Friday, July 8, 2011

Midyear Portfolio 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 twice 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 a 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.
Added to position 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, trade around.
Intuitive Surgical (ISRG)
Robotic surgery that is changing surgery of internal organs. Company has monopoly on robotic surgery right now.
Reduced 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. 
Reduced position since last review.
Risk: it's not clear that internal clouds would win over external ones or over software as a service.
Plan: hold.

ARM Holding (ARMH)
New position. This is an example of a pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to diferent companies. Most smartphones and all tablet computers I know run on ARM CPUs.
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold.
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.
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. New risk: contraband between states, because tobacco taxes vary a lot between states. This is a threat to the whole industry. Once smugglers are established, they can start smuggling cigarettes from other countries, including counterfeit ones. Another new risk factor: DIY tobacco planting. It's inevitable with current high taxes, can grow up to as big illegal business as marijuana or even bigger.
Plan: Reduce position on strength.
Phillip Morris International (PM)
Same reasons to hold as for Altria. Can be also put into "International" category.
Reduced position since last review. I think stock is overvalued at current price.
Risk: legislation changes abroad. World is quickly moving to smoking restrictions everywhere. Most of EU countries banned smoking in restaurants. I visited Czech Republic in 2008, it was impossible to breathe, restaurants were full of smoke. Such a big change. Many countries raised tobacco taxes as well, which will lead to smuggling and DIY growing.
Plan: hold, reduce on strength.
American Capital Agency Corp (AGNC)
REIT. Highest yield among the stocks I know.
Traded around position since last review.
Risk: company is highly leveraged, if interest rates are to go up, yield might suffer.
Plan: hold, reinvest dividends
Intel (INTC)
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, reinvest dividends.
Since last review I closed General Mills (GIS) and Pepsico (PEP).
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
Risk: political.
Plan: hold.
Since last review I closed Ibero-America Fund (SNF).
Fixed Income
Blackrock Income Opportunity Trust (BNA)
Fund holds mostly high quality corporate bonds and Treasuries. Good depression hedge.
Added to position 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.
PowerShares Financial Preferred ETF (PGF)
This is a bet on recovery in financials plus excellent cash management tool.
No position changes since last review.
Risk: Another crash in financials.
Plan: Hold, sell if need cash, trade around position.
Eaton Vance California Municipal Income Trust (CEV)
California munis are priced very low, and pay a big, federal tax free yield.
No position changes since last review.
Risk: mass bankruptcies of California cities and counties. I don't think it's going to happen
Plan: Hold, add on weakness.

Nuveen Municipal Market Opportunity Fund (NMO)
One more muni fund, this one invests around the country. Big, federal tax free yield.
New position.
Risk: mass bankruptcies of municipalities around the country. Highly unlikely.
Plan: Hold, add on weakness.

Helios Multi-Sector High Income Fund (HMH)
Bought this fund when it traded at big discount to NAV, as a replacement to EAD.
New position.

Since last review I sold Evergreen Income Advantage Fund (EAD), 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.

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