Stock Selections for 2018

Stocks to choose from for 2018:

US Stocks

  • CME Group (CME) – a financial firm that trades and clears futures products and has a high dividend (they have an annual dividend plus a special year end dividend of 3.5%+ in total).  They make money from trade volume which tends to increase in times of volatility or disruption in the markets, and are thus kind of a “hedge”
  • PayPal (PYPL) – PayPal spun off from eBay and makes more money as the world moves to digital payment methods from cash.  They also own Venmo which they have yet to monetize (existing stock owned by Portfolio One)
  • Union Pacific (UNP) – Union Pacific is a large and well-run railroad company (existing stock owned by Portfolios Five and Six)
  • Electronic Arts (EA) – An American video game developer that has been hit lately but could be a bet on the potential of this sector and streaming

Foreign Stocks

  • Inditex (IDEXY) – this Spanish company is known in the USA as “Zara” and is a leader in “fast fashion” and integrating e-commerce with direct retail
  • Alibaba (BABA) – the Chinese e-commerce giant has been growing and expanding into different domains (existing stock owned by Portfolios Three and Seven)
  • Taiwan Semiconductor Manufacturing Company (TSM) – this manufacturer of semiconductors counts Apple as a large customer and has been doing very well for many years (existing stock owned by Portfolio One)
  • Infosys (INFY) – Indian outsourcer and technology company has been doing well and benefits from the weaker Indian currency (existing stock owned by Portfolios One and Three).  Note – this stock just split 2/1 effective 9/12 so the price history will look strange if you see it online

Other

  • Gold ETF (IAU) – this ETF tracks the price of gold.  Gold does not provide a dividend but could be a hedge against inflation or disruption

Between the eight portfolios, there are almost 40 different stocks to follow.  Generally, we select “new” stocks rather than re-recommend existing stocks.  However, for this round, we will have some “new” stocks but also continue to recommend some existing stocks that the portfolios can choose from.  This will slow the overall growth of stocks across all the portfolios which will make it simpler to track.

We will continue to recommend a mix of US and foreign stocks to choose from, although each portfolio can select whatever they’d like (they don’t have to split their investments equally between both).  Recently the US dollar has gone up, resulting in (relatively) poorer performance for foreign stocks.  However, this can change and these are long-term portfolios so we recommend US and foreign stocks rather than taking an effective “position” on the future direction of US currency (i.e. if you thought the dollar was going up indefinitely you would buy US based assets exclusively).  Folks often fail to remember the past, when the US dollar fell for years against many different currencies.

Calculating Basis on a Stock Split

One of the more interesting side benefits of writing this blog and running the trust funds is that I take apart my brokerage statements in detail.  Recently, eBay split into two stocks as they spun out PayPal into a separate company.  Portfolio One owns 50 shares of eBay, which became 50 shares of eBay and 50 shares of PayPal.

50 eBay shares were purchased in December 2007 at a price of $33.50 a share or a total of $1675.  This is the “cost basis” or “tax basis” of the stock.  Regardless of how many times eBay and PayPal subsequently split or spin off, the total of the basis is $1675 and can’t go higher or lower.

Today, unlike when I started this blog, you can find pretty much anything out on the internet.  So I just typed in “eBay Paypal spin off stock price basis” and found this link.  In the link they said that the split percentage was calculated based on the market price of PayPal and eBay after the stock was launched… which was .5682 as PayPal and .4138 as eBay.  .5682 + .4138 = 1 as it must since the basis must be split between the two stocks.

As a result of this, eBay’s 50 shares must be worth .4138 * $1675 = $693.12 or ($693.12 / 50) $13.86 a share.

PayPal’s 50 shares must be worth .5682 * $1675 = $951.73 or ($951.73 / 50) $19.03 a share.

For fun, I went to my site’s brokerage account where they calculate the cost basis for taxes and they had different numbers.. eBay was $761.86 and PayPal was $927.14.  This totals $1689.

The difference between the $1689 – $1675 = $14.  That’s probably the commission we paid back in 2007 (when we weren’t getting free trades).  That makes sense, then.  Thus my “total” basis is $1689 to split between the two stocks.

I’m not certain what the difference is between the calculation I found on the internet and the brokerage calculation.  They are close enough, though.  This shows the complexity of the process – it would be much worse if I had bought eBay at many other price points over the years, and / or if it had split a bunch of times.

Well… I dug around a bit more and went to eBay’s investor relations site.  They had a document there from their head of tax describing one way to split the basis between the two stocks.  Here is a link to that document.

In that document eBay said the following:

Based on that approach and the assumptions and calculations set forth in Item 16 below, 39.2706% of an eBay stockholder’s aggregate tax basis in his or her shares of eBay common stock immediately prior to the Distribution would be allocated to such stockholder’s shares of eBay common stock and 60.7294% would be allocated to such stockholder’s shares of PayPal common stock received in the Distribution.

So if I plug in the $1689 ($1675 + $14) basis times .392706 I get $663.28 for eBay and $1025.71 for PayPal.  Aargh that doesn’t tie out either.  I think I might send an email to the support section of the brokerage account to ask.  Probably I am spending far more time on this than it is worth but since I am down the rabbit hole…