Early last year I published my starting portfolio, 19 picks with credentials as dividend growth stocks. Here’s a summary of how those stocks would have performed if held for the full year:
7.14% total return (including dividends) doesn’t compare favorably with the S&P 500, which returned 13.5%, using SPY as a proxy and including dividends. It would have been nice to have one or two utilities in the mix, given that sector’s outperformance. The concentration in consumer staples was safe enough, but unlikely to drive outperformance. Diversification can be helpful.
Energy became problematical as oil prices plunged. I sold Helmerich & Payne (NYSE:HP) early in the year, booking a small profit, and closed ConocoPhillips (NYSE:COP) in early July, with fine profits. Occidental (NYSE:OXY) and Exxon (NYSE:XOM) have held up well compared to the price of the commodity. I wrote an article on the situation, expressing the belief that prices are disconnected from the fundamentals of supply and demand and will correct upward in a three to six month period. I’m long OXY and XOM on that basis, and believe that they are well-positioned going forward.
Intel (NASDAQ:INTC) has been a big winner. I wrote it up favorably late in 2013, but haven’t written on it since, given the high volume of well-thought out articles from others. CSX (CSX) did well, although I took profits early. I continue to track it, with the idea of adding it back at a better entry point.
International Business Machines (NYSE:IBM) is becoming a battle zone. I hold an outsize position in my speculative portfolio. Briefly, I see a market trend where short-sellers and pundits take turns ganging up on one old tech company after another, citing competition from the cloud, irrelevance in the mobile age, buggy whip technology, incompetent management, financial engineering, etc.
The company is spending substantial sums on R&D directed at future opportunities and challenges. Meanwhile, the stock is undervalued by most conventional metrics. Several thoughtful commenters and contributors have done good work clarifying the issues around financial engineering, buybacks and debt, as well as looking at what IBM is doing that will be relevant to the future of enterprise IT. I’m holding patiently.
Actual performance for the Synthetic Dividend Portfolio came in at 12.9%, so I was able to improve on the performance implied by the starting positions.
Here’s a spreadsheet of articles written covering specific stocks, with total return from date of publication to the end of the year. The starting prices are adjusted prices from Yahoo Financial, so dividends are included in the computation.
I was correctly bullish on almost all of these, the major exceptions being energy stocks. I added columns for total page views (includes mobile) and number of comments.
As a retail investor, I blog in order to expose my investment thinking and process to critical review and comment from readers. The idea is that by doing the work to present my thoughts clearly and interacting with commenters, I will improve my skills and performance.
I write about stocks that I own, most of which are household names. It’s challenging to provide content that doesn’t rehash what others are saying. This year I paid considerable attention to cash allocation, broadly defined to include capex, R&D, advertising, demand creation, and investment in human resources, as well as the usual dividends and buybacks.
Altera (NASDAQ:ALTR) isn’t that heavily covered here on SA, and I did three articles, supplying additional information and analysis as the situation developed favorably over the year. I still like it, and will continue to provide coverage, perhaps as often as quarterly.
I worked in the insurance business for the first half of my career, and I’ve written on Travelers (NYSE:TRV), Chubb (NYSE:CB) and others in the industry regularly for many years. While the articles don’t necessarily draw a lot of page views, most of the comments are thoughtful and readers seem to appreciate the effort I put into these cases where I have good background.
The article on oil prices drew a lot of views and comments. I called for WTI to get back to $100 in three to six months. I don’t play commodities, for fear that the market is rigged, but I do have my money where my mouth is: long Exxon, Occidental, Carbo Ceramics (NYSE:CRR), and California Resources (NYSE:CRC).
The IBM article was also popular. As mentioned earlier, I see it as another episode of market participants ganging up on old tech, similar to what happened to Cisco (NASDAQ:CSCO), Hewlett-Packard (NYSE:HPQ) and Intel. I plan to write something along those lines during the course of the coming year, perhaps when the stock will hit some previously unimaginable bottom.
Market Trajectory for 2015
For 2014, I was looking for a sedate upward march, ending at 1,930 on the S&P 500, with token corrections in the 5% area. I had the direction right, and volatility was moderate for most of the year. However, I missed on the strength of the increase, and invested cautiously all year.
Working on this article as the market has started the year with an extremely negative trend, I’m going to stay away from setting a target for year end.
A recent article by George Vrba, his first on Seeking Alpha, makes sense to me, as my methods have been evolving toward an approach similar to his. He sees a 20% real return over the next five years as the most realistic scenario, with a wide range of possible outcomes over that time frame.
I don’t see any reason to stay away from US equities, although I plan to maintain a defensive posture. My goal is to achieve market-like returns while holding sufficient cash to deal effectively with opportunities and avoid being a forced seller in the event of a serious downturn.
Synthetic Dividend Growth Portfolio
I’ve been taking my positions by means of deep in the money LEAPS, and selling out of the money covered calls for income. The original objective was to make $100,000 perform like $250,000 invested in the S&P 500, while investing in stocks with DGI credentials.
That wasn’t realistic, since it was based on the assumption that very few of the covered calls would wind up in the money. As it turned out, a lot of them did, and those who bought them from me did well. The strategy was suitable for the sedate market I was looking for, but gave up too much upside as the situation developed.
I soon changed the objective. I’m now looking to achieve market-like returns while holding substantial cash. That was accomplished, since the return was 12.9%, while holding an average of 50% cash. That includes an unrealized loss of 2.5% of the portfolio on a hedge, consisting of deep in the money puts on the S&P 500.
Although I started the year off by predicting little in the way of corrections, somehow I kept hoping that we would get something in the 15% area. The closest we got was in October. I was out of town, and got back to my computer just in time to watch the train pull back out of the station. Oh well. I’ll get another chance.
Selling covered calls exposes the investor to early exercise for dividends. I paid out $978 as a result of not dealing with this properly. My broker informs me when early exercise is probable. Simply buying shares in anticipation of being called away would resolve the issue.
I use Interactive Brokers. Commissions, fees and interest (on short positions) amounted to about 0.25% of portfolio. I don’t find their systems as easy to use as Schwab or Ameritrade, but the improvement in cost more than compensates.
This year, I plan to continue the LEAPS covered call strategy on DGI type stocks, and maintain an average 50% cash unless/until prices correct to where I see 9% or better as a realistic expectation for market returns going forward. I’m concerned that sector allocations and diversification haven’t been fully thought out, and will be reviewing that over the course of the month. I have three unfilled slots (out of 20) which will be filled with new picks in due course. That being said, here is my current portfolio, as is:
I should mention that the bulk of my investments are with Vanguard, in the S&P Index fund and a Value Fund for my IRA. These are buy and hold positions, unchanged for many years. I don’t have any bonds. US equities have been a good place to be over the past 5 years, and still seem like the best house in a bad neighborhood. I certainly don’t want to be in bonds when rates increase.
I also have a small Speculative Portfolio, where I will take chances on less well known names, use aggressive options strategies, or take outsize positions. Return for 2014 was -5.1%, driven by an outsize position in IBM. I did it just in time to catch the quick drop in the wake of 3Q 2014 earnings. I added to it as the price went into the low $150s.
While I’m naturally disappointed by my performance for 2014, I’ve always accepted that being a self-directed stock-picker my results will vary from the market, often by substantial amounts. I had a lot of fun from 2009 through 2012, and made some pretty good money. 2015 is starting off to be an interesting year. I’m positioned somewhat defensively, on the grounds that a very fairly valued market may correct and present opportunities.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, blogger Tom Armistead has a total average return of +13.1% and a 68% success rate. Tom Armistead is Ranked #341 out of 4096 Bloggers