Portfolio Three Updated March, 2015 – and It’s Tax Time

Portfolio Three is our third longest portfolio, at 7 1/2 years. The beneficiary contributed $4000 and the trustee $8000 for a total of $12,000. The current value is $13,363 for a gain of $1,363 or 11% or 2.4% / year over the life of the fund. You can see the details at the link on the right or download the file here.

Portfolio Three had $213 in dividends in 2014, for a yield of approximately 1.8%. This is a reasonable return given that cash has essentially a zero return in an era of low interest rates. We sold 4 stocks in 2014 and 2 fell much further (Cliffs and CNOOC) while Splunk is mostly the same and Urban Outfitters gained about 20%.

We also sold 2 stocks in early 2015 (Weibo and Anadarko) so we have about $2200 to re-invest and will buy a couple of stocks in the spring.

Advertisements

Revised Stop Loss Orders

Generally these portfolios are roughly balanced between US stocks and overseas stocks (ADR’s bought on US Exchanges).  Recently there has been a shakeup in the overseas markets, as their currencies have begun falling vs. the US dollar (which drives a corresponding drop in the value of the stock since we receive value based on the US currency).

As such we’ve been evaluating the stocks and stop orders outstanding, and are adjusting the stop loss orders to reflect the downside risk (some already realized) on non US stocks.  Since we try to limit stop orders to 1/3 of the stocks available (or less, ideally) we are going to take the stop loss orders off some US based stocks.

Here are the new stop loss orders (and existing ones have been canceled and replace with new ones looking 60 days out rather than having them expire at odd dates).

Portfolio One

  • Urban Outfitters (URBN) – keep at 35 (don’t want to ride this back down) Executed
  • Philip Morris International (PM) – keep at 80 (had a big run, don’t want to fall below) Executed
  • Taiwan Semiconductor Manufacturing (TSM) – keep at 15 (same)
  • CNOOC (CEO) – now at 159.. at 150 (Chinese stocks have been hit by the emerging market currency issues and also potential defaults with the “trust” vehicles).  SNP, another Chinese oil company, hit its stop loss target and sold off Executed
  • WIPRO (WIT) – at 12.88 – make at 12 (WIPRO has had a great run, but the Indian rupee is also at risk)
  • Yandex (YNDX) – at 38, – make it 35 (Yandex had a good run, but now the Russian ruble is also subject to emerging market contagion) Exccuted

Portfolio Two

  • Urban Outfitters – URBN – at $35 (don’t want to ride this back down) Executed
  • Yandex (YNDX) – at 38, – make it 35 (Yandex had a good run, but now the Russian ruble is also subject to emerging market contagion) Executed

Portfolio Three

  • Urban Outfitters (URBN) – at $35 (don’t want to ride this back down) Executed
  • CNOOC (CEO) – now at 159.. at 150 (Chinese stocks have been hit by the emerging market currency issues and also potential defaults with the “trust” vehicles).  SNP, another Chinese oil company, hit its stop loss target and sold off Executed
  • Cliffs Natural Resources (CLF) – now at 19.33… at 18.  Cliffs was hit hard recently and we want to put a floor on this.

Portfolio Four

  • Nucor (NUE) – from $41 to $55, now $48.  At $46 KEEP
  • Seaspan (SSW) – from $15 to $25, now $21… At $18 KEEP

Portfolio Five

  • Seaspan (SSW) – from $15 to $25, now $21… At $18 KEEP
  • Yandex (YNDX) – at 38, – make it 35 (Yandex had a good run, but now the Russian ruble is also subject to emerging market contagion) Executed I thought this was set up but I missed it.  Now at $38 again will set one up at $35

Portfolio Six

  • Seaspan (SSW) – from $15 to $25, now $21… At $18 KEEP
  • Yandex (YNDX) – at 38, – make it 35 (Yandex had a good run, but now the Russian ruble is also subject to emerging market contagion) Executed

New Stop Loss Orders Entered

Back in October we set up some stop-loss orders.  None of these orders were executed because the market has been up since then (for my stocks, at least).  Since the orders didn’t occur they were free to set up and it is free when they expire (or I cancel them).  We did “pull the trigger” on some stocks that have been on watch (Riverbed, Bancolumbia).

Stop loss trades are good for 60 days, and then they expire.  Given that the market has been on a tear, it makes sense to set up some more stop loss trades in case we move into an extended downward phase – I don’t want to watch the run-up and then watch them go back down.

While there isn’t a “rule” on stop losses, I am going to make some now.  In general:

– I don’t want more than 1/3 of a particular portfolio in “stop loss” mode (this may not apply if you have only a few stocks, like 4 or 6).  These are long term investment vehicles, and I don’t want to deal with re-buying an entire portfolio after a 10% small market correction

– If a stock needs to be sold, then sell it, don’t use stop losses as a wimpy sales mechanism.  We did clean up a couple of stocks that were on watch recently

– Remember that while stop loss orders can prevent you from taking a big loss, they also take you “out of the market” if it goes right back up

– Sales near year end will generate gains that may generate additional taxes for the government.  In general these portfolios are not as tax sensitive because they are owned by individuals who don’t pay much in taxes but if we had a big selloff it could cause them to pay some additional amounts to Uncle Sam

– Finally, remember that money sold off needs to be re-invested.  Back in 2007 I sold off some stocks that made big runs, and we did well and many of the stocks haven’t reached their pre-crash peaks.  However, that money has to be re-invested, and often the stock you pick is as over-valued as the one that you are selling.  This isn’t a free lunch…

Portfolio 1 – 20 stocks

  • Urban Outfitters – URBN – at $35 (don’t want to ride this back down)
  • PM – recently dropped from $92 to $85… Stop loss at $80
  • SNP – went from 70 in July to 90 then down to $84.  Stop loss at $78
  • TSM – was down to $12 then up to $20 now at $17.  Stop loss at $15
  • CMCSA – from $37 to $50… a big run… At $44
  • EBAY – big rise and then recently from $58 to $52…  at $47

Portfolio 2 – 18 stocks

  • Urban Outfitters – URBN – at $35 (don’t want to ride this back down)
  • SI – from $82 to $131…  At $123
  • SNP – went from 70 in July to 90 then down to $84.  Stop loss at $78
  • WYNN – from $94 to $164… at $150
  • FB – $20 to $51, now $47… at 43
  • SPLK – $26 to $75, now $72… at $65

Portfolio 3 – 10 stocks

  • Urban Outfitters – URBN – at $35 (don’t want to ride this back down)
  • SI – from $82 to $131…  At $123
  • WYNN – from 94 to 164… at $150
  • SPLK – $26 to $75, now $72… at $65

Portfolio 4 – 10 stocks

  • NUE – from $41 to $55, now $51.  At $46
  • SSW – from $15 to $25, now $21… At $18

Portfolio 5 – 9 stocks

  • SI – from $82 to $131…  At $123
  • SNP – went from 70 in July to 90 then down to $84.  Stop loss at $78
  • SSW – from $15 to $25, now $21… At $18

Portfolio 6 – 4 stocks

  • SSW – from $15 to $25, now $21… At $18

 

Portfolio Three Updated November 2013

Portfolio Three is our third longest lived portfolio, at six years. The beneficiary contributed $3500, the trustee contributed $7000, for a total of $10,500. The current value is $12,673 for a gain of $2948 or 28%, which is 6.2% / year over the life of the portfolio. See details here or download the spreadsheet on the right.

There are 10 stocks in the portfolio, of which 6 are US and 4 overseas, although since WYNN has most of its’ value from China holdings, you could say that it has a 50/50 ratio.  The portfolio is almost to the point where the swing in a single stock won’t disproportionately change the total portfolio value and it is reasonably diversified.

Splunk has been a big winner, with a gain of over $1000 in less than a year.  Other winners include Siemens which is near a five-year high as well as Wal-Mart which is steadily growing with a solid and rising dividend.

We are watching WYNN and Urban Outfitters which had been way under water until the recent run-up; we are using stop loss orders that we will renew to ensure they don’t go back underwater.  Cliffs also has a stop loss because it originally started tanking after we bought it but turned around immediately.  We recently sold Bancolumbia as it neared a 20% loss (excluding dividends).

Portfolio One Updated November 2013

Portfolio One is our longest lived portfolio. It began right after 9/11 and thus has been through twelve years. The beneficiary has invested $6,000 and the trustee has invested $13,500, for a total of $19,500. The current value in $33,161 for a gain of $13,661 or 70% in total, which works out to approximately 8% / year. You can see the detail behind this portfolio here or at the link on the right side of the page.

In rough terms if you have a more than 10 or so stocks you have a diversified portfolio (assuming of course that the stocks represent different sectors, market cap, and even countries) and there are 20 stocks in this portfolio, with an average value of around $1600 or so, and I would say that this portfolio is pretty diversified. About half the stocks are non-US (and the US stock Philip Morris is all overseas) and thus the benchmark would be about half the S&P 500 and half an international index of developed countries not including the US.

On the downside, we are watching Urban Outfitters which moved above our purchase price (finally) and which we are not riding back down. There is a stop loss order in for this that we will continue to renew (it only goes out for 90 days at a time).

We also are looking at stocks which may have reached their apex or might be on the verge of being over valued. The current stage of the bull market seems frothy and since we are long term investors we aren’t inclined to immediately sell but we may put in some stop loss orders to prevent some stocks that have risen a great deal from coming down too far. We are less inclined to sell a stock with a high dividend because it will continue to pay out than a stock which has risen a great deal but has no dividend. For now there won’t be any stop orders placed but we will watch stocks like EBAY and Taiwan Semiconductor which have had a great run for us.

As far as stocks we sold in the past, Amazon continues on its tear because it stands alone as a stock that has no profits for investors yet continues to soar and sports an enormous market capitalization. I have literally no answer for this phenomenon.

Microsoft, which we sold a few years ago, increased from the sale price of $25 in 2010 to $37 today. A lot of this gain is because their lunk-headed CEO Ballmer is finally leaving… since he retained his stock the day he announced his departure, the stock soared, and he made himself an extra billion dollars just for firing himself. Now that is surreal.

In general this portfolio is doing well and hope to keep it rolling another twelve years!

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 Three Updated July 2013

Portfolio Three is our 3rd longest lived portfolio, at almost 6 years. The beneficiary contributed $3000 and the trustee $6000, for a total of $9000, vs. a current value of $10,242, for a gain of $1,242. This is a return of 14% or just under 4% / year, when adjusted for the timing of cash flows. You can see the detail in the links on the right or go here.

The portfolio components are doing reasonably well. Two stocks that were far underwater at one point, WYNN (casinos) and Urban Outfitters (clothing) have come back and / or exceeded their purchase price. Splunk has been a big gainer since being purchased this year. On the other hand, while Siemens is still a net positive position with a good dividend, it is down substantially from its highs, and we hope that getting a new CEO will be a catalyst for a price rise. BanColumbia (CIB), the ADR from Columbia, is about break even with a decent dividend but was hit by negative currency fluctuations vs. the US dollar.