Portfolio Five Updated March 2014

Portfolios Four and Five are both 4 1/2 years old.  The beneficiary invested $2500 and the trustee $5000 for a total of $7500.  The value is $9030 for a gain of $1530 or 20%, which is 6% / year.  See the details on the right or click here.

Portfolio Five now has nine stocks, with some recent sales tied to stop loss orders (Yandex, China Petroleum) and two others that we gave up on in 2013 (Alcoa and Riverbed).  The existing stocks seem well positioned, with 5 overseas and 4 domestic stocks.

Tied to taxes, the portfolio earned $284 in dividends (after foreign withholding).  There was a long term loss of ($493) on sales and a long term gain of $74.

With a recent sale there is $800 cash in the portfolio and we will pick another stock out of the list.

Portfolio Five Updated November 2013

Portfolios Four and Five were both set up four years ago. The beneficiary contributed $2500, the trustee contributed $5000 for a total of $7500. The current value is $9,116 for a gain of $1616, which is 21%, or 6.6% / year over the life of the portfolio. Check results here or in the links on the right side of the page.

Recently two outstanding items in the portfolio were cleared up when we gave up on the metals company Alcoa, which is well run but faces ferocious state-supported Chinese firms willing to work at a loss.  We also sold Riverbed when it bounced up a bit as a raider considered a stake in the company.

The remaining stocks are either brand new (too soon to judge) or doing well.  We will watch Siemens which is near a 5 year high and not ride it all the way back down.  The current portfolio has 9 stocks, with 7 of the 9 being foreign ADR’s (the two recent sales were US companies).

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

Portfolio Five Updated July 2013

Portfolio Five has 4 years of history. The beneficiary contributed $2000 and the trustee $4000 for a total of $6000. The current account value is $6647, for a gain of $647 or 11%, or 4% / year when adjusted for the timing of cash flows. The portfolio can be found on the links to the right or by going here.

Portfolio five has 2 stocks that we are about to give up on. Alcoa is an integrated US steel company. Alcoa faces sharp pressure from Chinese metals firms (who make up over half the industry, while the US is less than 10% of the market) who are flooding the market with metal, and the dividend isn’t large enough to let us catch up, either.

Riverbed is a company making networking equipment. They recently acquired a cloud based company and is running a loss. Riverbed doesn’t have a dividend at all. I recommend that we sell both stocks and use the proceeds as part of our 2013 new purchases.

The other stocks seem to be doing well and the portfolio is up overall. We have given these two stocks a lot of time to recover / advance and it hasn’t happened so it is time to move along.

Portfolio Five Updated January 2013

Portfolios four and five are both three and a half years old. The beneficiary has contributed $2000 and the trustee has contributed $4000, for a total of $6000. The value of the portfolio is $6848, for a gain of $848, or 14%, which is 5.4% / year when adjusted for the timing of contributions. You can see the detail on the right in the links or go here.

The portfolio is generally doing well. Alcoa, the major US Aluminum company, is down over 25% from our original purchase price and has a relatively small dividend of 1.4% / year. While the company is well run, it faces heavy competition world wide in a very tough market. We will watch the company and sell if it doesn’t improve. Another company on the watch list is Riverbed Technologies, which makes technology security and optimization devices. The company is currently trading at a lower price then we paid for it, although it did spike above for a brief time. Riverbed purchased Opnet for $1B, using cash and debt. Generally Riverbed was thought of as a company that would be a likely acquisition candidate by larger technology companies and to the extent that Riverbed is purchasing other companies, that would indicate that they intend to “go it alone”. We will watch Riverbed and likely sell if it goes above our purchase price or trends down.

There were no sales this year and thus no capital gains or losses, and $190 of dividends were paid.

For both portfolios four and five, since inception interest rates have been remarkably low and the interest that they have earned is minuscule (less than $1). On the other hand, I have been able to use “free trades” for each account and no fees have been assessed on the account, meaning it essentially exists for free. Compared to the earlier portfolios in earlier years, the benefits of “free” trading more than offsets the impact of receiving effectively zero interest on cash on hand.

Portfolio Five Updated December 2012

Portfolio Five is on its fourth year. The beneficiary contributed $2000 and the trustee contributed $4000 for a total of $6000. The portfolio is valued at $6334 for an increase of $334, or 5%, averaging about 2% / year adjusting for the timing of cash flows. You can see the portfolio on the right side or go here.

There are two stocks on watch in this portfolio. Alcoa (AA) faces intense worldwide competition in the metals market. There is over-capacity in this market with new plants coming on line, driven by nationalistic plans for domestic economies worldwide. Alcoa also pays a relatively modest dividend at 1.4%, as opposed for 3.6% for Nucor (which has allowed Nucor to absorb more of the blow of a falling stock price, making it up on dividends). If there isn’t a plan for Alcoa to increase we likely will sell in 2013.

A second stock on watch is Riverbed, a technology company, which is susceptible to changes in stock prices due to small alterations in analysts’ outlook. The stock went down significantly, then above its purchase price, then down again. We will continue to watch as it seems to be in a good portion of the technology business space.

Winners include Westpac banking from Australia and China Petroleum and Chemical (SNP).

Buy And Hold Works… Sometimes

For these trust funds we work to link stock selections with long-term thinking. These portfolios start when the beneficiary is 11 or so years old so they have a long time horizon.

With that, there are times that it is wise to sell. If you believe that a stock has been part of a huge run-up and gains are not sustainable, you should sell. We sold a number of stocks in 2007 when valuations were insanely high (such as China Mobile (CHL), which peaked near $100 in 2007-8 and now is settled back in around $50 / share) and many of them have not recovered back to those levels. Unfortunately, we re-invested the proceeds into new stocks which promptly went down with the rest of the market but it still was the right thing to do.

On the other hand, some stocks seem to get permanently impaired or on a downward spiral from which they never recovered. We bought Nokia (NOK) and then sold at a loss – and the stock has kept dropping since, damaged by their dismal position in the smart phone market. We also did the same with Cemex (CX) which also had a high near $40 in the 2007-8 time frame but has settled to around $10 / share.

It is hard to know when to capitulate, and when to hold on to wait for the rebound. Urban Outfitters (URBN) was selected because it had low debt and seemed well run – until they had a bad earnings report and the stock tanked. We held onto it for over a year after it had lost about a third of its value, and then a lot of their top management resigned. Yet recently it came back and is now above its original purchase price. Other stocks that we waited on until they came back include Comcast (CMSCA) and Ebay (EBAY). On the other hand, we are still waiting for recovery on Canon (CAJ), Riverbed (RVBD), WYNN, Exelon (EXC), and Alcoa (AA). I am bullish EXC in the long term as well as RVBD; I think there is hope for CAJ because they are well run; and watching WYNN and AA.

Portfolio Five Updated August 2012

Portfolio five is updated here and on the right side of the page. After three years the trustee invested $3000 and the beneficiary has invested $1500 for a total of $4500. The current balance is $4520, for a slight increase over the invested amount.

Stock Performance

The Australian company Westpac (WBK) has been a strong performer, helped by the Australian dollar and a high dividend, while the Aluminum company Alcoa has been hit hard by incredible global competition in metals (and over capacity), but is still significantly under water from its purchase price (with a relatively small dividend). Riverbed Technology, a high technology candidate that is a potential takeover candidate (since it could fit in well with other vendors) has come back some from a big fall when it slightly missed its earnings number.

Stock Portfolio Review

In any portfolio it is good to keep and eye out for stocks that have had a big run up and might be at a point to sell as well as stocks that have dropped and don’t seem to have a chance to come back in the near term. We also watch for stocks that are just stagnant.

While we don’t rapid-trade in these funds we do rebalance occasionally. I am looking to re-balance before we buy stocks again as part of the annual purchase process (I contribute $500, they contribute $500, and then I “match” $500 for a total of $1500 every year) which happens at the end of the summer. Since many stocks are held in more than 1 portfolio I only describe them one time.

Portfolio One

– Urban Outfitters – low debt, seemingly well run, has recently had departure of top executives. Holding on a bit to see if they can turn things around since drop already priced in. if they don’t turn around by end of summer will drop

– Procter and Gamble – has been a core of the portfolio for a long time with a strong dividend. The CEO recently had a bad conference call and the company hasn’t been growing much when compared to rivals

– Canon – has been a good long term performer but Japan still refuses to have a stock market rally. Need to look at this more but want to have some Japan exposure

– Comcast – held on for a long time when the stock did nothing or tanked because believed in broadband growth and they also added and boosted their dividend over the years. Will watch to see if now it is over valued after the run up

– Ebay – another stock that did nothing for years and went down but finally came back. No dividend but basically a bet on pay pal since they sold Skype. Will look into this some more may want to take profits

– Exelon – the nations’ biggest nuclear utility. Now getting beat because of the low price of natural gas. This hurts coal much more than nuclear because nuclear always runs but it limits its profits, as well. They just took over a big Eastern utility. Will keep holding but watch

– Wal-Mart – recently ensnared in a bribery case. Given their massive size it didn’t move their stock price that much. They have been buying back shares aggressively and boosting the dividend which increases profits per share. On watch

– Philip Morris – had an immediate, great run up. Also a good dividend. May want to see for gains

Portfolio Two

– Also Urban outfitters, Wal-Mart

– Wynn – took almost a 20% hit out of the gate with the share holder dispute issue. Has regained half that loss. Still a great play on China gambling. Will watch

– Siemens – had a big run up but now back to break even. OK run but subject to Euro issues and overseas expropriation and potential corruption issues. Will watch

– Diageo – had big run up and fall, much of which was caused by gyration of UK currency vs. US dollar. Up now at some point may take profits

Portfolio Three

– Also Urban Outfitters, Siemens, Wal-Mart, Wynn

Portfolio Four

– Also Wal-Mart, Exelon

– Nucor – a well run metals company in the US that is subject to vagaries of US economy as well as foreign price competition. Will watch but hate to part with it because it is well run but may not be able to sustain high valuation (see Southwest Airlines)

Portfolio Five

– Also Seimens

– Alcoa is a company like Nucor, well run but hit hard by foreign competition and international prices and demand. Like Nucor would benefit from US rally post “great recession” but that never really materialized. Will continue to watch

– Riverbed – a company with high growth prospects that lost 30% of its value in a single day when they slightly missed their earnings. Held on and since they have hung on at about the same price. Will hold through an earnings release or two seems transient not permanent

Market Moves on a Single Stock RVBD

Riverbed (RVBD) is a stock held by portfolio 5, one of the newer portfolios. In the news I noted that they slightly missed in their revenue guidance for 2012 and their stock value dropped by almost 30%.

This article at Motley Fool asks the question of how such a minor revenue drop drove such a major impact on the stock price.

Clearly the market doesn’t work in very precise ways, but honestly how does a $5M revenue cut in guidance lead to such a dramatic loss of market value? Maybe “fuzzy math” is at work.

Most investors probably saw that Riverbed Technology (RVBD) lost nearly 29% of its market value on Friday. The company reported basically in-line Q112 numbers. Not too bad at this point considering the major product transition going on. Then the wheels started falling off during the conference call. The CFO guided to revenue that at the high end would miss the $202M Q2 estimate by roughly $5M.

Yes, anybody doing the math is probably struggling to understand the stock plunge. It dropped 29% due to a 2% reduction in revenue. All while investors should’ve known that the company was going through a product transition that would muddy up the financials for the 1H of the year.

Since we don’t recommend specific stocks here and everyone should do their own homework I don’t make general recommendations. In the case of my portfolio stocks I watch them and try to assess whether this is a temporary event or a permanent loss of value. It has to be noted that any stock with a high multiple which means that their value is based on looking forward to years of earnings growth is subject to risk when they miss earnings by even a little bit because analysts then tend to “jump off the train”.

In this case after reviewing everything I am going to put the stock on “watch” to see if it comes back next quarter and if the analysts are right or if the stock just hit a minor transition.

2011 Stock Picks Updated

I gave an earlier update on the 2011 stock selections.  Since then the entire market has swooned a bit, with global markets having their worst quarter since the 2008 Lehman collapse.  Fund one is now about to invest and will have (once the incremental $1500 is added) $4350 for investments, which would be 3 stocks for this fund.

  1. Bancolombia S.A. (ADR: CIB) – $61, down from 52 week high of $69, 2.2% dividend yield.  Colombian company, $12B market cap, banking.  This Colombian bank provides a window into a growing Latin America market.  Now $56, a loss of $6 or 10%
  2. Anadarko (APC) – $69, down from 52 week high of $85, 0.5% dividend yield (low).  US company, $34B market cap, oil & gas exploration.  Anadarko is riding the wave of US oil and gas as well as making many overseas discoveries in markets such as Ghana.  A play on the growing natural gas solution.  Now $63, a loss of $6 or 9%
  3. Statoil (ADR: STO) – $23, down from 52 week high of $29, 4.9% dividend.  Norwegian company, $74B market cap, oil & gas.  Norwegian oil and gas company recently found new fields and is well run and not as subject to Geo-political risk as the other oil “majors”.  At $22, about the same.
  4. Philip Morris International (PM) – $69, not far from 52 week high of $72, 3.7% dividend.  International (non-US) company, $121B market cap, cigarettes.  This company does not cell cigarettes in the US (that is Altria) but sells them overseas (Marlboro) where it is very strong in many markets and growing in China.  At $62, a loss of $7 or 10%
  5. Westpac Banking Corporation (ADR: WBK) – $107, down from 52 week high of $138, 7.2% dividend (very high).  Australian company, $64B market cap, banking.  Westpac is poised to boom along with the Australian economy based on their strong currency, relatively improved financial position (compared to US and Europe), and of course their huge mineral resources which they can sell to all the Asian economies.  At $96, a loss of $11 or 10%
  6. Riverbed Technology (RVBD) – $22, down from 52 week high of $44, no dividend.  US company, $3B market cap, technology.  This company makes products for security and switching for data centers and cloud computing.  Companies of this size are potential acquisition candidates given the large amounts of cash held in Silicon Valley.  At $20, a loss of $2 or 9%

Also others selected Wynn Resorts (WYNN) which funds 2 and 3 bought around $149 which is now around $115, a loss of $34 or 23%.

Final Stock Selection List for 2011

Here are the six stock selections for 2011.

  1. Bancolombia S.A. (ADR: CIB) – $61, down from 52 week high of $69, 2.2% dividend yield.  Colombian company, $12B market cap, banking.  This Colombian bank provides a window into a growing Latin America market.
  2. Anadarko (APC) – $69, down from 52 week high of $85, 0.5% dividend yield (low).  US company, $34B market cap, oil & gas exploration.  Anadarko is riding the wave of US oil and gas as well as making many overseas discoveries in markets such as Ghana.  A play on the growing natural gas solution.
  3. Statoil (ADR: STO) – $23, down from 52 week high of $29, 4.9% dividend.  Norwegian company, $74B market cap, oil & gas.  Norwegian oil and gas company recently found new fields and is well run and not as subject to Geo-political risk as the other oil “majors”.
  4. Philip Morris International (PM) – $69, not far from 52 week high of $72, 3.7% dividend.  International (non-US) company, $121B market cap, cigarettes.  This company does not cell cigarettes in the US (that is Altria) but sells them overseas (Marlboro) where it is very strong in many markets and growing in China
  5. Westpac Banking Corporation (ADR: WBK) – $107, down from 52 week high of $138, 7.2% dividend (very high).  Australian company, $64B market cap, banking.  Westpac is poised to boom along with the Australian economy based on their strong currency, relatively improved financial position (compared to US and Europe), and of course their huge mineral resources which they can sell to all the Asian economies
  6. Riverbed Technology (RVBD) – $22, down from 52 week high of $44, no dividend.  US company, $3B market cap, technology.  This company makes products for security and switching for data centers and cloud computing.  Companies of this size are potential acquisition candidates given the large amounts of cash held in Silicon Valley