Tuesday, February 17, 2015

Annual Portfolio Review

It's this time of the year again. Need to explain myself what am I doing. Lot's of worries around the world: Ukraine (it's a real war in Europe, make no mistake), Greece, ISIS. Ebola just subsided (don't know why that one scared investors). And yes, collapse of oil prices (only really rich people think it's bad). But let's not forget, worries are good for investors. They allow us to get good entry points. And bull markets climb a wall of worry. It's scary when everybody's happy (remember March 2000?)

Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. Most money is invested in US. But I increased my European exposure lately. Europe is coming back. Domestically, with GOP controlling Congress, we might get into some ugly fights, with possible veto and government (or parts of government) shutdowns. I think every such fight is a buying opportunity.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Google (NASDAQ:GOOGL), (NASDAQ:GOOG)
Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.
Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.
No changes since last review.
Plan: Hold, trade around.
ARM Holding (NASDAQ:ARMH)
Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs. Additional plus in current environment: it's a European company, based in UK.
Added to position since last review
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold, trade around.
Facebook (NASDAQ:FB)
Not the only social network company worth investing anymore. But the most profitable so far.
Sold some calls and puts since last review.
Risk: Wall Street hates the company.
Plan: hold, trade around.
DSW Inc (NYSE:DSW)
Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.
No changes since last review.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Twitter (NYSE:TWTR)
Many people think that company is only good as a possible takeover target. Wrong! They are just at the beginning of monetizing their popularity.
No changes since last reivew.
Plan: hold.
Banks / Financials
Banco Santander (NYSE:SAN)
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles.
Added to position and reinvested dividends since last review.
Risk: Currency fluctuations, more problems in Eurozone.
Plan: Hold.
HSBC Holding (NYSE:HSBC)
As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.
Reinvested dividends since last review.
Risk:currency fluctuation, another financial crisis.
Plan: hold.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
Airbus Group (OTCPK:EADSY)
One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.
No changes since last review.
Risk: currency fluctuation.
Plan: hold, add on weakness.
Polaris Industries Inc (NYSE:PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
Added to position since last review.
Risks: another recession, people don't like buying discretionary items in recessions.
Plan: Hold, reinvest dividends.
3M Company (NYSE:MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
No changes since last review.
Risk: another recession, management mistakes.
Plan: Hold, reinvest dividends.
Raytheon (NYSE:RTN)
Bought this company because of instability in the world. Company makes missiles, including popular air-to-air AMRAAM and SIdewinder, radars, software, i.e. most sophisticated military equipment.
Reinvested dividends since last review.

Sold since last review: l'Oreal (OTCPK:LRLCY), Diana Containerships (NASDAQ:DCIX). I hate all shipping now. As for l'Oreal, I sold it just to take profit, can return at a lower level

Fixed Income
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on Twitter, @afilonov
Disclosure: The author is long ARMH, DSW, EADSY, FB, GOOG, GOOGL, HSBC, MMM, PII, RTN, SAN, TWTR.
Additional disclosure: I have no position in DCIX or LRLCY. Positions can change any time.

Friday, January 2, 2015

2014: So-so year

Honestly, I sucked. My main investment accounts grew 3.2%. Shame on me. Retirement accounts did a little better, in line with S&P 500. And fixed income account had a stellar year: almost 20%.
Lessons learned. First lesson: don't chase performance. Ever. I had pretty good 2013, and thought what worked then would work in 2014. Wrong!  I bought a lot of stuff in the beginning of the year, which didn't perform. Second lesson: think twice or more, before buying any transports. I bought Diana Containerships (DCIX) in 2013, it was one of my worst investments. Third lesson: take at least some profit when you have it. True, I traded around Polaris (PII), but possibilities were endless and I didn't use most of them.
Last but not least. My European investment didn't work. I think they still deserve a chance.

Full disclosure: I have a long position in PII, no positions in DCIX and long positions in several European stocks.

Monday, December 29, 2014

Sometimes Politician Knows Better

March 18, 2014. Russia just annexed Crimea. All G-7 countries condemned the move and promised more sanctions. First sanctions were small and weak. That same day, Jay Carney, Obama's chief spokesman, literally said: "I wouldn't, if I were you, invest in Russian equities right now. Unless you're going short."
I remember big noise on CNBC. Several pundits, including Jim Cramer, said that it's not for a politician to predict any market, including stock market. Several financial companies predicted serious (15-20%) growth for the year for Russian stocks. Well, let's see. I'm using Market Vectors Russia ETF (RSX) as a proxy for Russian stock market.
March 18. RSX closed at $23.51
Today, December 29. RSX closed at $14.61. 38% Drop.
QED. Sometimes politicians know better. Russian market was a toast even before sanctions. GDP growth for the year was expected at 0.5%. After the sanctions, there is no growth. For the year 2015, Russian officials predict GDP drop in range of 3-5%.
Why politicians know better? At least in this case? Because they saw that Putin declared the war on Western World. Western World in extended sense, including Australia and Japan. In other words, country with GDP 2% of the total world GDP declared the war on countries with about 55%. Sanctions moved this war from war of words to the war of economics. Can't you predict the result?

Full disclosure: I don't have any positions, long or short, in RSX or any other Russians stocks.

Tuesday, December 9, 2014

Can't Make Money in Shipping

Well, I can't. Maybe you are better at it. Before going on vacation I closed my Diana Containerships (DCIX) position. Huge loss, more than 60%.
When I bought it in March 2013, it looked like a reasonable investment. Economy of the whole world is recovering, trade, especially trade in finished goods, is blooming. Most finished goods are shipped in containers. Should be good for container shipping companies, right? Here comes DCIX. Unlike others it's very transparent. You can go to the company's website and see current and near future ship employment, with rates and commissions. Company usually buys ships which are already employed, choosing moment right, or so it seems.
What I didn't think about is competition. There are a lot of ships entering service right now. more than enough to carry increasing trade. And, despite increasing trade, rates are going down. Right now they are at the point of zero margin. And this isn't the end of it. I decided to sell DCIX when I saw this article. The problem isn't that Maersk is building the biggest container ship in the world. The problem is that Maersk is building 9 of them right now. Which means that shipping capacity of post-panamax ships (those which can't travel through Panama Canal) is increasing a lot. That's the segment in which DCIX was trying to make money lately.
Lesson learned. When analysing any business, main attention should be paid to supply and demand in the industry, everything else comes after that. Demand might be increasing, but if supply is increasing faster, there is no money to be made.

Disclaimer: I don't have any positions in companies mentioned in this article.

Sunday, November 23, 2014

Maybe US Isn't Turning Japanese...

First, a bit of the money theory. It usually called one of theories, but to me, it's the only one that's working. In short, all money is debt. And it's not the debt that banks take from Fed or Central Bank, it's debt which is taken by people and businesses. Because only this debt is used to buy goods and services. Yes, there is some paper money in circulation, but the volume is microscopic comparing to the total amount. When people say that Fed (or Central Bank) is printing money, that's wrong. In reality money is created by businesses and people which are taking credit to buy goods and services. That credit is usually provided by banks, which need to get credit from each other and Fed to have enough money. Thus, the debt pyramid is build bottom to top, not other way around. The problem with credit money is that credit has to be paid with interest. It means that either money mass should increase in time, or there would be a lot of credit defaults, bankruptcies and financial crisis every several years. Exactly what was happening during "good" days of the Gold Standard, which forced deflation. So, some inflation is necessary. Best growth rates for economies were reached when inflation was between 3 and 5 percent. Despite that, Central Banks of the developed world want inflation in range 2-2.5%. Beats me. In normal times, Central Banks regulate inflation using interest rates. Problem is, when rate is either zero, or pretty close to it, you need different tool. Here comes quantitative easing. Central Bank injects more money buy buying debt, public and/or private. But, remember, money doesn't affect prices unless it it's used to buy goods and services. QE affects consumer debt by reducing rates on private debt. In US low rated trickle down to business and consumer debts, thus increasing money available to buy goods and services. It will be happening in Europe as well, when Euro QE starts for real.

Problem in Japan: link between QE and consumer debt doesn't exist. Money from Central Bank is going to banks, which repair their balance sheets, but in no hurry to lend to consumers. Consumers themselves aren't that ready to use consumer credit to buy goods and services. They want to save, but for the good of economy as whole they need to spend. They need to change culture, which is a very slow process.

But there is another problem as well. Japanese economy is not open, like EU or US. It's hard to import goods, even when official barriers don't exist. To support exports, government buys hundreds of billions of dollars, but growth of export increases value of yen, which forces government to buy more dollars. Cursed circle... Japan is slowly opening economy, but it creates extra deflationary pressure, because internal prices for many goods are just crazy. Just search Google for food prices in Japan... And imports drive those prices down (deflation). In the end (another generation or two), Japan will become another open, consumer based economy. Maybe...

That's why I think that US will be OK. And Europe, too. Because these are open economies, with channels which move money from Central Banks to private banks to businesses and consumers. This process is slow and painful. But it works.

As usual, it's not just an idle speculation. I write my blog in order to get my thought in order and make investment decisions. I am going to hold on my US holdings, buy more Europe and avoid Japan.



Saturday, July 19, 2014

Semi-Annual Portfolio Review

World Cup is over. I liked it, although 2010 one was better. I think. Anyway, my congratulation to Germany's team. Four World Cup wins, equal to Italy and just one short of Brazil. What's more important, it's the first time European team won World Cup in America. European football rules!
Well, back to investments. Looks like I (at around 0%) missed this year's rally. Of course, fixed income helped (I account for most of it separately), but it hurts anyway. Below is my current portfolio and my thoughts
Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.
Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Strategy. I am starting to think that political environment is getting better for stocks. Of course, if GOP takes Senate in November, all bets are off. Other than that, things are getting better. Of course, there is a war between Russia and Ukraine (don't believe that crap about rebels, they are from Russia, mostly). There are problems in Iraq. Europe is still lethargic. But US is booming.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Google (NASDAQ:GOOGL)
Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.
Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.
Since last review stock was split into voting (NASDAQ:GOOGL) and non-voting (NASDAQ:GOOG) shares. I keep both.
Plan: Hold, trade around.
ARM Holding (NASDAQ:ARMH)
Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs
No changes since last review
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold, trade around.
Facebook (NASDAQ:FB)
Not the only social network company worth investing anymore. But the most profitable so far.
No changes since last review.
Risk: Wall Street hates the company.
Plan: hold, trade around.
DSW Inc (NYSE:DSW)
Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.
Reinvested dividends since last review.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Twitter (NYSE:TWTR)
New position.
I wanted it from the beginning. Didn't get a fair (from my point of view) price until April-May. Many people think that company is only good as a possible takeover target. Wrong! They are just at the beginning of monetizing their popularity.
Sold since last review: Restoration Hardware (NYSE:RH).
Banks / Financials
Banco Santander (NYSE:SAN)
Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.
No changes since last review.
Risk: Currency fluctuations, more problems in Eurozone.
Plan: Hold.
HSBC Holding (NYSE:HSBC)
As far as I know, the biggest bank in the world. European, more to the point, British. And UK loves her banks.
Reinvested dividends since last review.
Risk:currency fluctuation, another financial crisis.
Plan: hold.
Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.
Airbus Group (OTCPK:EADSY)
One of two big aircraft manufacturers. As Cramer would say, we love duopolies. Company has at least 8 years of backlog.
Added to position since last review.
Risk: currency fluctuation.
Plan: hold, add on weakness.
Polaris Industries Inc (NYSE:PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
No changes since last review.
Risks: another recession, people don't like buying discretionary items in recessions.
Plan: Hold, reinvest dividends.
3M Company (NYSE:MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
No changes since last review.
Risk: another recession, management mistakes.
Plan: Hold, reinvest dividends.
Diana Containerships (NASDAQ:DCIX)
Looks like a big mistake. Supply of ships exceeds demand.
Risk: multiple risks related to supply/demand in container ship business.
Plan: Sell.
l'Oreal (OTCPK:LRLCY)
I wanted to buy cosmetics company for a while. Most of cosmetics are produced by diversified companies, which is not exactly what I wanted. I don't care about toothpaste, razors and cotton swabs. l'Oreal is a pure cosmetics company, located in France, fits the bill.
Played around position since last review.
Risk: management, competition, economic downturns.
Plan: hold.
Raytheon (NYSE:RTN)
Bought this company because of instability in the world. Company makes missiles, including popular air-to-air AMRAAM and SIdewinder, radars, software, i.e. most sophisticated military equipment.
New position.
Fixed Income
I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.
Disclosure: The author is long ARMH, DCIX, DSW, EADSY, FB, GOOG, GOOGL, HSBC, LRLCY, MMM, PII, RTN, SAN, TWTR.
Additional disclosure: I have no position in RH. Positions can change any time.

Friday, April 25, 2014

Everybody Hates Twitter. That's Why I Bought It

I waited. And waited. Wanted to buy Twitter (TWTR) for a long time. But price was too high for my taste. Now it's close to the IPO price. So I decided to open this position. Another reason: nobody likes the company. Cramer plain hates it.
I think this company can make big money for shareholders. They just started monetizing and are close to break even. Might be something like Facebook (FB), which increases earnings despite all forecasts.
Twitter reports next Tuesday. Nobody knows what is in the report and how market would react. So I started position today, and if stock drops after earnings, well, that would be a good reason to increase position.
It's hard for me to understand current internet sell-off. The biggest risk right now is war between Russia and Ukraine. Formally speaking, war is going on, it's just not full scale. But what does it have to do with the internet? Whatever any internet company is earning in these two countries can't be seen in the microscope. Industrials and energy are more at risk here.
Disclosure: I am long FB, TWTR.
Additional disclosure: Positions can change any time.