Sunday, January 23, 2011

Annual Portfolio Review

There were changes in my portfolio since last review.

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 major review of portfolio once a year. I can trade around any position if I feel like this. Portfolio is not diversified by sectors. Maybe "diversification is the only free lunch" (Jim Cramer), but I'm big believer in TANSTAAFL (There Ain't No Such Thing As A Free Lunch, popularized by Robert Heinlein). Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.

Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.

Google (GOOG)
Ultimate disrupter. Google is changing the advertising world. Company is also agressively moving to mobile internet advertisement.
No position changes since last review.
Risk: All great empires were destroyed by internal problems. But there is also a threat of internet fragmentation, with ISPs and device producers restricting the use. Example: Apple (AAPL) banning Google advertisements in applications developed for iPhone and iPad.
Plan: Hold

Intuitive Surgical (ISRG)
Robotic surgery that is changing surgery of internal organs. Company has monopoly on robotic surgery right now. Added to position since last review.
Risk: new technologies are being developed, legislation changes can reduce demand.
Plan: hold.

Netflix (NFLX)
This company completely changed video rentals model. It's also the best internet movie delivery company. No position changes since last review.
Risk: Things on the Net are changing quickly.
Plan: hold, add on weakness.

VmWare (VMW)
Cloud computing is all the rage, and VmWare is on the frontline. If company wants to create its own cloud, VmWare is the way to go.
No position changes since last review.
Risk: it's not clear that internal clouds would win over external ones or over software as a service.
Plan: Sell some into strength, hold the remaining part of the position.


Goldman Sachs (GS)
This is not exactly a bank, more of a broker/trader. Absolutely best Wall Street company.
No position changes since last review.
Plan: Hold, add on weakness.

Since last review, I sold US Bancorp (USB) position. Easy money is made here, and I don't really like banks.

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.

Annaly Capital Management (NLY)
REIT. Huge dividend and good management are main reasons. Company makes money on distressed mortgages, current holdings are mostly supported by US Government.
No position changes since last review.
Risk: possibility of management mistakes, another real estate crash, rise of interest rates.
Plan: hold, add on weakness, reinvest dividends.

Altria (MO)
I don't smoke. I don't recommend anybody to smoke. But people do anyway, and they pay exorbitant prices for tobacco products. Altria grew profits steadily in any environment, ignoring tobacco lawsuits, tax hikes and anti-tobacco campaigns.
No position changes since last review.
Risk: ban on tobacco, tobacco deregulation, both are highly unlikely. Possible huge legal expenses.
Plan: hold, reinvest dividends.

Phillip Morris International (PM)
Same reasons to hold as for Altria. Can be also put into "International" category.
No position changes since last review.
Risk: same as with Altria.
Plan: hold, reinvest dividends

Pepsico (PEP)
This is a "staple" company. People are buying its products no matter what. Products sold in US are also addictive, because most of them contain caffeine.
No position changes since last review.
Risk: management mistakes.
Plan: hold, reinvest dividends

General Mills (GIS)
Another "staple", and local company headquartered in Minnesota.
No position changes since last review.
Risk: management mistakes.
Plan: hold, reinvest dividends

American Capital Agency Corp (AGNC)
New position. Another REIT. Highest yield among all the stocks.
Risk: company is highly leveraged, if interest rates are to go up, yield might suffer.
Plan: hold, reinvest dividends

Intel (INTC)
New position. First was bought for a quick trade, didn't work out, held anyway. Later on added to position when stock was crushed after October earnings report. Sold some in the end of December. This is a tech company, but not a paradigm changer anymore and not a fast grower. But it enjoys almost a monopoly position, grows steadily and pays big dividend, which increases almost every year.
Risk: tech world can change fast.
Plan: hold, trade around position.

Since last review I closed Brookfield Assets Management (BAM).


Indian Fund (IFN)
India is the only part of BRIC which I like now.
No position changes since last review.
Risk: political.
Plan: hold, add on weakness.

Morgan Stanley India Investment Fund (IIF)
New position. Also CEF investing in India. I bought it as a play on the annual distribution. Usually stock drops after distribution ex-date, and then growing up, because of dividend reinvestment by holders and DRIP plans. Didn't happen with this position, yet.
Risk: political.
Plan: hold until it's up 5% from buying point or for about three months, whichever comes first.

Ibero-America Fund (SNF)
I like EU, and Spain, even less. But this fund is not about Spain anymore. It moved to Latin America, and disqualified itself from my portfolio. According to Cramer, Latin America is always a trade, never an investment.
No position changes since last review.
Risk: Multiple political and other.
Plan: Sell, look for other EU opportunities

Fixed Income.

Blackrock Income Opportunity Trust (BNA)
Fund holds mostly high quality corporate bonds and Treasuries. Good depression hedge.
No position changes since last review.
Plan: hold, add on weakness.

Wells Fargo Capital Trust XII (BWF).
I use it to hold cash I don't need right now. Good yield.
No position changes since last review.
Risk: Bankruptcy of Wells Fargo.
Plan: hold, sell when need cash.

Evergreen Income Advantage Fund (EAD).
One more change of plan. In the second half of last year I completely sold position, when fund traded at premium to NAV, then bought again at discount to NAV. It looks like economy is really improving, so corporate bonds are OK.
Risk: economic slowdown/downturn.
Plan: hold, add on weakness.

PowerShares Financial Preferred ETF (PGF)
This is a bet on recovery in financials plus excellent cash management tool.
Sold part of position since last review.
Risk: Another crash in financials.
Plan: Hold, sell if need cash, trade around position.

Eaton Vance California Municipal Income Trust (CEV)
New position. California munis are priced very low, and pay a big, tax free yield.
Risk: mass bankruptcies of California cities and counties. I don't think it's going to happen
Plan: Hold, add on weakness.

Since last review I sold Helios Total Return Fund (HTR), when it was trading at premium to NAV.

Nothing is sacred. Any position can be sold any time I feel like that. I can trade around any position when I see the opportunity.

No comments: