Saturday, February 25, 2012

Reduced Annaly

Sold some of my Annaly (NLY) position today.  As mentioned in my Annual Portfolio Review, I am planning to close REIT positions soon.

Full disclosure: I still have long positions in NLY and in another REIT, AGNC.

Thursday, February 23, 2012

Annual 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. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.
Change of strategy since last review. Huge rally started after January 1 was unexpected. Yet again, I'm surprised how good Doug Kass is. It looks like we see a beginning of a huge, long rally. Of course, stock market forecasts are dime a dozen (even though some people pay thousands for them), but the feeling is unbelievable. Feels like last year troubles were just a couple of small hiccups. As a result, I am changing my strategy. The goal is to reduce share of fixed income and cash in my portfolio and increase share of manufacturing and foreign stocks. I already started on this road, adding to IFN and opening PII.

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.
Risk: All great empires were destroyed by internal problems. There is also risk of search ad market saturation.
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.

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. 
Traded around and in total added to 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)
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.
Added to position since last review.
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold.

Since last review I sold Netflix (NFLX).

Banks / Financials

Banco Santander (STD)
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.
Risk: Currency fluctuations, more problems in Eurozone.

Sold Goldman Sachs (GS) since last review.

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. . Latest developments in real estate and mortgage markets reduced overall REITs income.
No changes since last review.
Risk: drop in mortgage rates, rise of interest rates.
Plan: sell into strength.

American Capital Agency Corp (AGNC)
REIT. Highest yield among the stocks I know. But I am closing position for the same reasons as Annaly.
Traded around and overall reduced position since last review.
Risk: drop in mortgage rates, rise of interest rates.
Plan: sell into strength

Polaris Industries Inc (PII)
One of the best recreation equipment manufacturers out there. Local (for me) company as well.
New position.
Risks: another recession, people don't like buying discretionary items in recessions.

3M Company (MMM)
Most innovative company in Dow Jones index. Another company headquartered in Minnesota.
New position.
Risk: another recession, management mistakes.

Since last review I closed Altria (MO), Phillip Morris International (PM) and Intel (INTC).


Indian Fund (IFN)
India is the only part of BRIC which I like now.
Added to position since last review.
Risk: political.
Plan: hold, add on weakness.

Since last review I closed India Investment Fund (IIF)

Fixed Income

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.
Reduced position 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.
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.

Since last review I sold Evergreen Income Advantage Fund (EAD), when it was trading at premium to NAV.

Alpine Total Dynamic Dividend Fund (AOD)
Huge discount to NAV, huge yield. This is dividend farming fund, buying stocks before ex day and selling soon after. Long term performance sucks, but short and medium term returns might be good. I bought is as a play on international dividend paying companies.
Risk: fund doesn't work well in down markets. This is probably medium term position.

Managed Duration Investment Grade Municipal Fund (MZF)
Yet another muni bond fund. Bought it when munies have been down a lot. Thank you, Meredith Whitney, you made me a lot of money by making that panic call on munies. I love buying panics.
New position.
Risk: same as for other muni bond funds. Maybe Meredith Whitney will be right after all.

BlackRock Long-Term Municipal Advantage Trust (BTA)
Another muni bond fund bought during last year panic.
New position.

Since last review I closed positions in Blackrock Income Opportunity Trust (BNA) and Wells Fargo Capital Trust XII (BWF).

Disclosure: Any position can be sold any time I feel like that. I will trade around any position when I see the opportunity.

Wednesday, February 15, 2012

Time To Buy Recreation Equipment

Well, not equipment itself, of course. A company which makes it.
Not so long ago Jim Cramer offered the way to profit from what he calls "tale of two cities economy", i.e. economy in which rich people spend and not so rich people don't. The best way, he said, was to buy companies making recreational equipment. His two top picks were Polaris (PII) and Harley Davidson (HOG).

I have been thinking about it for some time. During this time, thanks to ongoing bull market (see my previous posts), prices went up. I hate to buy on top, I prefer to wait for dips. But again, we play cards we have, not cards we wish. I decided in favor of Polaris. It's diversified company, producing snowmobiles, motorcycles, jet skies and ATVs. It's also local company, based in Medina, Minnesota. I know this place, drive through it once in a while. Earnings are good, balance sheet is excellent. Surprisingly for a manufacturing company, Polaris has more cash than debt. Dividend had been raised lately.

Today I opened position in PII. Will add to position as price allows.

Disclosure: I am long PII.

Additional disclosure: I have no position in HOG. Positions can change any time.

Tuesday, February 14, 2012

Reducing REITs

Good pricing action today allowed me to reduce my REIT exposure. American Capital Agency (AGNC) traded clinedose to 52 weeks high. I explained my reasons for getting out of REITs in my previous post. In short, there are two major threats to mortgage REITs: higher interest rates and lower mortgage rates. Former is not on the horizon yet, REITs can borrow cheap. But lower mortgage rates are reality. And mortgage deal between states, federal government and banks allows many more people to refinance, reducing borrowing costs.
My strategic decision at this point: get out of REITs. Very high yields can be resolved two ways: either stock price goes up, or dividend payment go down. Judging by latest development, latter option is mubh more likely to materialize.
Today I sold part of my AGNC position.
Disclosure: I am long AGNC, NLY.
Additional disclosure: Positions can change any time.

Tuesday, February 7, 2012

Time To Reduce REITs Exposure

I am holding significant positions in two REITs with huge dividends; Annaly (NLY) and American Capital Agency (AGNC). These are agency REITs, they invest in mortgage obligations guaranteed by government agencies. So far I made a lot of money by holding them. But all good times come to end.
First, my initial idea. These two companies use a lot of leverage, buy government backed mortgages and pay huge dividends. There is little or no risk to principal, the only significant risk is increase of borrowing costs, which depend on Fed rate. I estimated (correctly) that Fed is in no hurry to raise rates.
But bad things started happening. First, Annaly, then American Capital Agency reduced dividends. It was unexpected. OK, Annaly made a serious mistake. They decided to deleverage in time of low rates. And I am waiting for a good price to close that position. But there is another problem for both companies: Obama's mortgage refinancing plan. Currently, many homeowners have trouble refinancing their mortgages, even if they pay in time. There are several reasons, but main reason was outlined by Felix Salmon here. In short, homeowners were forced to pay big rates. Bad for them, good for Annaly and AGNC. Now, Obama's plan gives homeowners possibility to refinance. Good for homeowners, good for economy, bad for REITs.
Today reaction to AGNC dividend reduction was interesting. Stock dropped in price first, then jumped. I used that jump to reduce my position. I don't expect REITs prices to tank, there is still time to gradually reduce exposure. But it must be done.
Disclosure: I am long AGNC, NLY.
Additional disclosure: Positions can change any time.

Monday, February 6, 2012

Buying Dips

I'm still convinced that we are in a bull market.
Two trades today.
1. Added to ARM Holding (ARMH) position. Stock was down more than 3% today on no news. I am still convinced that ARM CPUs are the future. Of course, they are already used in hudreds of millions, if not in billions, devices.
2. Opened hedging position in Euro ETF (FXE). I have some expenses coming denominated in Euros. I like the current exchange rate and want to lock it
Disclosure: long ARMH, FXE.
Additional disclosure: Positions can change any time.