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.