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Category: Portfolio Management

Must Read

Must Read

MarketWatch published an interesting article but placed it in the “Opinion” section which struck me VERY odd

The article seems like only a data discussion on the delta between financial earnings and GAAP earnings … the mystery of legal financial engineering and its impact on perceived value of companies.  I found this VERY disturbing and will need to get inserted into my value calculations as i start preparing for the bear growling around the corner

Weekly Update, Jan 15, 2018

Weekly Update, Jan 15, 2018

Set up this week – i am focused on interest rates more than equity risks / opportunities right now, so expect most of the posts to point to interest rate driven assets and not stocks

Interesting reads this week

Actions & Decisions last week

  • Bonds – i did not find any bond bargains i wanted within targeted maturity timelines – prices did not really drop sufficiently and i am not willing (yet) to go out beyond 2027
  • REIT –
    • removed my OHI position from IRA with profits – which was a key target.  I have no confidence in the business model of OHI until US Govt has a believable long-term plan for Baby Boomer healthcare.  I also decided to not increase my position in LTC, regardless of opportunity, for same rationale (the LTC decision to not invest more was difficult, as i have great admiration for the management team)
    • added to HCN in both non-taxed and taxed accounts – seems contrary to above bullet – but i see a huge difference in the business model and their reliance on public payments.  i do, however, acknowledge that HCN is a LONG play and i expect to see my capital decline in short term and i will just keep the DRIP alive
    • My REIT cash reserve is at 0 in IRA and nearing 0 in taxable – though if things continue to bleed in the street i may add to positions in IOT value chain (CCI or DLR)
    • GPT is my watch item in this segment, but i am still a bit cautious, as consumer consumption growth is required in this narrative and i am getting more and more skeptical on continued discretionary consumption growth (at least i am consistent with my rate / inflation outlook)
      • In the process of upping GPT status, i lowered STAG as the age of buildings and the lease durations do not bring the same level of risk mitigation that i see in GPT
  • Stocks
    • lost another bucket of Canada weed stocks due to their correction … i have made enough profit, however, that current positions are all recently acquired profits (last 3 months)
    • problem children
      • QTS – it’s a capital preservation concern … their Q4 earnings conference call should be a good tell for adding to or leaving the investment at lower prices
      • INTC – the security problem is not as conerning as the response to it … do i trust management sufficiently to maintain my investment?
Weekly Update, January 7, 2018

Weekly Update, January 7, 2018

  • Brian Gilmartin posted an update on S&P earnings horizon
    • i took away an important point burried in the comments – while estimates keep going up and the experts are trying to discern tax reform impact … it may take awhile before there is clarity, and the most reliable news will be from the companies themselves when they report
    • also appreciated Brian’s point about Morningstar and their valuation work taking on longer duration values than quarter to quarter
  • Jeff Miller’s always valuable WTWA
    • Doug Short’s team’s view of the week.  if this does not make you scratch your head and wonder a bit … is the same drivving force in play here as in Bitcoin?
    • As would be expected, much discussion of the jobs data … it’s confusing and for some reason i cannot figure out it allows for multiple interpretations of the same data … the inflation question / answer is why everybody is laser focused on jobs …. there are some very smart and strong voices on both sides of the argument
    • Weekly scorecard – look at the 10yr note and the anticipated inflation numbers – interesting that the QtoQ delta is the same for both measures
    • In closing comments, Jeff added a great reminder:
      • The biggest mistakes people make about inflation are assuming it occurs without any accompanying economic changes, expecting this to be the only Fed focus, and using their personal experience to opine about overall levels.
  • Lance Roberts has surfaced as the writer most aligned with my thinking and i appreciate his in depth data analysis …
    • i am nervous
    • i am placing stop-loss orders on anything i will not keep (meaning i have 30%+ profit and it pays >3.5% dividend with >5% dividend growth expectations
    • i am watching 10year treasury ETFs
    • I am watching investment grade corporates within 15 years
    • I am struggling to respond to REIT downslides – especially LTC
      • came to conclusion that i will not sell now (will allow a 5-7% decline of value) and will DRIP it but not add new capital
      • HCN will be target for new capital
      • OHI is an exit
  • I agree w/ this article from Blackrock 
    • In fact, i am so keyed into to rate spreads, that i am tracking opening, closing and spreads on 2, 10 and 30 year rates (it laborious, but it forces me to pay attention to rate changes)
  • Crossing Wall St posted a bit on consumer stable stocks … CHD is an interesting one epecially if it tumbles with some of the macro walls fall … i am going to add it to my list (i like it better than PG)
  • One topic that i have not gotten my head fully around (and given my background, one would think it would be easier than it has proven to be) – INTC and the security issues (or lack thereof)
    • this is a big deal for INTC and even in some ‘best case’ scenarios it will make selling data center / cloud CPUs harder – there are scenarios that also point to lower MSS and / or margins over the near term
    • when Linus chimes in publically it’s time to pay attention … there are few people who understand kernel science as well as he and his army does
    • i will be looking at least to hedge my INCT position and possibly trim it by 50%
  • Canada Weed stocks took a brief rest as a result of Sessions tirade this last week
    • TWMJF – i still hold a small position but sold 1/2 of the position via stop loss – (cost basis around $14)
    • APHQF – i still hold a position but sold 1/2 of that position via stop loss – i am still up over 100% (cost basis around $6)
    • Both of these positions are pure speculation and a play on Canada market and international but NOT US … too soon i think for that but am starting to think about a ‘picks / shovel’ play
Weekly Update, December 24, 2017

Weekly Update, December 24, 2017

Lance Roberts weekly update has some rational advise for EOY and January positioning; it may be different this year as folks try to play the best / worst of tax reform between ’17 and ’18. – for me, i am pretty much following Lance with these tactics:

  • It is through following these basic rules that, with the markets overbought, underlying fundamentals stretched, we continue to suggest some portfolio actions be taken to reduce, not eliminate, overall risk.
    1. Tighten up stop-loss levels to current support levels for each position.
    2. Hedge portfolios against major market declines.
    3. Take profits in positions that have been big winners
    4. Sell laggards and losers
    5. Raise cash and rebalance portfolios to target weightings.

Jeff Miller WTWA focused on implications and reactions to Tax Reform (sic?)

Weekly Update, December 17, 2017

Weekly Update, December 17, 2017

From Jeff Miller’s WTWA

  • The S&P one chart of 5 days

    • Less than 1% variance
    • Friday was all Tax reform driven … but look at the drop at end of Friday (I assume traders did not want to hold positions going into weekend and start of holiday tax selling)
  • Small business confidence is really high; many view this as positive, but i am starting to think about this in a contrarian mode … the more optimism, the closer the capitulation.  This weekend i walked around a couple of ‘hot’ areas of Portland and saw a) empty quality storefronts and b) way too much building of condo and apartment buildings with commercial / retail ground floors.  I keep asking if the pendulum has swung too far again … 
  • Investor confidence is similar – the greater the optimism, the closer to capitulation
  • Brian Gilmartin on S&P earnings forecast … revisions are still increasing
  • Weekly scorecard

    • 10 yr no change month to month
    • S&P continues up
    • Most indicators flat
  • … not sure why Jeff pointed here as it seems like a steady-as-she-goes view … which is fine, but my cautious approach makes more sense to me

Vanguard has what i thought rational advice … lower our return expectations and the trigger finger will relax some? I will be happy with low-end returns by the different asset classes / objectives in ’18.

Another cautionary tale from Heisenberg … I too am leary of Bitcoin as too many people are talking about it and looking to ‘strike it rich’ (watched that movie before) … reading this article in conjunction with the Vanguard piece is a rational connection imho.

Century Link — I respect George’s analysis and posts … but on this one my personal ancedote is another cautionary tale

  • We are tired of poor service and price increase from Comcast for internet connection (no phone or cable is worth those prices)
  • Decided to try Century Link (the only alternative at our address to provide the speeds we need)
  • Signed up
  • Scheduled installation for Dec 1
  • They have canceled and pushed the installation 2x and current schedule is Dec 19
  • I have a modem in my hand that i am not paying for and i am losing faith and confidence that they will be able to deliver … crap ‘new user experience’ and if they want to grow, new users should be like diamonds in rough

This is a bucket full of short-term noisy data, but always interesting

One of the “shovels and picks” stocks to ride a US Weed boom

  • I am adding to my watch / analysis list, but i am lost confident in US dominant markets … still too much legal churn to place even a mid-sized bet imho
  • I am dipping toe into Canada focused businesses until Sessions lets the states do what is needed

Lawerence Fuller (no relation) has a fairly detailed piece on labor metrics … i think this focus on real wage growth in the heart of population will be critical to continued growth … right now it does not look so good and the much promised tax help will not help those folks much

I found much to agre with in this commentary – the key two takeaways – 1) future growth (asset values) will be MUCH slower than we have seen since the ’07 banking fiasco, and 2) emerging markets are the interesting allocation looking forward – that’s too general for action.  I am revisiting this question but my inital thesis is:  index asia and eastern europe but select companies in S. America and India (with S. America the MUCH greater risk).

Personal Commentary

  • Reduced my T holding by 25% as my covered call @$35 was executed
  • Started position in IOTS (not a trading position) below $7.00 … think this is about 1/3 of target position
  • Exited FIT in my daughter’s account … two key factors: 1) learned that their SDK requires their own web-based tool (developers in my experience hate being told what tool set they MUST use) and this will severely limit app availability and user experience and 2) crickets from FIT on Ionic sales with consistent disounts across digital retail … entry was $6.15, exit was $6.95
  • Problem children include OHI and PEGI
    • OHI will most likely be removed from all portfolios even after reducing to less than 25% of original position
    • PEGI is open book and right now is my largest single holding across all portfolios (not including ETF or funds)
Weekly Update, Dec 10, 2017

Weekly Update, Dec 10, 2017

Must read articles

  • Lance Roberts – from–120817-200271844
    • the labor and consumer sentiment (wages) are important trends
    • this graph is also important 
  • A post this week on BIP 
    • my research has BIP on my watch list and i agree with the author and many of the comments that the entry point now is not a value entry
    • i would like to see common unit yield >4.5%
    • i found the preferred interesting, but not sure i want to tackle the complexity that it is going to bring – taxes and floating rate … this also contrasts with my overally perspective that rates are not increasing significantly (floating rate risk then)
  • The discussion of should i pay off my mortgage given the inflated prices of assets?  — i am having same discussion w/ my partner
  • Snippets from Jeff Miller’s WTA
      • This is important to watch imho … this will be one of the early indicators of real life (rather than Wall Street’s view)
      • 10yr lower than last month
      • Anticipated inflation unchanged month to month
  • i looked at OMI at same time that i reviewed CAH, but i am not convinced that distribution logistics are going to be an easy road in the near future … automation across the supply chain is going to squeeze margins or even remove distributors.
  • … the point i take from this discussion:  there is a virtuous cycle going really strong and it is NOT reducing risk but pushing it further down the line … just like our politicians keep kicking the can down the road rather than solving the problems.  This could end very badly
  • Avondale published this quote …
    • The cloud still only handles 10% of compute workloads — “I would say some of the numbers I’ve seen is that like 10% of the workloads are in the cloud. I would make an argument that that might even be optimistically, we might not even be there yet. And so, I think we still have lots of opportunity to move workloads to the cloud. And so, I think that will take place not over the next year or two years but more like over the next 5 to 10 years” —Microsoft (Enterprise Tech)
    • if even close to accurate it begs key questions:  what % of workloads CAN be run in cloud AND what % of workloads will companies put in cloud … from my work a year or so ago on enterprise cloud implementations, if that 10% doubles in 5 years i will be surprised.  Does not mean, however, that opportunities do not exist in that 10-20% move … MSFT, AMZN, GOOG, the data center properties … and somebody is going to make money off that network traffic that was once flowing within the company’s walls is now going in and out of those walls.

For my personal accounts … i am watching things very closely and have started putting hard stop loss triggers on paper for every position – weighing three key variables:  a) tax consequences, b) downside risk and c) inherent value proposition of the the investment.  I see a scenario where i up my actively managed cash and capital preservation positions from the current 50% to 60%, leaving the remaining investments equally spread across income and capital growth target areas.

The hardest action sometimes is …

The hardest action sometimes is …

… to do nothing and just watch the price of your at risk stock fall.  Unless something has fundamentally changed with the company or their markets, the value will get eventually measured.  But holding back from selling or even buying more is hard.

Weekly Update, Dec 3, 2017

Weekly Update, Dec 3, 2017

Jeff Miller’s weekly summary

  • Oddly, he published one of the simpliest characterisations of the recent tax law work
    • The 10yr note rates while up 0.02% the range during the week was far greater and provided some opportunities to take small positions – e.g., VGIT
    • He quoted another writer with the following:
      • “The Dallas Fed reported its inflation measure, the 12mo Trimmed Mean PCE, at 1.60%. Inflation has fallen steadily from 1.94% reported in Jan 2017. Falling inflation is the result of a slower pace of discretionary government spending as noted in my earlier commentary on the differences in Real GDP vs. Real Private GDP. The lower the inflation the more valuable earnings become.”

Other commentary

EOY Portfolio Analysis #1

EOY Portfolio Analysis #1

Over Thanksgiving holiday i start my “End of Year Portfolio Analysis” … it takes thru Christmas holiday to complete and then in January I write my annual report … that i send to my wife (my toughest customer).

This year, I am executing to an idea that i had about structuring and managing my portfolio as i would a business of the same size.  This means business segments (functional areas), strategic planning, operationalized objectives and analytics to monitor and adjust progress to those objectives.  While others may do this as a matter of basic business operations, it has taken me some time to get it straight in my brain.  My business operations skills and experiences within large technology organizations will be heavily drawn upon to make this work.

While i am working on this, my typical observations and sharing of others’ work will be a minimum.

In parallel, there are a few investment analysis deep dives in process that support my business cycle narratives:  a) healthcare REITs – when do i sell my OHI and where does that capital go? (e.g., HCN, REIT preferreds, 10yr bonds, etc); b) within the IOT ‘connectivity’ space which is the better long term play, SWKS or CY (or other); and c) where are the opportunities to watch for in financials and healthcare products / services (i recently commented in a SA post on CAH that this business seems to be undergoing a structural change ala Amazon and retail, yet many analysts are reviewing the opportunity from a cyclical lens – i think this distinction is paramount to identifying value and avoiding value-traps).


Weekly Update, Nov 19, 2017

Weekly Update, Nov 19, 2017

The standard updates / shares for the week

    • The whipsaw from Wednesday to Thursday was fun to watch and then Friday just seemed to run out of gas completely
    • What i notice, however, is that even on up or down days, the market is not uniform … rotations are happening, and an open question for me remains what is the new upward cycle in early ’18
    • Notice the q-to-q change in 10yr, but lower w-to-w or m-to-m
    • Anticipated inflation flat
    • S&P forward earnings unchanged even after this last q earnings updates
    • This is one of the graphs that i posted earlier in the week hoping for more discussion from Jeff Miller, but nothing there beyond the earlier post
  • Here is a pretty good summary of a bucket of data
    • Based on all this data, the summary (my paraphrase) remains:  these valuations cannot self-sustain long term so a decline is immenent, when?  who knows.  Ride the wave and keep your finger on the ‘eject button’.
  • Another weekly summary that carries a bit more risk 
    • My bias is fairly aligned w/ Lance here
  • Here is a contrarian view on interest rates … my bias based on the authors that i mostly follow is that long term higher rates are going against structural and demographic changes – upside is limited (higher rates).  This author argues the opposite and his points are all valid; i think the directional bias comes down to how are you looking at rates – cyclical or structural dynamics.  I am in the structural camp.

What topics am i poking at?

  1.  Healthcare REIT
    • I have a bad position in OHI and am working to replace it and exit with limited capital loss.  I have given up on the company after this quarter’s earnings update – a) there were comments made asserting that HHS Secretary resignation negatively impacted the company’s future; b) OHI is suffering poor performing operators and coupled with Medicaid funding risk long term this just tips the risk basket over
    • I will continue to hold LTC in both taxed and non-taxed accounts … but will not add to positions at current levels
    • HCN is the other option, but growth forecasts on HCN are not that strong so building position <$63-65 would be more interesting (current small position in non-taxed basis is ~$61.)
  2.  Small cap IOT stocks
    1. CY – looking at this a EOY trade but would surely build position with 3% dividend
    2. IOTS – this is an interesting little company that just surfaced into profitability and seems to have a good product portfolio.  I see two positive scenarios:  a) IOTS just keeps executing and makes money, b) somebody swoops down and buys it.
Weekly Update, Nov 12, 2017

Weekly Update, Nov 12, 2017

This may be the week we look back and say ‘the bull started to tire here’ … there was a great point made by somebody on a comment area to a Seeking Alpha post … buying the dip and catching falling knives are going to get much more complicated and there will be many people with bloody hands.  i agree and introduced a new mataphor – no more knives, i will be looking to catching balloons after the knives fall all the way and stick into the ground.  Missing the absolute bottoms is not a concern at this phase … watch for baloons

Some highlights from Jeff Miller’s WTWA

  • Weekly S&P snapshot
  • This was an interesting data set … the inferences are difficult to make but one favorite opinion is that middle class folks can no longer afford investing and more and more capital is concentrated (i prefer this); but others are using it as a retort to bull market insanity (i cannot buy this fully)
  • I love this analysis of labor market and i find it skewed to the younger side of the employee base.  this same data (i believe) would look very differently by age groups (<40 and >45)
  • Weekly indicators … look at the 10 yr; higher at same time anticipated inflation is lower … key question is are rates a blip up and opportunity for bond purchases or is this a directional confirmation (higher rates)

Other sources and thoughts

My Actions

  • I filled my position in PEGI across all accounts.  The earnings conference call was compelling to me and especially their strategy and emerging success in Japan.
  • I closed my open trading position in IOTS after earnings report for a decent profit.  I really like this company and will buy more as the price stabilizes … a very small company with a growing design win pipeline in the IOT low power memory segment.  This is another piece of my IOT narrative for which i am thinking of an EOY post on all the components and associated investments.
  • The week ahead will be fully focused on GE and their strategy update
International Focus

International Focus

there were a couple of articles today that focused on international data points rather than the US navel gazing in which many of us participate …

First Dr H

  • a good reminder that events and behaviors we have nothing to do with may change the short term and / or long term value of our investments …
  • Need to keep an eye on geopolitical events (not for the headlines, but how they impact investments which is often greatly obscured for obvious reasons)

Second …

  • another vector of rationale as to why the US rates cannot increase without changes internationally … regardless of what power Fed or Administration thinks they have …
  • this author and i are pretty aligned, btw … i too keep buying fixed income assets when 10yr inches above 2.4% … i also have moved cash assets into 2yr ETFs within my non-taxed accounts as those rates spike
Ulcer Index

Ulcer Index

This was an interesting take on ‘what is the level of risk you will tolerate?’

I know that i have made some really bad decisions at points where the white spaces are really BIG … i have bought more, i have sold, i have gnashed my teeth (like i am doing right now w/ T)

I will be taking a deeper look at this over the next few weeks as i start my EOY portfolio scrub

Weekly Update, Nov 5, 2017

Weekly Update, Nov 5, 2017

What a week … just a rollar coaster for my portfolio … actions taken and my personal thoughts at the end

  • Avondale interesting executive quotes
    • “this is a broad-based growth…We’re really growing across the globe…better than we’ve seen in over five years. Really, really coming out of the recession was the only other time we saw this kind of growth number.” —UPS (Logistics)
    • “the data that we see has the ocean utilization at over 97%. So you have a high, high, demand environment now with capacity really becoming tight…then you get up in the air, this is the fourth consecutive quarter where you really had demand outpacing capacity.” —UPS (Logistics)
    • “The inventory destocking would seem to be behind us, and we’re building against the underlying growth in the categories going forward” —Colgate Palmolive (CPG)
    • “It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur…We do not believe this is a time in the cycle for reaching for return” —Oaktree (Investment Management)
    • “the kinds of workloads now that are moving to the cloud has qualitatively changed. In the past we participated, but a lot of Tier 1 workloads were not on Microsoft stack, whereas now, a lot of Tier 1 workloads are in fact increasingly on Microsoft cloud.” —Microsoft(Enterprise Tech)
  • This is aligned to some of my observations as i have focused on shorter term trades over a small universe of stocks (<15 names).
    • wide (hard to explain) moves occur at market open
    • big money (large trades) determine the final close in the last 15-20 minutes of trading
  • I could not make much sense of this post, but i need to re-read in reference to my passive holdings in VNQI.  I have a good gain without tax consequences, so … open question
  • Doug Short’s weekly S&P chart (via Jeff Miller)  — the week was much more variable than the index based on my observations
  • This came from Bespoke (via Jeff Miller) that is very interesting given the perceived confidence and overheating of capital assets … but confidence is not as high as pre-2007
  • Jeff’s weekly indicators … 10yr notes are up (and a range this week of of 2.387% high to a 2.33% low – CNBC Graph) … also note that anticipated inflation is lower this quarter than last (that’s something to continue watching imho)
  • Another post worth reading, and especially the comments …
    • the one point that struck me and still has me scratching my head is the rate gap between US and EU

Commentary / Actions

  • Two stocks went irrational this week and I bought both of them:  HASI and NWL.  HASI i bought at $22.42 and sold 50% of that position at $23.50 in my non-taxed account; this increased my HASI position to full allocation with cost basis of $20.37.  NWL i bought on the 25% down day at $30.37 (just an irrational exaggeration) and then sold the full position the next day at $31.68.  I would have kept them if needed to add to my position (cost basis of $11.48) … without that very low cost basis, i would not be a long term holder of NWL.
  • I also sold 50% of one of my speculative weed companies – APHQF which i bought at $5.26 and sold at $6.06.  I have additional shares in APHQF and will add to it if price cycles down again.  I also hold a small position in TWMJF purchased at $10.23 … both are Canada companies.
  • I took small profits in O in my non-taxed account to add capital to HASI and prepared to take on more BEP but it did not get to my price target under $33.00.
  • Cash positions are still uncharacteristically large and i will continue to take advantage of short term moves like HASI and NWL, but will not be looking for new long term positions (unless something really hits the floor)
  • Preferred stocks yielding >5% and investment grade corporate bonds less than 10years are being watched carefully … especially on the days where interest rates spike temporarily
  • My problem children really made the week a pain … T and GE
    • T is just a mess and my position is maxed out and i have written calls against my losing positions to reduce loss – but will most likely sell 1/3 of my position in December for tax purposes
    • GE is a hold until this week’s strategy discussion … the stock could go either direction and i want to know what the business is going to look like before i exit / increase my holding … i have watched this come down from ~$35 but with a cost basis of $17.63 i may need to make a decision as i will not sit in GE w/ loss.