) – OKTA is a software provider of access and authentication solutions for businesses.  OKTA pays no dividends.  It has been on a great run and is used by many major corporations.  It recently went down about 25% from all time highs which is a better price point to purchase.  A new competitor, PING, recently went public and saw its valuation go up, as well (OKTA’s market cap is about 10x bigger)
  2. Abbvie (ABBV) – Abbvie is a pharmaceutical company with a high dividend of almost 6% whose stock price went down almost by half after a recent merger, although it recently recovered some of the loss.  This also may be a good price point to purchase the stock.
  3. Starbucks (SBUX) – Starbucks is an iconic US brand.  The stock pays a modest dividend of 1.6%.  They are focused on profitable growth.

New Selections for 2019 – Non US

  1. BHP (BHP) – BHP is an Australian natural resources (mining / commodities) giant with a high 5.2% dividend.  They are diversified and well run (some competitors like VALE have had significant challenges recently)
  2.  Accenture (ACN) – Accenture is a world wide consulting and outsourcing company headquartered in the Bahamas with a modest 1.5% dividend.  About half their revenues are from North America.  They are well run and a leader in the consulting space

Stocks in US Portfolio to Consider (if not owned already):

  • American Electric Power (AEP) – Utility with 2.8% dividend
  • CME Group (CME) – futures exchange with combined dividends and special dividends more than 3% annually
  • Facebook (FB) – software company with excellent stock performance even after all the publicity.  Paying a few billion for Instagram may be one of the best purchases ever
  • Gold ETF (IAU) – gold does not pay a dividend but the price of gold has recently started rising with risk and high levels of debt behind major countries
  • Coca Cola (KO) – Coke pays a 2.9% dividend and is well run and focused on profits
  • Mastercard (MA) – Mastercard benefits from the rise in mobile payments and move away from checks and cash, and pays a very small 0.5% dividend
  • Procter & Gamble (PG) – Procter and Gamble owns and manages many brands and has a solid 2.5% dividend
  • PayPal (PYPL) – PayPal has done well since its split from EBAY (pays no dividend)

Non US Stocks in Portfolio to Consider (if not owned already):

  • Alibaba (BABA) – Chinese ecommerce giant (no dividend)
  • Taiwan Semiconductor (TSM) – Taiwanese chip builder with high 3.6% dividend
  • Unilever (UL) – European company that owns and manages brands with a good 3% dividend

Stock Selections per Portfolio:

  • Portfolio One – to discuss (significant amounts in cash)
  • Portfolio Two – ETF’s and cash, to discuss (40% cash now)
  • Portfolio Three – will move away from stocks and into ETF’s.  Will discuss between VTI (US), VEU (Non US), HEFA (Non US hedged), cash, and IAU (Gold)
  • Portfolio Four M – 3 stocks
  • Portfolio Five D – 4 stocks
  • Portfolio Six – 3 stocks
  • Portfolio Seven G – 2 stocks
  • Portfolio Eight K – 2 stocks

September 2019 Overview

We are about to select stocks for 2019.  I just took a bit to update the portfolios that we keep in a consolidated Google Sheets document with the latest stock sales and cash updates and tied them out to the brokerage statements.

2018-9 have been choppy years with ups and downs (up about 15% for US markets over the last 18 months or so), but we’ve generally done OK as you can see below (I will calculate performance for each portfolio adjusting for the timing of cash flows after purchasing the 2019 stocks).

These numbers also reflect the $10,500 in contributions that we just made (7 beneficiaries contributed $500 each and the trustee $1000 each for a total of $10,500 – with one more to go).

Capital Gains

Under certain circumstances we need to sell individual stocks and move into ETF’s.  If you are at an accounting or auditing firm, they often make you sell stocks of companies that they are auditing and generally ask a lot of questions if you say that you have stocks at all.  Thus it is easier to sell them and go with ETF’s during that period.

When you sell stocks, you typically have to pay tax on your gains.  Long term gains / losses are for stocks that are held > 1 year and short term gains / losses are for stocks that are held less than < 1.

After the 2017 tax changes, there is very favorable treatment for capital gains when you have a low income.  If you have less than $39,375 in income, you have a long-term capital gains tax rate of zero (short term gains and losses are taxed at a different rate, closer to “ordinary income”).

We have these portfolios starting while the beneficiary is in jr. high onward.  Thus we have an opportunity to sell off the stocks with no capital gain taxes paid, which essentially “re-sets” the basis on the amounts invested.  This is very valuable.  The portfolio in question has over $4400 in gains and would have owed perhaps $1000 in taxes under previous methods; instead, the tax bill is zero.