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.

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.

Portfolio Three Updated January 2013

Portfolio Three is our third longest lived portfolio. It began in 5 1/2 years ago and the beneficiary contributed $3000 and the trustee $6000, for a total of $9000. The current value is $9792, a gain of $792 or 8.8%, which is 2.4% / year when adjusted for the timing of cash flows. You can see the details on the links bar on the right or here.

Portfolio Three stocks that are off watch include Urban Outfitters which finally climbed above its purchase price and WYNN which is underwater but the gap is closing, buoyed by recent returns and special dividends.

For tax purposes, we sold Metro PCS for a gain of $300 (it subsequently fell back to its original price) and had $219 in dividends.

Portfolio Two Updated January 2013

Portfolio Two is our second longest portfolio, at 8 1/2 years. The beneficiary contributed $5000, the trustee contributed $10,000 and the current value is $17,607 for an increase of $2607 or 17.4%, which is about 3% / year over the life of the portfolio adjusted for the timing of contributions. The detail can be found to the links on the right or here.

This year we sold one stock, Metro PCS, on a potential take over. This did not materialize and the stock dropped back down (after we sold it). We have two stocks on negative watch now, Wynn (which paid a good special dividend and has been coming back) and Nidec, which has been a great holding but has been getting killed with the overall Japanese market. If Nidec doesn’t turn around soon we will sell.

Urban Outfitters is above where we purchased it and Facebook has been a great purchase, since we bought it after the debacle IPO and it has risen strongly off the $18.75 / share price we paid.

For taxes we had dividends of $358, which is a nice stream of income, and a short term gain of $220 on the Metro PCS purchase and sale.

Portfolio One Updated January 2013

Portfolio One is our longest portfolio, with a duration of almost 11 1/2 years. It began immediately after 9/11, an auspicious time for stocks.

Portfolio One has a current value of $28,635. The beneficiary contributed $5500 and the trustee contributed $12,500 for a total of $18,000. Thus the fund has gained $10,635 or 59% vs. the original investment, or 7.4% when adjusted for the timing of cash flows (annual contributions). You can see the portfolio here or on the right side of the links.

During the year we sold 2 stocks that were headed the wrong way – Exelon, the utility and large nuclear operator that came under question of whether they’d have to reduce their dividend due to lower profitability caused by cheap natural gas (a competing fuel), and Canon, a Japanese company that was seemingly well run and a long term holding which just kept falling.

With those 2 gone there is nothing really on our watch list right now, since Urban Outfitters has turned it around and is actually above our initial purchase price. We will watch that stock and probably sell if it seems to trend down.

Right now a bigger concern is over-valuation. We will watch stocks that have had strong gains in the recent market rally and we aren’t going to stand by and watch them go way down if we don’t feel that they are good long term investments.

We sold too soon on some stocks – one is Amazon which continues to DEFY LOGIC and climb even while essentially profitless. Oh well, that is a bit defensive, but we bought at $14 and sold at $90, and re-invested that money in other stocks that did well (like P&G which has returned very well especially when dividends are factored in). Today the stock continues to defy gravity and is at $284. When you do the math we left > $8000 on the table depending on assumptions by selling when we did.

If you look at other stocks we sold, a lot of them continued downward (some into bankruptcy), but others have come back a bit in the recent market rally, some even above the price we sold it at. No broker would typically “look back” like this but I want to be clear and transparent and learn (if possible) from our own investing history.

For taxes this year, we had almost $700 in dividends. Dividends are rising because companies are paying out a higher proportion of their cash and we also often select stocks with strong dividends. We sold 2 stocks with capital losses (long term) this year, as well. We didn’t sell any winners so this can be offset against income (up to $3000 / year), to the extent that the trustee has sufficient income.

Portfolio Three Updated November 2012

Portfolio Three is our third longest lived portfolio at five years. The beneficiary has invested $3000, the trustee $6000, for a total of $9000. The portfolio value is $8462, which is ($537) below the invested amount, for a return of negative (6%) or negative (1.8%) over the life of the portfolio. Detail on the portfolio is in the link on the right side of the page or you can see it here.

Portfolio Three bought Metro PCS on the possibility of a takeover and when offers occurred we sold it for an approximately $300 gain. Wynn (casinos) was a poor initial performer but it has come back recently and gave a special dividend prior to the end of 2012 to avoid 2013 tax uncertainty (one of the few companies to do this so far). Urban Outfitters also is now above its initial purchase price. Bank of Columbia (CIB) suffered early in the year but has come back recently.

Portfolio Two Updated November 2012

Portfolio Two is our second longest lived portfolio, at 9 years. $5000 has been contributed by the beneficiary and $10,000 by the trustee for a total of $15,000. The fund is now worth $16,481, for a gain of $1481, or 10% on the total invested, at a rate of about 1.7% / year over the life of the fund. Go to the right to see a spreadsheet with details or here.

Portfolio Two recently invested in Metro PCS which received a buy out offer and we sold immediately for a gain of $220. WYNN has started to come back from a 30% losing position and is now down about 22%. Urban outfitters also came back from a big loss and is up 7% on the original investment.

On the other hand, the Japanese company Nidec (NJ) has suffered a serious decline, along with the rest of the Japanese market. Portfolio One recently sold Canon (CAJ) and I am thinking strongly of selling NJ, too. The Japanese market is suffering from slow to no growth and a very strong Yen (currency) is hurting exports.

This portfolio also shows the importance of dividends. The portfolio has received $1148 in dividends over its lifetime, which is equal to its gain above investment.

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 Three Updated August 2012

Portfolio three is our third longest portfolio, and has been investing for five years, and you can see it here or on the link on the right side of the page. The beneficiary has contributed $2500 and the trustee $5000, for a total of $7500, and the value of the portfolio is currently $6957, for a loss to date of $543 in total (although the beneficiary is “up” substantially on their investment of $2500). This is a loss of 7% in total, or about 2.5% / year over the life of the portfolio.

Current Portfolio

Portfolio 3 has 2 stocks that are on watch elsewhere – Wynn, the gaming company with large interests in Macau (China), and Urban Outfitters, which has recovered about half its loss from its lows. The big winner is Wal-Mart, up almost 60% (including dividends) from its purchase price.

Stocks Sold Previously

The Stocks sold previously mostly haven’t gone up, with two still below their selling price and one above it.

Portfolio Two Updated August 2012

Portfolio Two is the second longest lived-portfolio, at about 8 years old. A link to the updated statement is here or you can find it in the link list on the right side of the page. The current value is $13,780. Investment by the trustee has been $8000 and the beneficiary $4000, for a total of $12,000. The gain so far is $1780 or 14.8%, about 3.1% / year since inception.

Current Portfolio

We are reviewing the stocks in Portfolio Two as part of the preparation for purchasing stocks for 2012. Wynn is a casino company in the US that has interests in Macau (which dwarfs Las Vegas) and has been involved in lawsuits with their Japanese partner, resulting in a lost of 32% when adjusted for dividends. We need to consider whether this stock can come back or if we no longer believe it will recover in the near or medium term. Urban Outfitters (URBN) faced a large loss when they missed earnings but have made up about 1/2 that loss since then. Wal-Mart and Diageo (ADR) have been good performers recently.

Stocks Sold Previously

Most of the sales were right with 20/20 hindsight (not present in real life) – we booked big gains on BHP and CHL and the stocks have yet to hit those highs.