Portfolio One is a little more than 17 years old. The current balance is $42,691 (of which $10,775 is cash). The beneficiary contributed $2500 (net of withdrawals) and the trustee $17,000 for a total of $19,500. Thus gains are $23,191 or 118% on original investment, which is about 6.2% / year when adjusted for the timing of cash flows. Go here for details or at the link.
Although the market has not performed well lately, most of the stocks are in decent shape and the cash holdings (over 20% of portfolio, now yielding over 2%) limit downside risk (and upside opportunities later, assuming that the market goes back up at some point).
Some stocks on watch:
- Alibaba (BABA) – at about 70% of its 52 week peak, has been hit by slow down in China and also a possible previous over-valuation in software stocks
- Electronic Arts (EA) – this stock is at about 53% of its 52 week high, as the whole games market has been hit hard lately even though the fundamentals (revenue) aren’t that much different, possibly due to Fortnight and the potential impact of streaming. Will watch, may sell
- Nvidia (NVDA) – another former high flyer, this chip maker was buoyed by crypto mining and is down about 50% off its 52 week high, although it still has strong cash flow. Will watch, may sell
We recently sold 7 stocks in Portfolio one. This link shows the portfolio after the sale, or you can go to the link on the right. Between existing cash and these sales we are about 1/3 in cash right now, prior to 2018 incremental investment.
Portfolio One is almost 17 years old. The beneficiary contributed $2000 net (of withdrawals) and the trustee $16,000 for a total of $18,000. The current portfolio value is $42,930 for a gain of $24,930 of 138%, which is approximately 7% / year when adjusted for the timing of cash flows. You can see the detail here or on a link on the right.
This portfolio has moved over to the beneficiary and the former trustee now has agency so that we can take advantage of free trades on the former trustee’s account. We are now at a phase where it makes sense to consider making some sales to take “risk off” on the account. In addition, cash yields about 1.85% “risk free” in a money market account, so the impact of leaving money in cash is less impactful (it used to be earning effectively zero).
Here are the stocks that we are considering selling:
- Tesla (TSLA) – Tesla is a highly risky and volatile stock. There is enough information out there about this stock to fill 10+ blogs like this. As a result it is under consideration for selling
- Anheuser Busch Inbev (BUD) – This giant multi-national beer company is well run by the G3 group out of Brazil. But growth has been hard to come by because they are gigantic and they are battling the high end craft beer in the USA and cheaper alternatives abroad
- WIPRO (WIT) – This Indian outsourcer has a low dividend and hasn’t been making much of a return. A candidate for selling
- Wal-Mart (WMT) – Massive retailer in battle for its life with Amazon. Starting to acquire other companies and expand e-commerce footprint to compete. May want to take earnings and move on
- Illinois Tool Works (ITW) – ITW has been a great stock for many years. They acquire companies and integrate them and have earned above average returns. They recently have had some worse earnings results and maybe it is time to take gains off the table and move on
- Comcast (CMCSA) – While Comcast has a hellish reputation, they have been a good stock. Down a bit and under pressure, maybe it is time to take our gains and move on
- Ebay (EBAY) – Ebay was an amazing pioneer. After the spin off of PayPal (PYPL) which is doing great, they’ve not done super well, and seem far removed from most top-of-mind Internet conversations. Perhaps it is time to sell off remaining eBay
There are 19 stocks in the portfolio (we bought Exxon Mobil XOM twice at two different purchase prices so we show them separately and it looks like 20 stocks if you count the lines). They are not all of equal weight – they range from about $1300 to about $4300, but the average ($43k / 19) is a bit over $2000.
If all the above stocks were sold, that would be about 33% of the portfolio. At that point we could determine how much to keep in cash (perhaps all, or maybe just $10k of it) and how much to re-invest. These sales would result in gains but they would not be too significant; they are all long term sales and the maximum rate is 15% for long term capital gains (and this only applies to the “gain” portion, which would be relatively small for these stocks). Would calculate a more exact amount if we were specific on what was being sold.
We executed this plan in August and will determine what to do with the proceeds.
Portfolio One is our longest lived portfolio, at over 16 1/2 years. The Portfolio began right after 9/11.
The beneficiary has contributed $2000 (net of withdrawals) and the trustee has contributed $16,000 for a total of $18,000. The current value of the portfolio is $43,441 for a gain of $25,441 or 141%, which is 7.2% / year adjusted for the time value of cash flows.
Portfolio One is the most advanced in that 1) I’ve transferred the account over to the beneficiary 2) I have switched to an “agent” mode where I can still make transactions like buys or sells (and this still benefits from my free commissions) 3) the beneficiary is starting to “draw down” some of the assets from the portfolio in order to fund purchases (capital assets and the like).
Go here for a summary of Portfolio One or click on the link on the right.
There were three sales last year (BOX, KO, TATA) and one purchase (NVDA). Generally the portfolio has done well, although we (obviously) sold far too earlier on AMZN and MSFT. The three sales had a net long term gain of $948, which will be subject to capital gain taxes.
It is important to recognize the positive impact of dividends on a portfolio like this – to date it has earned $6894 in dividends and $805 in 2017. When you just look at stock prices against original purchase cost you miss the significant impact (over time) of dividends. One of the major purposes of going through all this work on the portfolio is to align dividends with the stocks that drove the dividends, to see total returns.
The portfolio is generally doing OK; like everyone else we had a scare when the stocks went down in early 2018 but they’ve (mostly) come back since then. In an earlier post we discussed moving some of the funds into cash / gold to reduce overall portfolio risk. This is still being considered.
These portfolios started out as a long run risk taking vehicle that (hopefully) would grow and show the importance of investing. The average person has a net worth of zero (after you take into account debt on cars and mortgages) and has little cash in the bank. With these stock portfolios at least everyone has some core body of savings that they can use for investing or to purchase key capital goods (an initial house, a wedding ring). Now, for some of the participants, the portfolios have moved away from a long term risk vehicle to more of a generalized investment portfolio that should logically be slanted towards equities and higher risk since the participants are young but also has to take into account the possibility of a correction that could reduce equity values 25% – 50% for some extended period of time (years) like it did in 2008. You do not want to be in a position where you sell at a downturn and don’t stay in the market because you have to liquidate remaining stocks to cover necessary investments.
For some of the participants we needed to move out of individual stocks and into ETF’s because their professions make owning individual stocks more complicated. ETF’s, however, share the same mix of risk and return as underlying stocks and during the transition we’ve also shifted some of the money out of equity ETF’s and into CD’s and gold as a hedge and partial hedge.
Our current goal for portfolio one is to take some level of risk out of the portfolio and replace it with a combination of CD (get a return of about 1.5%), gold (generally holds more during a crash), or cash (if you need it in the next few months). Depending on the short term interest rate the brokerage account gives in the cash fund we may just choose to leave it in cash instead of CD’s.
Portfolio One is worth about $45k. We could take out $15k or so which would leave $30k in stocks. This is still a pretty high percent of stock for the market (about 70% equity).
Continue reading “Thoughts on Portfolio One”
Portfolio One was re-updated as of August 2017 to reflect three sales. You can see the details here or click on the link on the right.
The portfolio recently sold three stocks (BOX, TTM and KO) and has $6349 in cash. There is another analytics worksheet which is also linked to the underlying central spreadsheet (calculated).
Portfolio One is our longest lived Portfolio. We opened it right after 9/11… meaning that it is almost 16 years old. This portfolio has moved from the trustee to the beneficiary’s account, but we also still set it up so that the trustee has agency (can see the portfolio, buy and sell).
The beneficiary contributed $7500 and the trustee $15,500 for a total of $23,000. The current value of the portfolio is $44,883 for a gain of $21,883 or 95%, or 7% / year adjusted for the timing of cash flows. Go here or to the link on the right for details.
The portfolio is doing well. We added some criteria and filtering for stocks “at risk” (BOX, Budweiser Inbev and Exxon) or “on watch” (Tata Motors / TTM). BOX has doubled recently and is down a bit; BUD just finished a major merger but Exxon is near 5 year lows and a bit controversial due to politics. Tata (TTM) is one we will look at closely.