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 Four Updated December 2019

Portfolio Four is 10 years old.  The beneficiary contributed $5500 and the trustee $11,000 for a total of $16,500.  The current value is $22,566 for a gain of $6,016 or 37%, which is 5.1% / year when adjusted for the timing of cash flows.  You can see a summary here or at the link on the right.

The portfolio has 19 stocks.  Big gains have come from Appian (APPN), Elbit Systems (ESLT), Procter & Gamble (PG), Oracle (ORCL) and Wal-Mart (WMT).  It is important to factor in the impact of dividends on stocks held a long time; for example Royal Dutch Shell (RDS.B) and Westpac (WBK) look like “losers” from a stock price perspective – but when dividends are (properly) included, they move into the winning column.

Portfolio Update August, 2019

As of August 2019, our combined portfolios are back to where they were in August of last year. This is mostly in line with VTI (Vanguard US market ETF) which was up about 3% and VEU (non US market ETF which was up about 1%).

Below are stocks to consider selling prior to the new purchases:

Portfolio One:

  • Nnvidia (NVDA) – the once high flying chipmaker stock is hit with slowing growth
  • Equinor (EQNR) – former Statoil is a Norwegian oil company hit by falling price of their currency and anti-oil sentiment in their own country

Portfolio Three:

  • Baidu (BIDU) – Chinese search engine less relevant in mobile era and new investments not yet paying off
  • Nnvidia (NVDA) – the once high flying chipmaker stock is hit with slowing growth
  • ConocoPhillips (COP) – US oil company hit by lower energy prices and relatively smaller footprint

Portfolio Four:

  • Equinor (EQNR) – former Statoil is a Norwegian oil company hit by falling price of their currency and anti-oil sentiment in their own country
  • Nnvidia (NVDA) – the once high flying chipmaker stock is hit with slowing growth
  • Box (BOX) – US SAAS provider not yet acquired by larger company and hit by recent earnings miss
  • Oracle (ORCL) – very well run and doing huge stock by back but trends running against this on premise software stock
  • Westpac (WBK) – Australian bank hit with tough regulatory, business, and real estate impacts

Portfolio Five:

  • Baidu (BIDU) – Chinese search engine less relevant in mobile era and new investments not yet paying off
  • Juniper (JNPR) – US networking company not yet taken over.  Reasonably well run with dividend but in a difficult space
  • ConocoPhillips (COP) – US oil company hit by lower energy prices and relatively smaller footprint
  • Westpac (WBK) – Australian bank hit with tough regulatory, business, and real estate impacts

Portfolio Six:

  • Baidu (BIDU) – Chinese search engine less relevant in mobile era and new investments not yet paying off
  • Nnvidia (NVDA) – the once high flying chipmaker stock is hit with slowing growth
  • ConocoPhillips (COP) – US oil company hit by lower energy prices and relatively smaller footprint

Portfolio Eight:

  • Nnvidia (NVDA) – the once high flying chipmaker stock is hit with slowing growth

Portfolio Four Updated July, 2017

Portfolio four is almost 8 years old.  The beneficiary contributed $4000 and the trustee $8000 for a total of $12,000.  The current value is $15,082 for a gain of $3,082 or a 5% rate of return, adjusted for the timing of cash flows.  See detailed PDF here or go to the link on the right side of the page.

The portfolio has some technology stocks that are doing quite well, which include Box and Oracle (you could also call Tesla a partial technology stock, as well).  The oil stocks of Devon, Shell and Statoil have generally been hit by the continued fall in oil prices.  The stock prices of Shell and Statoil have held up better than Devon because they kept their high dividends; Devon cut their dividend and has continued to fall (there are other factors at play as well).

It is important in all these portfolios not to just look at the current share price when compared with the purchase price; you need to take into account dividends, as well.  The oil stocks look bad on stock price alone but when cumulative dividends paid are tracked as well, the situation is much better.  That does not mean that we should hold stocks just for the dividends, but it is a very important factor in long run performance.  To date this portfolio has earned $1735 in dividends, which makes up more than half of the total return earned to date.

Portfolio Four Updated April 2017

Portfolio Four is 7 1/2 years old.  The beneficiary contributed $4000 and the trustee $8000 for a total of $12,000.  The current fund value is $14,444 for a gain of $2444 or 20%, which is 4% / year when adjusted for the timing of cash flows.  You can see the detail here or go to the links on the right.

We have a couple of stocks on watch.  Devon Energy (DVN) got waxed with the downturn of the oil industry a couple of years ago and has recovered a lot of its losses but cut its dividend significantly in the interim.  DVN seems to be plateauing and is thus on watch.  Oracle (ORCL), the technology company famous for its database software (although they own many other products, including cloud software) is in a long term price and technology war with AWS and other cloud providers (including Microsoft’s Azure).  They have been performing well but are on watch as a result.

There are analytics on the “analytics” sheet.  A few worth paying attention to is the price as a % of its 52 week high, which shows its relative strength over the last year (obviously anything near 100% means that the stock is moving up and hitting highs regularly).  The portfolio is 68% US stocks and 44% of them are “high dividend” (meaning a dividend around 3% and higher).

 

Stocks on watch update

Generally waiting and putting these stocks on watch have gone well.  They have mostly increased in price recently.

Novartis (NVS) – did not have a good quarterly earnings release.  Still on watch may sell.

Statoil (STO) – still generally on the rise with the recent increase in oil prices

Linked In (LNKD) – up since lows.  Will see if it stalls

Wynn (WYNN) – up almost 50% off its lows.  Beat q1 earnings.

ConocoPhillips (COP) – up off lows but hurt recently by Canadian shutdown due to wildfires

Coca Cola Femsa (KOF) – generally still on the rise off lows.  OK dividend

Devon (DVN) – up significantly off lows.  Benefiting from recent rise in oil prices

Royal Dutch Shell (RDS.B) – also up on recent oil price rises.  Hit some by closing of Canadian oil sands due to wildfires

Oracle (ORCL) – still doing OK.  Will keep on long term watch due to cloud threat

Juniper (JNPR) – missed their 3/31/16 earnings.  Will watch on 6/30/16.  May be passed up by the cloud environment.  Could be an acquisition target

Current inclination… is to sell Juniper and Novartis.  Will watch.

Comments for Stocks on Watch

In general, earnings season is coming up now (mid to late April) for many of these stocks and we can hear about forward revenue projections and their views on oil prices as well as dividend policy.

Comments for Stocks on watch:

Novartis (NVS) – April 21 we will hear Q1 results and updates on strategy and EPS.

Statoil (STO) – April 27 we will hear Q1 results.  Stock price linked to dividend policy.  Their current dividend is over 7% and sustaining the stocks’ value

Linked In (LNKD) – April 28 Q1 earnings call.  Stock hit hard after forward guidance but still has significant and growing revenues (not a unicorn).

Wynn (WYNN) – Stock still in 90’s… will continue to watch (up from far lows).

ConocoPhillips (COP) – Stock already took hit from 75% dividend cut.  Now they believe they can break even on cash flow perspective at $45 oil which is attainable.  Remains on watch

Coca Cola Femsa (KOF) – Stock in 80’s… will continue to watch.

Devon (DVN) – still watching with oil prices.  Devon has a low dividend so little downside risk now of dividend cuts.

Royal Dutch Shell (RDS.B) – will watch with oil prices and their restructuring.  Still holding on to high dividend for now (almost 8%)

Oracle (ORCL) – still rising with cloud numbers.

Stocks on Watch – March 2016

The strategy of these 8 portfolios has been to purchase individual stocks, and to hold them for the medium term.  These portfolios are not the same as an individual investor who seeks to invest for their long term financial future – they should utilize low-cost ETF’s and brokerage CD’s as is described in the “basic plan” that is linked to here or at the top of the site.  Portfolio 2 (see link on the right side of the page) has now converted to a long term type of model.

The reason we employ this strategy is because 1) I want to teach the principles of investing 2) I want to encourage thrift (savings) with the “match” concept 3) I want the beneficiaries to be actively involved in selections and see the consequence of their selections (stocks go up, stocks go down).  In addition, choosing stocks teaches a lot about capitalism and is a fundamental aspect of everything that happens in the world of business – stocks move up and down due to business fundamentals, their particular industry situation, the impact of commodity prices, the impact of foreign currencies vs. the US dollar, the geopolitical situation, and due to the actions of our central bank (ZIRP).  It is my selected role to attempt to teach about all of these concepts at once through the act of stock selection and portfolio changes.  These stock portfolios are not intended to be their entire net worth – if it was, then I would recommend moving to something more similar to Portfolio 2, above.

Given that we use individual stocks, we need to “watch” these stocks, especially if they fall significantly and stay down in price.  We also look for stocks that might have hit their highs and are on their way down, although we would be more likely to “ride the winners” over the medium term.  Portfolios 2, 7 and 8 don’t have any stocks on watch.

Stocks on watch

Portfolio 1

  • Statoil (STO) – Norwegian oil company, hit by the fall in crude as well as the fall of the local currency vs. the US dollar.  Will hold – seems unlikely they will cut their dividend which supports their current price.  The company will likely raise their debt level which is sustainable.
  • Novartis (NVS) – Swiss drug company, a recent purchase.  We will see how earnings play out at the end of April and how the company presents forward guidance.

Portfolio 3

  • Linked In (LNKD) – Online business networking company that recently gave poor forward guidance and had its stock price cut in half.  We are going to continue to watch Linked In since it seems over sold but if it doesn’t move we will sell it.
  • Wynn (WYNN) – A casino operator with interests in China, hit recently by a crackdown on corruption and gambling in China.  The stock was in the 60’s and came back into the 90’s and is on the upswing.  Will look to see if it get’s into the 100’s and make a decision but don’t want to sell while it is rising.
  • ConocoPhillips (COP) – An oil and gas major, hit by the recent collapse in oil prices.  They reduced their dividend by 75% which impacted their stock price, as well.  We are going to watch the price of oil which drives many of the companies on this list.  It went from the high 20’s up crossing the 40 dollar barrier.  If it gets into the middle 40’s and stays there many of these companies will be in OK shape for holding

Portfolio 4

  • Coca Cola Femsa (KOF) – Central American Coca Cola distributor, hit by the decline in currency value against the US dollar and also turmoil in local countries.  KOF has bounced up from the 60’s and recently crossed $80 / share.  Will watch and see if it retains upward momentum after earnings.
  • Devon Energy (DVN) – US oil company hit by recent collapse in commodity prices.  We are going to watch the price of oil which drives many of the companies on this list.  It went from the high 20’s up crossing the 40 dollar barrier.  If it gets into the middle 40’s and stays there many of these companies will be in OK shape for holding
  • Royal Dutch Shell (RDS.B) – European oil company hit by the recent collapse in commodity prices and the Euro / UK Pound vs. the dollar.  We are going to watch the price of oil which drives many of the companies on this list.  It went from the high 20’s up crossing the 40 dollar barrier.  If it gets into the middle 40’s and stays there many of these companies will be in OK shape for holding
  • Statoil (STO) – Norwegian oil company, hit by the fall in crude as well as the fall of the local currency vs. the US dollar.  Will hold – seems unlikely they will cut their dividend which supports their current price.  The company will likely raise their debt level which is sustainable.
  • Oracle (ORCL) – while this stock has been doing well, Oracle faces severe competition from the cloud and resulting price pressures on their product.  Gross margins are still going up and they are claiming significant cloud earnings.  We will keep watching these trends
  • Linked In (LNKD) – Online business networking company that recently gave poor forward guidance and had its stock price cut in half.  We are going to continue to watch Linked In since it seems over sold but if it doesn’t move we will sell it.
  • Novartis (NVS) – Swiss drug company, a recent purchase.  We will see how earnings play out at the end of April and how the company presents forward guidance.

Portfolio 5

  • Linked In (LNKD) – Online business networking company that recently gave poor forward guidance and had its stock price cut in half.  We are going to continue to watch Linked In since it seems over sold but if it doesn’t move we will sell it.
  • ConocoPhillips (COP) – An oil and gas major, hit by the recent collapse in oil prices.  They reduced their dividend by 75% which impacted their stock price, as well.  We are going to watch the price of oil which drives many of the companies on this list.  It went from the high 20’s up crossing the 40 dollar barrier.  If it gets into the middle 40’s and stays there many of these companies will be in OK shape for holding

Portfolio 6

  • Coca Cola Femsa (KOF) – Central American Coca Cola distributor, hit by the decline in currency value against the US dollar and also turmoil in local countries.  KOF has bounced up from the 60’s and recently crossed $80 / share.  Will watch and see if it retains upward momentum after earnings.
  • Royal Dutch Shell (RDS.B) – European oil company hit by the recent collapse in commodity prices and the Euro / UK Pound vs. the dollar.  We are going to watch the price of oil which drives many of the companies on this list.  It went from the high 20’s up crossing the 40 dollar barrier.  If it gets into the middle 40’s and stays there many of these companies will be in OK shape for holding
  • ConocoPhillips (COP) – An oil and gas major, hit by the recent collapse in oil prices.  They reduced their dividend by 75% which impacted their stock price, as well.  We are going to watch the price of oil which drives many of the companies on this list.  It went from the high 20’s up crossing the 40 dollar barrier.  If it gets into the middle 40’s and stays there many of these companies will be in OK shape for holding

Portfolio Four Updated November 2013

Portfolios Four and Five are both four years old.  The beneficiary contributed $2500 and the trustee contributed $5000 for a total of $7500.  The value is $9284, for a gain of $1784 or a 24% gain, which is 7.2% / year.  The portfolio can be viewed here or in the links on the right.

There are ten stocks in the portfolio, with 4 overseas stocks and 6 US stocks.  The portfolio is getting to the point where changes in one stock won’t significantly impact the total value overall.

The portfolio is doing well, with Nucor on a stop loss to not go below the original purchase price (it was underwater for several years) and for Oracle because it is near a multi-year high and facing cloud competition.  The positions are generally doing well, with Westpac (Australian bank) and Wal-Mart the best performers.

 

Portfolio Two Updated November 2013

Portfolio Two is our second longest lived portfolio, at nine years. The beneficiary contributed $5500 and the trustee $11,000 for a total of $16,500. The current value is $23,245, for a gain of $6745 or 41%, which works out to annual performance of 5.6% / year over the life of the portfolio. There are 18 stocks in the portfolio, of which 9 are US and 9 are overseas. As we noted with Portfolio One, a rough guide is that when you have beyond ten or so “different” stocks you have a diversified portfolio. Most of the stocks are around $1100 / each, with a few around $2000. You can see the detailed portfolio here or at the list on the right.

The portfolio recently has had a couple of big winners with Facebook and Splunk. These two combined for about 1/3 of the total gain in the portfolio. Many of the stocks are near all time or 5 year highs, including Oracle, China Petroleum, Siemens, Diageo, Exxon-Mobil, Toyota and NIDEC. These stocks had been hit hard just a couple of years’ ago and we will watch them closely to make sure they don’t fall back too far.

Oracle, WYNN and Urban Outfitters currently have stop loss orders in that we will need to review in early December. We are going to keep them on Urban Outfitters and WYNN because we don’t want to fall below original purchase prices and Oracle we will review along with many of the other stocks that have soared over the last couple of years.

Stop Loss Trades Entered

Update – since the market has kept going up, none of these stop / loss orders has been triggered. This is a good thing. We will leave the orders out there and may re-calibrate them based on the new highs. We only put stop losses on stocks where we thought that either they were near a top or a stock that we’ve had a long term issue with and I wasn’t going to sink all the way back down once it had gotten to break even.

The market has been on a nice rally. Some of the stocks that we’ve held on to for years we’ve given up on (Alcoa, and Exelon a while back) while others we are now putting on “watch” and have a “stop loss” price where they will automatically be sold when the market hits a certain price.

In general, these portfolios are managed as if they have a long time horizon. We will stay invested in the stock market over the entire haul. However, we will watch for stocks that have either stagnated for a long time or may be entering a period of secular decline. Finally, some stocks we’ve nurtured back from earlier lows and I won’t be able to take watching them fall back again.

The last time we put this strategy in play was before the stock crash in 2007-8. We did sell some high flying Chinese stocks that never recovered those high prices again. However, you have to re-invest the money so even selling at a high doesn’t mean that you won’t necessarily lose money; it means you took the gain off the table (or avoided the loss) and then started with a NEW stock that was possibly over-valued at the time of your initial purchase. There is no free lunch, and that is why we employ this strategy sparingly.

How a “stop loss” works is that if a stock hits a certain price, a sell order is immediately issued. It doesn’t mean that it will sell exactly at that price (for instance if your stop loss is at $34 then that is when the order is triggered but it could get filled at $33 or any other price in that range depending on how quickly it is moving down). There is a variant with a “limit”, where you stop at $34 but say something like you don’t want it selling below $33. In that case, if the stock plunges on past your stop and the only offers are at $32, nothing at all happens. In my case I went for the simpler “stop loss” order.

These orders are outstanding for 60 days. After that time they expire, unless renewed. The hope is that the stock market continues to rise and we never trigger ANY of these orders. At that point I will review the market again and determine if I want new stop loss orders for these or different stocks and how to proceed next based on conditions and my specific stocks.

Stop Loss Trades Entered

Portfolio 1

URBN 28 shares at $34 good til December 6

Portfolio 2

ORCL 30 shares at $30 good til Dec 6

WYNN 6 shares at $150 good til Dec 6

URBN 23 shares at $34 good til Dec 6

Portfolio 3

WYNN 6 shares at $150 good til Dec 6

URBN 28 shares at $34 good til Dec 6

CLF 44 shares at $17 good til Dec 6 (updated)

Portfolio 4

ORCL 26 shares at $30 good til Dec 6

NUE 14 shares at $45 good til Dec 6

Portfolio 5

RVBD 30 shares at $13 good til Dec 6

No stop loss orders were entered for Portfolio 6

Looking Back on 2010 Stock Selections

In 2010 we had the following stock selections:

  1. Canadian Imperial Bank (ADR)
  2. Alcoa Inc.
  3. Oracle Corporation
  4. LG Display Co Ltd. (ADR)
  5. Exelon Corporation
  6. CNOOC Limited (ADR)

A portfolio of these six stocks, including dividends, would have returned 1%.  If you exclude LG Display, which turned out to be a dog with almost a (40%) one year decline, the portfolio returned 9%.  Thankfully no one selected LG Display, which was hit hard by the commoditization of the display market.

If you had picked SPY, the ETF that mimics the S&P 500, you would have returned 15% including dividends over that same period (9/1/10 – 9/1/11).  You can see the spreadsheet here.

As Dan would say it, the “dartboard” beat me on the 2010 picks.  My stocks were 1/2 international which underperformed the S&P relative to that time period.  Not that it is an excuse, and we always are open about portfolios and performance so that scrutiny might improve performance.

2010 Stock Selections

It is time for the 2010 stock selections. As usual there will be six stocks to select from, with each fund picking 2 stocks. There are 3 US and 3 international stocks on the list. The 3 international stocks are all ADR’s meaning that they trade on US stock exchanges but move in sync with the stock in its home market (with the exception of the currency impact, favorable or unfavorable).

International Stocks (ADR’s):

1. Canadian Imperial Bank of Commerce (CM) – CM trades at around $73, near its 52 week high, with a market capitalization of $28B, and a yield of 4.6% (which is reduced a bit due to tax withholding). Canadian banks fared much better than US or European bank, due substantially to their favorable resource based economy, generally sound economic management, and lack of toxic assets
2. LG Display Company (LPL) – LG trades at around $16, below its 52 week high of $21, with a market cap of $11.5B, and no dividend. LG Display is an affiliate of the giant Lucky Group the massive Korean electronics company. and focuses on the manufacture of display panels for televisions and cellular phones.
3. CNOOC Limited (CEO) – CEO trades at $189, at its 52 week high, with a market capitalization of $84.5B, and a dividend of 2.6% (which is reduced a bit due to tax withholding). This Chinese oil company is poised to grow due to China’s demand for oil and gasoline and burgeoning local car market, which is poised to surpass the USA as the world’s largest

US Stocks:

4. Alcoa Inc. (AA) – Alcoa is a US aluminum producer trading at $11.43, below its 52 week high of $21.4, with a market cap of $11.7B, and a dividend yield of around 1%. This iconic US aluminum producer can benefit from US infrastructure investment or any increase in US construction activity
5. Exelon Corporation (EXC) -Exelon is one of the largest US utilities, trading at $42, down from the 52 week high of $52, with a market capitalization of $28B, and a dividend yield of around 5%. This utility is well run and has a large nuclear fleet, and is savvy when it comes to acquisitions (don’t overpay) and in new construction (don’t invest in projects like new nuclear plants that do not meet financial hurdles). At this price the utility seems like a strong long term investment
6. Oracle Corporation (ORCL) – Oracle is an aggressive software vendor which trades at $25, near its 52 week high, with a market capitalization of $129B and a dividend yield of around 1%. This company is run by Larry Ellison who is a strong businessman and takes advantage of opportunities for consolidation in the software sector and leverages strong products and cuts unnecessary costs.

We will now go through the match process with each of the beneficiaries of the 5 portfolios contributing $500, then I match $500 and contribute $500 regardless of the match for a total of $1500 each. We usually purchase stocks at the end of the summer to give everyone a chance to earn money over the summer.

As far as the portfolios themselves, they have bounced back a bit with the general market since the last time I calculated performance.

Portfolio 1 – was $15,540 now $16,750
Portfolio 2 – was $8400 now $8900
Portfolio 3 – was $3500 now $3750
Portfolios 4 and 5 are getting nearer the $1500 mark of break even