Portfolio One Updated March 2016 – Tax Time

Portfolio One is our longest lived portfolio, starting right after 9/11 and is 14 1/2 years old.  The current value is $35,158 with the beneficiary contributing $7500 and the trustee $16,500, for a total of $24,000.  Thus the gain is $11,158 or 46%, which works out to about 4.5% / year over the life of the portfolio adjusted for the timing of cash flows.   The detail can be found on the links on the right or you can go here to download the spreadsheet.

There are 20 stocks in the portfolio, which is about the maximum I’d want to track in a single portfolio.  When we add new cash into the portfolio and / or sell existing stocks we are consolidating in order to keep at a maximum of 20 stocks.

We had three sales last year, with Garmin (GRMN), Yahoo (YHOO) and TransAlta (TAC).  We had four purchases with Box (BOX), Novartis (NVS), Tesla Motors (TSLA) and Tata Motors (TTM).

We had a net long term capital loss last year, driven primarily by TransAlta.  Up to $3000 in stock losses can be deducted against ordinary income so this at least should be helpful on the beneficiary’s tax form.  The portfolio earned $935 in dividends and had $70 in foreign taxes withheld (this can be deducted as a benefit on the US tax return).  It is important to realize the percent of total return that comes from dividends; while some companies like Tesla won’t pay dividends (because they are growing rapidly), the return on dividends from established companies is an important source of income growth for the portfolio.  I will be sending the tax information to the beneficiary from the brokerage company after completing this update.

Portfolio Two Updated October 2015

Portfolio Two is our second longest portfolio, at 11 years.  The beneficiary contributed $6000 and the trustee contributed $12,000 for a total of $18,000.  The current value is $28,334 for a gain of $10,334 or 57%, which works out to about 6.8% / year across the life of the portfolio.  You can download the detail here or utilize the links on the right side of the page.

This portfolio has been buoyed by two star performers, Amazon (AMZN) and Facebook (FB).  Both of those stocks have moved up substantially recently and account for half the total gain.

Poor performers are TransAlta (TAC), which was hammered by the drop in the Canadian dollar and the collapse of the commodity markets, and Wynn (WYNN) resorts which was hurt badly by changes in Chinese policy that limit gambling and especially “high roller” VIP gambling in Macau.

We will likely sell off all these stocks and move into cash and then ETF’s, likely following the approach listed in this post titled “Investing – Basic Plan” of low-cost ETF’s and CD’s purchased through a brokerage.  At approximately $28,000, the portfolio would likely be about $10,000 5 year CD (at around 2% / year) and $9,000 of VTI (Vanguard total stock market) and $9,000 of VEU (Vanguard total stock market ex-USA).  There would be about $6900 in net taxable gains that would need to be paid and the trustee / their parents need to decide who is going to pay this amount (if the rate was 15%, this would be about $1035 in taxes).  If the taxes were paid out of this distribution, then we would be re-investing just under $27,000.  This portfolio has unique reasons for doing the sell-off and re-investment into ETF’s that we don’t plan to repeat with other portfolios unless it is necessary.

Portfolio One Updated October 2015

Portfolio One is our longest lived portfolio, at 14 years.  It started right after 9/11 and has tracked the ups and downs of the stock market since then.

The beneficiary has contributed $7000 and the trustee $15,500 for a total of $22,500.  The current value of the portfolio is $34,648, a gain of $12,148 or 54% since inception, at a rate of about 5.5% / year.  To date dividends have contributed over $5000 towards the value of this portfolio.  You can download the portfolio here or go to the links on the right.

For the year to date, the portfolio stocks are down about 7%, compared with the S&P 500 being up 2% and the non-US index down about 6% (in US Dollar terms).  The portfolio is roughly half US and half non US and the increased downturn is due to our concentration in resource stocks and some currencies that depreciated significantly vs. the US Dollar.

There are 19 stocks in the portfolio, with an average value of about $1700.  The largest position is Exxon (XOM) at about $3000 and there are 2 stocks under $1000, Statoil (STO) and Trans-Alta Corporation (TAC).  It isn’t a co-incidence that STO and TAC have been hit by the recent commodity price downturn (Exxon too, although not as much).  The goal would be to have less than 20 or so stocks in the portfolio.

There has been a lot of volatility in the market and we’ve been holding off on selling to see how the dust settles.  We may make some sales prior to reinvesting the new stock selections for 2015.  Items that we are considering for sale are TransAlta (TAC), Yahoo (YHOO), Garmin (GRMN), and Wal-Mart (WMT), although we don’t want to make hasty actions based on short term moves (this mainly applies to Wal-Mart).

Stock Sales Summer 2015

We have been watching the markets and trends and there are some stocks that we will cull prior to the next round of investing.

Coca-Cola Femsa (KOF) – this is basically the Mexican and Latin American Coca-Cola distributor.  Per their last earnings release:

“As beverage transactions continued to outpace volumes across our operations- reinforcing our daily consumer engagement – we are encouraged by our operators’ positive performance in the midst of a challenging environment, marked by weak consumer trends in Brazil, a slowly recovering consumer landscape in Mexico, and currency volatility across our markets. On a comparable basis, we delivered high single-digit consolidated revenue growth and double-digit operating income growth during the quarter.”

What they mean by “comparable basis” is that the currencies of Mexico, Brazil and other countries such as Argentina have collapsed and they are still making a lot of sales but the sales are worth less when they are converted into the US dollar or some other index as they were in prior periods.

So what do we do?  Do we hold on and wait for the dollar to fall and / or their currencies to rise?  The company seems well run (they have growing transactions) and Coca-Cola is never going away, and these countries have a rising middle class and growing populations (unlike most of the world) to consume more goods in the future.

Royal Dutch Shell (RDS.B) – Shell has been pummeled by the commodity price slump.  They are also based in the UK / Europe so they face an additional currency overhang when translated into US dollars.  They also were “acquirers” of a natural gas company in the midst of these events which means they paid a premium price in a time of decline.  The most worrisome element, however, is that they continue their high risk plan of drilling for ice in the volatile and difficult arctic, at a time of reduced oil prices (which makes high cost investments like deep water drilling even riskier).  They also have a relatively higher chance of environmental catastrophe which will be very difficult to clean up given the paucity of local resources and the ferocious environment in the far north.  They are a sell.  If we want to “buy low” in the oil or natural gas business there are better candidates.

Trans Alta (TAC) – Trans Alta is a Canadian power generator.  They have strong exposure to coal and also the Canadian commodity boom / bust which consumes much of their electricity.  They pay a strong dividend (for now) but it has been reduced as the company struggles.  Future dividend cuts would impact the company even further.  Given the combination of the poorer Canadian economy and currency, the dire forecast for coal, and the commodity bust, this is a sell.

Wynn (WYNN) – Wynn is a gaming operator with operations in Macau, the only area of China where their gambling-mad citizens are allowed to play.  There are also many other more subtle elements to this infatuation with gambling including an ability to move currency out of the country, which is otherwise difficult to do.  Recently the new Chinese premier (dictator?) has cracked down on certain types of ostentatious corruption (generally among those who are not politically allied with him, since “corruption” is embedded into all aspects of their command economy) which has hurt gambling.  But Wynn is a shrewd operator and he is expanding capacity and likely this too, shall pass.  It is hard to sit while revenues and profits decline, however.

Exxon (XOM), Statoil (STO), and Devon (DVN) – these energy giants (Exxon is the biggest, but Statoil is unique since it is from Norway, and Devon is smaller but well run) have all been hurt badly by the reduction in oil and natural gas prices.  For now, unlike Shell above, I think it makes sense to stick with them.

Seaspan (SSW) – Seaspan owns container ships that travel between China and overseas destinations and has been investing in a new, fuel efficient fleet.  Seaspan has a very high dividend (8%) which they have been able to sustain so far.  On the one hand they seem to be a good operator but overall Chinese exports are faltering and if there is a general fall in the market they likely will still be able to rent out their newer, fuel efficient craft but the rate that they would receive would be correspondingly lower.  This one is on the edge.

Westpac Banking (WBK), Canadian Imperial Bank (CIB), Toronto-Dominion Bank (TD) – the first bank is Australian and the latter two are Canadian.  These banks are generally well run but all have been hit by the depreciation of their currencies vs. the US dollar, and the fact that they are exposed to real-estate “bubbles” in the Australian and Canadian markets.  As the commodity markets fall, the entire country can be hit with reduced services, demand and an overall high level of debt.  These are on watch.

Stop Orders Entered

After the recent analysis, the following stop orders have been entered.

Each of these stop loss orders is good until 2/20/15 (60 days from now).

Portfolio One

Sasol – SSL at 35 (now at $38.95) SOLD AT $35

Transalta – TAC at 8 (now at $9.18)

Portfolio Two

Anadarko – APC at $75 (now at $84.86) SOLD AT $74.97

Transalta – TAC at 8 (now at $9.18)

Portfolio Three

Anadarko – APC at $75 (now at $84.86) SOLD AT $74.97

Weibo – WB at $13 (at $15.78) SOLD AT $13.06

Portfolio Four

Coca Cola Femsa – KOF at $80 (now at $89.14)

Seaspan – SSW at $17 (now at $18.80)

Portfolio Five

Sasol – SSL at $35 (now at $38.95) SOLD AT $35

Seaspan – SSW at $17 (now at $18.80)

Portfolio Six

Coca Cola Femsa – KOF at $80 (now at $89.14)

Seaspan – SSW at $17 (now at $18.80)

Stocks to Review – December 2014

In order to decide what we should sell or keep, we need to review the stocks that have been hit across the six portfolios.  There are 12 stocks listed and grouped across the various industries and regions.

We will look by group to determine what we recommend to do next based on the specific circumstances of that stock and the factors that caused their valuation to change.  If it is a dividend related stock, we will also start to think if their dividend is “at risk”, because that would likely trigger another price drop.  Many of these stocks have rebounded off their lows, which makes this task easier.

Of the stocks reviewed, the ones we will watch closely will be Anadarko (APC), Sasol (SSL), TransAlta (TAC), Weibo (WB), Seaspan (SSW), and Coca-Cola Femsa (KOF).  We will consider stop losses on these stocks.

US Energy

  • Exxon Mobil (XOM)
  • Devon (DVN)
  • Anadarko (APC)

Of the 3 US energy companies, Exxon Mobil is a long term keeper because it is so well and ruthlessly run.  They have a reasonable dividend of about 3% that doesn’t seem to be at risk.  XOM may even be a candidate for further purchases if it keeps declining in the short term.

Devon is much smaller than XOM.  Their dividend is not as good, under 2%, but that also means that they aren’t being forced to support an unmanageable dividend burden.  From what I’ve read they seem to have hedged against falling oil prices which should insulate them a bit in the short term.  Devon also could be an acquisition candidate at some point although their market cap is $24B so only a giant like XOM could take them out.

Anadarko (APC) (like XOM and DVN) hit a 52 week low, but bounced back recently.  Their dividend at 1.4% is low and doesn’t seem to be at risk.  The company also has financial flexibility.  We are on the edge with APC if the oil rout is extended this may not be a stock to hold.  For now we are holding on with the rebound in energy prices off their lows, but this is on watch.

Global Energy (ADR)

  • Royal Dutch Shell (RDS.B)
  • Sasol (SSL)
  • Statoil (STO)

These global energy companies not only are hit by the drop in crude (see above), but also the decline in foreign currencies vs. the rising US dollar.

Statoil (STO) is denominated in Norwegian Kroner.  Over the last year the Kroner has declined 20% vs. the US dollar.  This means that our ADR has fallen 20% additional beyond the impact of other (negative) factors on the STO stock.  On the other hand, in the past the rising Kroner has boosted returns compared against US equivalent stocks, and provides diversification should the US dollar fall.  Statoil is likely going to defer some major deep water projects since those are not economical at the current oil price.  The dividend is now over 6% with the stock price decline; in general when dividends go much beyond 5% they often turn out to be unsustainable, or in any case should be watched closely.  The Norwegian government also holds a significant stake in this company, which allows them to impact behavior, but they seem to be a prudent steward (compared to partially public or state owned oil companies in Mexico or Brazil, for instance).

Shell (RDS.B) are denominated in UK pounds, which has fallen 5% this year vs. the US dollar.  Shell seems to be in relatively good shape, but the stock (like virtually all energy stocks) is near its 52 week low.  Their dividend is at almost 6% which seems sustainable for now but may not be in the long term.  They seem to be taking steps with their asset portfolio by country to sell components to optimize the company, which seems prudent.

Sasol (SSL) is denominated in South African Rand, which has fallen 11% vs. the US dollar.  SSL is a large energy company for Africa, but is much smaller than the other global majors.  The dividend is near 6%, a level to watch closely.  The stock at one point lost almost 50% of its value and may be a buy at this point or for consideration.  This stock seems more speculative than Statoil and Shell up above (which makes sense because each of the other companies are much larger) which means it is on watch (like APC, above).  On the other hand, since it is smaller, it has more room to grow on the high end in terms of stock price.

Canadian Energy (ADR)

  • TransAlta (TAC) – TransAlta is a Canadian energy company primarily operating in the electricity business.  They also have substantial and growing interests in Australia.  The company has been hit with a big fall in electricity prices in its main provence, Alberta, which means it earns substantially less revenue on the power it generates (most of the company’s costs are fixed in the short and medium term, so this goes straight to the bottom line).  The long term bet on why power use is growing in Alberta, however, is the oil industry so this stock is significantly impacted by the same forces (low oil prices) as the other stocks listed above, in a medium or longer term horizon.  The stock has a large dividend, at 7%, which means it definitely is on watch.  If the company decided to cut the dividend (for whatever reason), it is likely that the price of the stock would fall.  Many investors likely own this stock for income purposes.  As an ADR, they also are driven by the fall in the Canadian dollar, which has dropped about 8% vs. the US dollar over the last year

Chinese Internet (ADR)

  • Weibo (WB) – Weibo is a Chinese internet company, sometimes called their version of Twitter.  Alibaba, the giant of Chinese e-commerce (their Amazon), owns a 14% stake in WB, and in September the stock shot up because of speculation that Alibaba might buy the company or increase their ownership.  Chinese stocks are generally volatile and the tech industry is particularly so.  The stock has gone up recently, but is near a 52 week low.  This one is also on watch but seems to have a reasonable upside, especially if it was swallowed up.

US Technology

  • Amazon (AMZN) – Amazon is, to (partially) quote Winston Churchill, “a riddle wrapped in an enigma”.  The company is a powerhouse, altering whole industries and taking a giant role in e-commerce.  The founder is famously frugal and uses old doors as desks for employees.  Also – the company doesn’t make profits or focus on short term profits.  They continue to invest and to move into new markets.  This company is probably the hardest company in the world to analyze as a result and I personally have had more arguments about Amazon than any other stock.  To be clear, we had it at $14, and I sold at over $100, taking almost an 8x gain, but then it marched all the way to $400 / share, and now has lost about 25% off its peak and is near $300 (we bought most recently at $337).  The market seems to generally believe in Amazon so this is a keeper, even though as an accountant I am often perplexed.

Chinese Shipping (ADR)

  • Seaspan (SSW) – Seaspan is a smaller company that ships goods back and forth primarily to China.  They now have a very high dividend, near 7%, so that is something to watch.  If they ever cut this dividend I would expect that the stock price would be significantly impacted.  The stock price fell on SSW, but bounced back from its 52 week lows.  Even if China itself is slowing in terms of growth the demand for Chinese goods worldwide is still rapacious.  The company is also looking to upgrade their fleet continually to make it more fuel efficient in terms of scale.  On the other hand, shipping is a difficult business in a downturn, as shippers cut rates to near the marginal costs of running their fleet, just to keep afloat (bad pun).  If SSW has a more fuel efficient fleet than most, it should be able to withstand a downturn longer than competitors.  This is a stock on watch.

Casino / China

  • Wynn (WYNN) – Wynn at one point lost almost half their value on concerns over Chinese cutbacks in gambling.  China has a huge gambling culture (wagers at Chinese casinos on average are much higher than in the USA) and there is only one place in China where you can gamble, and WYNN has a casino there.  Much of the Chinese gambling is also a method to move money out of the country, a much more complex topic than I could cover here, but it is safe to say that gambling in China is a much more serious business than it is in the USA.  The current Chinese leader is cracking down on “corruption” (I use parenthesis because the whole business culture is corrupt in a mega-sense, but he is talking about specific behavior elements like lavish behavior with official money) and this means gambling.  WYNN does have an attractive dividend and special dividend and in the long term (unless they open casinos on the mainland) they can recapture money as soon as the official glare goes away.

Mexico / Consumer Staples (ADR)

  • Coca Cola FEMSA (KOF) – Like our other ADR’s, the Mexican Peso has been hit by a 10% drop in value vs. the US dollar, which weighs on this ADR.  It is off 52 week lows but has lost 1/3 of its value over the last 12 months.  The stock has a modest dividend so it is looked at as a long term growth play on the Latin American market.  The stock is on watch due to performance and low dividend but, like Chinese gambling, it is a hard market to walk away from since it is hot and bottled drinks of sugar and beer seem like a safer bet in the long term too.

Portfolio Two Quick Update December 2014

Portfolio Two is listed below. We were hit in Statoil due to the crude collapse and the falling Norwegian currency. TransAlta, the Canadian energy company, was also hit by these forces.

The portfolio also has Amazon, which is falling a bit relative to other tech companies. They are a well run, long term player, but the street was looking for (marginally) higher profits.

Wynn casinos are also on watch because of a crack down on corruption in China, which limits gambling revenues.

Many other companies are doing well, particularly Facebook and Nidec (Japan) which have half the portfolio’s current unrealized gains.