Thursday, August 23, 2012

Mid-Year 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 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. No strategy change since the beginning of year. I made changes, reducing cash and fixed income since January. I am planning no strategy changes until elections at least. Any changes will take into account fiscal cliff (or lack thereof) in 2013.
Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.
Google (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.
I reduced position in the second quarter.
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 front line. If a 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 different companies. Most smartphones and all tablet computers I know run on ARM CPUs.
Traded around position since last review, resulting in net increase.
Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.
Plan: hold.
Red Hat (RHT)
New position. Company provides and supports Red Hat Linux, the most popular Linux distribution in enterprise world. Recently this OS became the most popular OS in clouds.
Risk: high valuation requires high growth. Any slowdown can crash the stock.
Plan: hold
Facebook (FB)
New position. The only social network company worth investing.
Risk: Wall Street hates the company.
Plan: hold, add on weakness.
New position. Yes, retailer can be a paradigm changer. Honestly, I wanted Zappos in its place, but instead of IPO company was sold to Amazon.
In any case, this is a great company and I like shopping there.
Risk: Any retailer is a high risk company. Anything can go wrong.
Plan: hold.
Qualcomm (QCOM)
New position. I bought it as a play on mobile network revolution. Now I'm having second thoughts.
Risk: there are not many hardware companies in mobile world. Loss of one customer can reduce sales and profits significantly.
Plan: watch.
Banks / Financials
Banco Santander (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.
Since last review I traded around position, resulting in net increase.
Risk: Currency fluctuations, more problems in Eurozone.
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.
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.
Intel (INTC)
Returning position. I was wrong to sell it in the first place High and growing dividend, growing company.
There is a lot of fear that decrease in PC production due to mobile computing will decrease consumption of Intel chips. But cloud computing requires a lot of Intel chips, and server chips have higher margin.
Plan: hold, add on weakness.
Since last review I closed Annaly (NLY) and American Capital Agency (AGNC).
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.
Fixed Income
I changed strategy in fixed income since last review. Now 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.

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