Thursday, February 16, 2017

Should I Buy Coke (KO)? And a Michael Lewis book recommendation.

This is a trick question, I already own KO.   I just finished an interesting book by Michael Lewis entitled "The Undoing Project:  A Friendship That Changed Our Minds.."  Mr. Lewis is the author of some really interesting titles including:

  • The Big Short
  • Liar's Poker
  • Flash Boys
  • Moneyball
  • Boomerang
  • The Blind Side
In the undoing project, he tells the story of two prominent Israeli Psychologists, Daniel Kahneman and Amos Tversky, and their work on how humans think and make decisions.

One of my takeaways is that humans aren't very good at making data driven decisions, and are influenced strongly by bias.  Among the many biases discussed, was framing.

"Should I Buy Coke," feels very different that "Should I sell Coke," but it shouldn't be.   The data is the same in either direction, yet, I've owned Coke for four years or more, and I've grown attached to its brand, history, dividend growth, and I really don't want to sell my shares.

Yet, if you ask me whether you should invest in Coke today, I would likely tell you no; there are better opportunities out there based on today's valuation, Coke's pathetic growth, and the long term prospects of sugary drinks overall.  And while the dividend is okay, heck, you get a bigger dividend from several utilities, and they are growing faster than Coke!


Coke's stock has increased around $5 over the past 5 years, or 14%, which is a pretty crappy annualized return.

Here is the FastGraph for KO:



It's suffered four straight years of declining earnings and revenue, is moderately overpriced today, and is forecasting another 2% decline in earnings for 2017...yee hah!

Thus my bias, if I know based on the data, that Coke is not a great investment, and that I can name several better opportunities (SO, DUK, PFE, STAG to name a few), SO WHY DON'T I SELL?  I would never buy a stock with the fundamentals of Coke today....yet I hesitate to sell for some reason. Another concept in the book is the strength of the emotion "regret."  If I sell, and something good happens to catalyze growth at Coke, I will suffer regret, which would be much worse than if I simply stick with Coke, and nothing good ever happens.

We humans prefer the slow loss of our investment over many years, or long periods of underperformance, to a a sharp dose of regret.

Food for thought.

Chump









Monday, February 13, 2017

Started a Position in Pfizer (PFE)

More to come soon.  Good valuation, good dividend around 4%, good place to park some cash.

FastGraph below:


I have a larger than normal cash position in the portfolio due to the sale of three stocks in 2017, CSX, IBM, and DOV, all of which have had nice run ups since the election.

I'll look to add more to PFE if the stock drops 5% from where I bought it.....

That's all for now,

Chump

Monday, January 30, 2017

Some (much needed) Facts About President Trump's Immigration Order

Some good information from ZeroHedge:


Kellyanne Conway Rages Against "Misinformation" Over Trump's Immigration Order


Additionally, in an effort to dispel some more misinformation, Breitbart offers seven inconvenient facts about Trump's refugee actions...
1. It is NOT a “Muslim ban.” You will search the Executive Order in vain for mentions of Islam, or any other religion. By Sunday morning, the media began suffering acute attacks of honesty and writing headlines such as “Trump’s Latest Executive Order: Banning People From 7 Countries and More” (CNN) and printing the full text of the order.
Granted, CNN still slips the phrase “Muslim-majority countries” into every article about the order, including the post in which they reprinted its text in full, but CNN used the word “Muslim,” not Trump. The order applies to all citizens of Iraq, Iran, Syria, Libya, Somalia, Sudan, and Yemen. It does not specify Muslims. The indefinite hold on Syrian refugees will affect Christians and Muslims alike.
As Tim Carney at the Washington Examiner points out, the largest Muslim-majority countries in the world are not named in the Executive Order.
More countries may be added to the moratorium in the days to come, as the Secretary of Homeland Security has been instructed to complete a 30-day review of nations that don’t provide adequate information for vetting visa applicants.
It’s also noteworthy that the ban is not absolute. Exceptions for “foreign nationals traveling on diplomatic visas, North Atlantic Treaty Organization visas, C-2 visas for travel to the United Nations, and G-1, G-2, G-3, and G-4 visas” are expressly made in the order. The Departments of State and Homeland Security can also grant exceptions on a “case-by-case basis,” and “when in the national interest, issue visas or other immigration benefits to nationals of countries for which visas and benefits are otherwise blocked.”
There is a provision in the Executive Order that says applications based on religious persecution will be prioritized “provided that the religion of the individual is a minority religion in the individual’s country of nationality.”
This has been denounced as a “stealth Muslim ban” by some of the very same people who were conspicuously silent when the Obama administration pushed Christians – who the most savagely persecuted minority in the Middle East, with only the Yazidis offering real competition — to the back of the migration line.
2. The order is based on security reviews conducted by President Barack Obama’s deputies. As White House counselor Kellyanne Conway pointed out on “Fox News Sunday,” the seven nations named in Trump’s executive order are drawn from the Terrorist Prevention Act of 2015. The 2015 “Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015” named Iraq, Iran, Sudan, and Syria, while its 2016 update added Libya, Somalia, and Yemen.
“These are countries that have a history of training, harboring, exporting terrorists. We can’t keep pretending and looking the other way,” said Conway.
3. The moratorium is largely temporary. Citizens of the seven countries named as security risks are banned from entering the United States for the next 90 days. Refugee processing is halted for 120 days. The longest-lived aspect of the ban may prove to be the halt on Syrian refugees, but that isn’t given a time frame at all. It will last “until such time as I have determined that sufficient changes have been made to the USRAP to ensure that admission of Syrian refugees is consistent with the national interest,” as President Trump wrote.
4. Obama banned immigration from Iraq, and Carter banned it from Iran. “Fact-checking” website PolitiFact twists itself into knots to avoid giving a “true” rating to the absolutely true fact that Jimmy Carter banned Iranian immigration in 1980, unless applicants could prove they were enemies of the Khomenei theocracy.
One of Politifact’s phony talking points states that Carter “acted against Iranian nationals, not an entire religion.” As noted above, Trump’s Executive Order is precisely the same – it does not act against an “entire religion,” it names seven countries.
As for Barack Obama, he did indeed ban immigration from Iraq, for much longer than Trump’s order bans it from the seven listed nations, and none of the people melting down today uttered a peep of protest. Richard Grenell summed it up perfectly in a Tweet:
5. Trump’s refugee caps are comparable to Obama’s pre-2016 practicesDavid French, who was touted as a spoiler candidate to keep Donald Trump out of the White House during the presidential campaign – in other words, not a big Trump fan – wrote a lengthy and clear-headed analysis of the Executive Order for National ReviewHe noted that after the moratorium ends in 120 days, Trump caps refugee admissions at 50,000 per year… which is roughly the same as President Obama’s admissions in 2011 and 2012, and not far below the 70,000 per year cap in place from 2013 to 2015.
Obama had fairly low caps on refugees during the worst years of the Syrian civil war. He didn’t throw open the doors to mass refugee admissions until his final year in office. Depending on how Trump’s review of Syrian refugee policy turns out, he’s doing little more than returning admissions to normal levels after a four-month pause for security reviews.
6. The Executive Order is legal: Those invoking the Constitution to attack Trump’s order are simply embarrassing themselves. The President has clear statutory authority to take these actions. As noted, his predecessors did so, without much controversy.
Most of the legal arguments against Trump’s order summarized by USA Today are entirely specious, such as attacking him for “banning an entire religion,” which the order manifestly does not do. Critics of the order have a political opinion that it will in effect “ban Muslims,” but that’s not what it says. Designating specific nations as trouble spots and ordering a pause is entirely within the President’s authority, and there is ample precedent to prove it.
It should be possible to argue with the reasoning behind the order, or argue that it will have negative unintended consequences, without advancing hollow legal arguments. Of course, this is America 2017, so a wave of lawsuits will soon be sloshing through the courts.
7. This Executive Order is a security measure, not an arbitrary expression of supposed xenophobia. Conway stressed the need to enhance immigration security from trouble spots in her “Fox News Sunday” interview. French also addressed the subject in his post:
When we know our enemy is seeking to strike America and its allies through the refugee population, when we know they’ve succeeded in Europe, and when the administration has doubts about our ability to adequately vet the refugees we admit into this nation, a pause is again not just prudent but arguably necessary. It is important that we provide sufficient aid and protection to keep refugees safe and healthy in place, but it is not necessary to bring Syrians to the United States to fulfill our vital moral obligations.
French’s major objection to the Executive Order is that applying it to green-card holders is “madness,” but unfortunately many of the terrorists who attacked Americans during the Obama years were green-card holders. Daniel Horowitz and Chris Pandolfo addressed that subject at Conservative Review:
Both liberals and conservatives expressed concern over hundreds of individuals going over to fight for ISIS. We are already limited in how we can combat this growing threat among U.S. citizens. Given that it is completely legal to exclude non-citizens upon re-entry, Trump extended the ban to legal permanent residents as well.

If a Somali refugee is travelling back to Somalia (so much for credible fear of persecution!), government officials should have the ability to prevent that person from coming back when necessary. Obviously, there are some individuals from these seven countries who already have green cards and we might not want to exclude. That is why the order grants discretion to the State Department to issue case-by-case exemptions for “religious persecution, “or when the person is already in transit and denying admission would cause undue hardship.” A CBP agent is always stationed at any international airport from which these individuals would board a direct flight to the United States (Paris and Dubai, for example). That individual would not allow anyone covered by this ban onto a U.S.-bound flight unless he grants them a hardship exemption.
Indeed, it appears that green card holders returning yesterday from those seven countries were all granted entry.
Because he is a progressive globalist, Obama deliberately blinded us to security threats, in the name of political correctness and left-wing ideology. Ninety or 120 days isn’t much time for Trump to turn all that around, especially because it is unlikely much will change in the seven countries Trump named.
The hysterical reaction to Trump’s order illustrates the very thing that worries advocates of strong immigration security: Americans’ security is the lowest priority, far below progressive ideology, crass political opportunism, and emotional theater.
We’re being effectively told by the theatrical class to tolerate a certain amount of Islamic terrorism because their feelings would be hurt by the tough measures we need protest ourselves from a tough enemy. But this time, President Trump is proving tough enough to push our security up into the top priority.

Thursday, January 19, 2017

Selling CSX

Hunter Harrison, the CEO of Canadian Pacific Railway, announced he will resign and try to join up with CSX, possibly as the CEO, to turn the railway around.

The full article is here in the Wall Street Journal:

http://www.wsj.com/articles/csx-investors-cheered-by-former-rail-rivals-sudden-switch-1484842700

And while this is potentially good news for CSX, the stock was already approaching my target sell price of $40 before this news.  With this announcement, the stock is up over 18.5% today, priced around $43.60 per share, and presents a great selling opportunity.

I sold my entire position today, almost a 2X sized position, and locked in a gain since purchase of roughly 115%.

Here is a FastGraph of CSX BEFORE today's price gain of over $6/share:


I'll move CSX to my watch list because I like the company, and put a target buy price on the stock of $27 per share.

That's all for now,

Chump

Wednesday, January 18, 2017

Selling Dover (DOV)

While I like the company, I'm selling my entire position today, up 62.8% since my purchase a few years ago.  I really don't like their current valuation, and expect stock price appreciation over the next few years to be tepid at best.  Perhaps I will re-buy the stock in the future at a better price.

Here is a FASTGraph for DOV:




The price has had nice appreciation in 2016, like many of the oil/energy sector stocks in anticipation of improved pricing.  That said, the pricing isn't improved yet, and the price of DOV stock has outrun earnings by several years.  

Below is an earnings forecast overlaid with the price:




Even if the price of oil rebounds, and DOV hits this earnings forecast, it's still priced too high! Owning DOV today is too risky, and likelihood of some downside to the price is strong.

Below is a chart from Morningstar showing fair value for DOV, again, it's currently overpriced:



Closing the position today, looking for a better near term investment with the proceeds.

As I stated in my last post, I have too many positions in the portfolio.  With this sale, I'm down to 34 positions, and may deploy the money into one or more of my current portfolio holdings.  Further, as I stated after 2015, its good to close positions when they become dangerously overvalued, and not get too attached to any specific holding.

Best regards,

Chump

Friday, January 6, 2017

2016 Stats, New Rules, Selling IBM

I'm starting the review of my portfolio to position for 2017.  A few statistics:

  • the value of the Chump IRA is now slightly more than $700k (a double since I started tracking this closely in 2012)
  • there are 37 stocks in the portfolio, which I think is too many.  I'd like to be around 30, but will try and get down to 35 soon.
  • if I keep 10% cash, that's $70k, at present, I only have $43k cash or 6.2%
  • if I achieve the 10% cash goal, that leaves 630k to invest in 37 stocks, so the average full position should be around $17,000.
  • at 35 stocks, the average position is $18,000
  • at 30 stocks, the average position is $21,000
Actions
  • Establish definition of "Full" position as $18k, Morningstar 3* or better
  • Establish definition of "Full +" position as $22k, Morningstar 4* or better
  • Establish definition of  "Full -" position as $12k, Morningstar 2* or worse
  • Establish starting 1/2 position as $9k
Of course the Morningstar ranking are just guidelines, in some cases I may disagree a bit on the valuation or reason for owning the stock.

My first action today is to sell IBM.  I bought IBM a couple of years ago, held it through a multi-year swoon, watched it gain around 26% in 2016, and am now at a profit of a whopping 4.5% since my purchase.

Among my reasons for selling:
  • Questionable business model and future
  • 5 straight years of declining revenues
  • 5 straight years of rising long term debt (to pay the dividend)
  • Currently overvalued, 2* rating at Morningstar
I'm going to add $16.5K to my cash position with this sale, and have one fewer name in the portfolio, taking the total from 37 to 36 stocks.

Best,

Chump

Tuesday, January 3, 2017

2016 Year End Performance and Holdings

Happy 2017 to all my (very quiet) readers, here is a quick summary of the Chump IRA for 2016. Turned out to be a nice year for the portfolio, here are the numbers vs. the benchmark:

  • Chump IRA up 19.13%
  • S&P 500 with dividends up 11.96%
Thus, Chump outperformed the benchmark by 7.17%, not too shabby.

Here are the holdings in the portfolio today (courtesy of Morningstar, where I track these):


The holdings are sorted by 2016 full year return.  This gives a sense of where the performance for the year came from, though it isn't perfect.  Some of these stocks were purchased later in the year, and others not listed were sold during the year to capture gains.

I've also included the M* ratings for each stock, and the target buy and sell prices that I have set for each holding.  These are super useful, and add discipline to my process.

I printed this summary on Tuesday, January 3.  Interestingly, as I suggested late last year, many poorly performing healthcare stocks were sold by institutional traders for tax purposes, and hide the fact that they were holding poor performing stocks.  These actions created a nice value buying opportunity in healthcare, and many of these same institutional investors are now loading back up on these names, thus the rally in healthcare today ;-)

Thats all for now,

Chump