Portfolio Five Updated March 2016 – Tax Time

Portfolios four and five are 6 1/2 years old.  The beneficiary contributed $3500 and the trustee $7000 for a total of $10,500.  The current value is $10,435 for a loss of ($65) or (0.6%) or basically flat performance when adjusted for the timing of cash flows.  The spreadsheet detail can be found here or in the links on the right.

We sold Seaspan (SSW), Yahoo (YHOO) and Sasol (SSL) this year while buying Union Pacific (UNP), Tata Motors ADR (TTM) and ConocoPhillips (COP).  Right now ConocoPhillips (COP) is on watch after cutting their dividend 75%, and LinkedIn was hit hard during their recent earnings guidance, also putting the stock on watch.

We had some gains and losses this year the brokerage account makes it easy to calculate taxes since it includes the original cost basis as well as the sales information.

Portfolio Three Updated March 2016 – Tax Time

Portfolio Three is our third longest lived portfolio, at 8 1/2 years.  The beneficiary contributed $4500 and the trustee $9000 for a total of $13,500.  The current value is $12,814 for a loss of ($685) or (5%).  Adjusted for the timing of cash flows, this is (1%) a year.  The detail can be found in the links on the right or here.

This year we sold Yahoo after all the drama and bought ConocoPhillips, Alibaba and Facebook.

There are a few stocks on watch.  LinkedIn (LNKD) dropped almost half its value when it issued forward earnings guidance; since then the stock has stabilized and is on watch.  I still believe in the company although many others apparently do not.  ConocoPhillips (COP) was hit immediately by the collapse in oil prices (even though we were buying it on a dip) – this is also on watch to see how they do in this difficult environment for commodity companies.  Wynn (WYNN) is a casino company with properties in Macau China catering to heavy Chinese gamblers; the crackdown on corruption has severely dampened earnings.

For taxes in 2015, there is a net loss for the year due primarily to a fall in value of Weibo (WB) which was pummeled in the great Chinese stock market rout and we sold the stock (it since gained back some of its value).  

Of the other stocks we’ve sold in recent years they are still below the price we sold them at.

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 Five Updated October 2015

Portfolio five is six years old.  The beneficiary contributed $3500 and the trustee has contributed $7000 for a total of $10,500.  The current value is $11,297 for a gain of $797 or 7.6%, which is 1.8% / year.  The details can be found here or you can use the links on the right.

Portfolio five has a couple of stocks on watch.  Yahoo (YHOO) has most of its value tied to the Chinese company Alibaba (BABA).  Seaspan (SSW) has a very high dividend at 9% and is on watch to see if that is sustainable.

Portfolio Three Updated October 2015

Portfolio three is eight years old, with the beneficiary contributing $4500 and the trustee contributing $9000, for a total of $13,500.  The current value is $13,243 for a loss of ($256) or (1.9%), which works out to an annual return that is slightly negative (0.4%) / year.  See the details here or use the links on the right.

The portfolio has had some stocks move against us lately.  Wal-Mart (WMT), an historically strong performer, recently came out with 3 year stock guidance that showed low growth and the stock went down.  Wynn (WYNN), a gambling company with strong interests in China, was also adversely hit by the Chinese governments’ crack down on money laundering and VIP gamblers.  Exxon-Mobil (XOM), the energy giant, has gone down tied with the commodity bust.  Yahoo (YHOO) is up overall but down from recent highs and is mainly a value play on its Alibaba (BABA) stake.

We will look at selling some of these stocks as part of our 2015 new stock purchase planning.

Portfolio Five Updated November, 2014

Portfolios Four and Five are each 5 years old, with the beneficiary contributing $3000 and the trustee $6000, for a total of $9000.  The current value is $11,175 for a gain of $2,175 or 24%, or about 6% / year adjusted for the timing of cash flows.  You can see the detailed portfolio here or use the link on the right.

Yahoo and Westpac have been big gainers, and there aren’t any big losers in the portfolio right now.  In the past we sold Alcoa (AA) and since then it went up significantly; Alcoa had slashed its dividend and performed poorly over the years, but since has gotten its act together.

Portfolio Three Updated October 2014

Portfolio three is our third longest lived portfolio, at seven years.  The beneficiary contributed $4000 and the trustee $8000, for a total of $12,000.  The current value is $13,638, for a gain of $1638 or 15%, or 3% / year adjusted over the life of the portfolio.  Go here for the spreadsheet detail or click on the link on the right.

The portfolio has almost half turned over in the last year, as 5 new stocks were added, out of the 11 total.  A recent purchase LinkedIn has had some turmoil with the tech stock issues but is a good longer term play, but we will watch it.  We are also watching Weibo, a Chinese internet stock hit by the same tech turmoil.

From the more traditional stocks, Siemens has been hit as the Euro has fallen vs. the dollar recently.  We will also watch Yahoo to see what happens with the Alibaba stock they own post IPO.

Of the stocks we’ve sold, mostly it is good riddance.  In particular Cliffs’ Resources went off a cliff since we sold it, down from $18 to $7.  The stock perhaps could be a good candidate for a purchase in the future as a value play.  We are trying not to ride stocks like that too far down.

Portfolio Two Updated October 2014

Portfolio Two is our second longest lived portfolio, at over ten years.  The beneficiary contributed $5500 and the trustee $11,000 for a total of $16,500.  The current value is $25,036 for a gain of $8536 or 51%, which works out to about 7% over the life of the fund when adjusted for the timing of cash flows.  See the details here or the link on the right.

We will be watching a few stocks.  Transalta has declined and has a dividend that might be unsustainable.  Yahoo went up on the Alibaba IPO and we will watch what they do in the future.  Both Diageo and Siemens have been hit by the fall in the UK Pound and the Euro vs. the dollar and we will keep them on watch as well.

Sign of a New Peak for Stocks?

Back in the woeful years of the dot.com boom and bust I worked for a company with a dubious distinction. The value of that company in the stock market was less than the value of the cash we had on our books. What the market was essentially saying is that the sum total of all our efforts as employees was NEGATIVE – we would be worth more if we just shut down immediately and gave back the cash to investors. The fate of that company, of course, was to go bankrupt.

Today there are some other major signs of froth in the market. Yahoo is a classic web / advertising / technology stock with a solid market capitalization of $40 billion. Yahoo’s CEO, Marissa Mayer, was a Google alumni and has been receiving a lot of press for her intelligence and drive to change the company, as well as her good looks.

Screen Shot 2014-09-20 at 8.43.59 AMHowever, all is not as it seems.  The primary value for Yahoo isn’t its online advertising, email, or users – it is the stakes that they amassed in the hot Chinese e commerce company Alibaba (NYSE: BABA) and also Yahoo Japan.  In fact, the value of Yahoo is less than the value of these stakes, which are approximately $45B, partially due to the reason listed in this Bloomberg article:

While the market value is large for Yahoo’s Asian assets, that doesn’t necessarily reflect the value available to investors and the company because of taxes, said Ben Schachter, an analyst at Macquarie Securities USA Inc. Yahoo, which would have made $8.3 billion by selling Alibaba shares at the IPO, only reaped around $5.1 billion after taxes.

Taxes are ‘‘one of the big issues,” Schachter said.

While it is true that $45B in investment value isn’t worth $45B because of the after-tax implications, it certainly implies that the market isn’t valuing Yahoo at very much at all.  It is also possible that the market thinks that Alibaba is over-valued at its current price of near $100 (after a huge run-up from its IPO price of $68, another huge sign of froth in the market) but the two stocks will generally track closely together now.  Yahoo is sort of a broken “tracking stock” for this value.

Another sign of froth is “spec companies”.  Spec companies are stocks of companies that are created “from scratch” and their value is based on the promise of management to do certain things in the future with money contributed or raised from investors.  Generally you can’t create a spec company – you need to take over an existing listing and then you promise returns to investors who in turn value your company.  Brazil was on a tear earlier in the decade and a flamboyant billionaire created a company OSX whose IPO in 2010 was discussed here:

(Reuters) – OSX Brasil (OSXB3.SA) slashed its initial public offering as investors balked at paying a high price for a start-up company with no revenue.

This too recently came to an end as the company OSX filed for bankruptcy protection, but the ability of a firm to launch a start up planning to build a port and various oil and other assets and receive a high valuation should raise eyebrows.  Like many other similar plans this one ends up in dust with a recent bankruptcy filing.

I don’t have any sort of unique forward looking view on stocks but the eye-popping valuation and initial one-day jump of Alibaba and other signs have been correlated with declines in the stock market in the past.

Cross posted at Chicago Boyz

Stock Market Performance and Our Stocks in the News

Over the 11+ years that we’ve been setting up these trust funds, tools for monitoring stock performance have improved greatly.  Today I use Google Finance to keep portfolios online for each of the six trust funds, and I update them for buys and sells and available cash.  When we first started these portfolios, it was the dawn of the Internet age (remember those commercials for e-trade), and we usually waited to receive our paper statements.

On the other hand, you don’t want to move into a mode of constant reshuffling of the portfolios.  Watching frequently is strongly correlated with frequent trading – you see and react to short term market movements, and you “kick yourself” when you don’t act on short term hunches.

For these portfolios there is a secondary consideration that I want the portfolio beneficiaries, who will ultimately receive 100% of the value of these stocks, to be as large a part of the decision making process on purchases and sales as possible.  This is a key purpose of these trust funds – to teach the beneficiaries about money and to show the real and substantial long term gains that can occur from systematic investing in a thoughtful way over a long period of time.  For purchases we are able to accomplish this by making it an annual process, tied with the annual back-to-school ritual.  For sales, I am attempting to make this more of a joint decision making process by setting “stop loss” levels up front and communicating these levels rather than selling when I think something is 1) overvalued 2) headed for a big loss.  I still have to move unilaterally on an occasional sale when I want to move relatively quickly, however, but I try to minimize those activities.

With all this said, I do watch the markets relatively closely (usually for a few minutes each night I scan the google finance portfolios for the six trust funds and see if alerts pop up for any of the stocks).

While it is easy to say that “the market has rallied this year and gone up by x%” and then to compare this return vs. your stocks, in reality every stock has its own story based on nationality (about 1/2 of our stocks are non-US), its industry, and then finally there is the large “joint” component of economic moves by the Federal Reserve starting with ZIRP and then moving into “Quantitative Easing”.  These events greatly influence all stock pricing, which can be seen clearly when the entire portfolio moves up and down in unison based on news (or perceived consensus on behavior) from the Feds.

Another entire path is how the international markets are faring – the Chinese economy is built on capital expansion, both in real estate and in manufacturing, and they have their own version of high leverage in various trust products and local debt and banking relationships that are starting to flash major warning signals.  When you listen to the news on economics 90% of it is about the US and our policies, when we represent maybe 20% of the world wide economy and we are heavily influenced by what happens elsewhere.  Of high interest to stock investors is the fact that Chinese markets have been in a slump for years, as they anticipated high growth before the growth became reality and then Chinese investors have since moved on to the (perceived) “easier gains” of local real estate.

Thus with all of this background behind us, here are some of the stories that I’m watching…

Australian banks seem to be the most expensive in the world, and are booming due to a real estate and highly valued currency.  We own Westpac, and this is something to watch.  Note also that when evaluating a high dividend stock (they currently yield almost 6%), it is important to look beyond just the stock value to see the total return.

Yahoo! is a 2013 pick and has done very well recently, up over 40% since we selected it in late Q3 2013.  The new CEO (Marissa Mayer) recently fired her hand-picked head of advertising who had a $60M pay package and their advertising revenue isn’t growing.  However, this doesn’t matter much since almost all of the value of this stock is in its China (Alibaba) stake and Japan stake – the US operations are mostly irrelevant (or a possible upside) to the stocks’ total valuation, per this article.

Shell (we own the “B” shares because they are out of the UK and don’t have the dividend withholding that we would have if we owned the “A” shares out of the Netherlands) recently issued earnings guidance that was touted as “Shell shock” about bad quarterly results.  The stock went down and now we are watching to see what happens next.

Beyond Shell we have a large exposure to the oil industry, including Statoil (Norway), SASOL (South Africa), CNOOC in China (we sold CEO recently when it hit our stop loss), Exxon, and also Anadarko (natural gas).  Thus we need to monitor these companies, to some extent, but we mainly buy and hold them because this is an essential part of the world economy and they pay strong dividends (mostly).

We continue to monitor these stocks and will close down our stop-losses pretty soon and create new stop-losses going out into 2014 for a few months.  We want to keep some down side coverage going both for stocks that have had a great run but also for stocks that might be headed for a fall.  Our stop loss strategy is summarized in this post.