Monday, November 6, 2017

Selling QCOM on the News

Shares of Qualcomm, QCOM jumped around 15% late last week on news that Broadcom will try to buy them.  I've been holding QCOM for a couple of years, enjoying the dividends, but not much price appreciation in the stock.  A few months ago, QCOM announced they would acquire NXPI for tens of billions of dollars.....

Now, with the stock up 21% from last week lows, I'm selling all my shares.  The way I see this playing out is either:

A)  Qualcomm moves to block the sale to Broadcom by over paying for NXPI, which would effectively act like a poison pill, and add a huge debt load to the company -or-

B)  Broadcom pulls off the deal, in which case the recent run up in the stock price is near it's peak....

I'm not seeing a lot of upside to holding QCOM...time to redeploy elsewhere.



Friday, October 27, 2017

Adding to Simon Property Group (SPG)

Adding to my SPG position today at around $157/share.  I started my position in SPG last year at $166, and have added chunks at lower prices, the lowest was $152.  The stock has been rising slowly since then, and they just reported an excellent quarter yesterday.  Today, retail is getting hit hard because JC Penney is reporting abysmal numbers, and SPG is down around 3.5% as a I write this....

Here is yesterday's SPG report summary:

This purchase takes me to a very full position in the stock, with a current dividend yield of 4.56%.  Love it.


Wednesday, October 25, 2017

S&P 500 Put, Stop Loss Triggers, Recent Adds (SJM)

So, how to hedge a big IRA portfolio?  Or should you bother if you are still 7 years away from your retirement age goal?  This has been on my mind lately.

  • The S&P500 PE is up over 25 lately, at historically high levels.  We haven't had a correction of 3% or more in nearly a year (11.5 months), and a 5% correction since well before that (18 months)
  • I don't own the S&P500 ETF in my IRA, so that's good.
  • I tend to buy undervalued stocks, and sell overvalued stocks, so that's good.
  • I do own a handful of names that are pretty overvalued, but continue to climb, so I hesitate to sell these, and they've grown large in the portfolio  (GD, JNJ, MO, PM, JPM, PSX, ABBV, CVX), which is bad if a correction comes soon...
Here are the measures I've taken to be a bit more prudent in the short run:
  • I bought an S&P put slightly out of the money at 2540, with an expiration of December 29, 2017.
    • This is liking having a short position for $250,000 worth of S&P "stock."  If the market drops 10%, this put would gain around $25,000 in value.
    • The cost for this put was around $4200
    • If the market remains positive, the put will expire worthless, and I'll have flushed $4200
    • As I write this, the market is down around 0.75% today, the put is up 40% today, slightly above the price where I purchased it....
  • For the stocks mentioned above that are overvalued, I put in stop loss orders for several (JNJ, GD, CVX so far)
    • I placed limit orders for a 3% trailing stop loss vs. last price.
    • If any of these drops 3%, the order becomes a limit at the price that's 3% below last closing price.  
    • The orders are only to trim down to a "full" position in the portfolio
    • As of this blog post, GD has triggered (did so on 10-19-17) at a price of $207.75, which is above today's price, so that was good.
Shifting gears, I like SJM again today, and have added another chunk.  FASTGraph below:



Tuesday, September 19, 2017

Updating My Investing Rules.....

I've been thinking about the rules I wrote when I started this Dividend Growth IRA.  I went back and looked at the rules I wrote in 2012, and here they are:

After 5 years of running this portfolio, its time I reviewed and updated these rules a bit.

1.  I've eliminated the "core" and "non-core" designations.  This is tough to track and doesn't make a ton of sense anymore.  I have a taxable account where I invest in lower yielding stocks, and that serves as the non-core.  Today, I only invest in 2.5% yield or higher stocks for this account (usually)

2.  The 10% cash goal is still valid, and I'm a little light today.  I need to trim some of my larger/overpriced names.

3.  I still only add stocks at nice undervaluation, so that's been good.  I'm a bit slow to sell stocks if they are 15% overvalued.  I'll need to change that to higher overvaluation number, perhaps 30% or so.  I also rarely use stop losses.  I find they don't work too well, and usually get triggered, then the stock recovers quickly.

4.  There are other factors I like to look at these days, among them are:
  • Debt level (50% or less preferred)
  • Credit rating (at least BBB+)
  • Morningstar rating (4* or better is what I usually require)
  • ROIC, lately looking for higher than 10% here...though a soft target
  • Revenue.  In addition to eps growth, I also like to see a growing revenue line
  • Insider action (I like to see insiders buying the shares, and especially hate to see them selling)
  • I also read the 10Q for the latest 2 quarters carefully, this is usually instructive, and gives me a feel for the CEO and whether or not she is a "bullshitter"

Friday, September 8, 2017

Selling AFL, Buying SJM

Put orders in today to sell my position in AFL, and start a position in SJM

AFL has been a decent performer, and is a modestly overvalued today.  The dividend is down to 2.14%, and also hold a larger position in my taxable account.  As a result, I'm closing the AFL position in favor or something more undervalued with a better yield.

Enter Smucker (SJM).  JM Smucker came to attention today via Chuck Carnivale, article here:

Thoughts on the matter:

  • AFL is a big position in two accounts.  Closing out one makes sense, and reduces risk
  • Growth prospects are better for SJM
  • Yield higher for SJM
  • AFL is a bit overvalued today, has a low yield, and is very stingy with dividend increases
  • I recently opened a position in ORI, another insurance name, so I feel fine closing AFL in the Chump account
  • SJM is a more defensive stock, and should fair well if the market tanks, or the economy slows

In short, this is an upgrade from my AFL holding here, a more defensive stock, and a better fit for my retirement portfolio given the higher yield, around 2.95% today....  Added the stock at $107, 1/2 position.



Monday, August 28, 2017

What Do the Best Investors Do that the Rest Don't? Great Little Article

What Do the Best Investors Do That the Rest Don’t?
by Gary Mishuris, CFA

Charlie Munger, the Vice Chairman of Berkshire Hathaway and Warren Buffett’s partner said
something simple yet profound at the 2017 Berkshire Hathaway Annual Meeting: “A lot of
other people are trying to be brilliant and we are just trying to stay rational. And it’s a big
advantage.” Some might think that becoming an excellent investor requires off-the-charts
intelligence or some highly proprietary model that leads to an edge that nobody else can
replicate. That is not what experience has shown.

Here are some traits and behaviors that have allowed investors to excel over the long-term:

1. Temperament. Temperament is the most important quality for an investor to have. My
observation of many investors over my 15+ years of professional investing has led me to
believe that temperament cannot be learned, but rather it is an innate characteristic of
one’s personality. Some people are able to remain rational and continue to follow their
process even under great duress or during periods of external upheaval. Others get
swept up in the emotion that typically runs amok during such circumstances, and
abandon their discipline.

2. Ability to do nothing most of the time. Most of the time there are few good investments
that combine sufficient business quality with a large margin of safety in the form of a
large gap between price and intrinsic value. That doesn’t mean that great investors are
spending all of their time relaxing on the beach – to the contrary, they are typically
avariciously reading and studying business and industries, preparing for the moment
when securities of companies they understand well can be purchased at attractive
prices. It does mean that they make investments infrequently, and that most of the time
when they look at a potential opportunity they end up passing. Those who are unable to
maintain this state of low activity frequently end up making questionable investments to
satisfy their desire to do something, and more often than not it is their brokers who are
the biggest beneficiaries of their elevated activity levels.

3. Accumulation of mental models. Understanding different disciplines helps great
investors look at questions of business analysis in new ways. While studying economics
and industry-specific information can certainly help, the best investors also use insights
from other fields to reach better decisions.

4. Focus on process over outcome. Benjamin Graham wrote: “In the short-term the market
is a voting machine, but in the long-term it is a weighing machine.” What he meant was
that in the short-term security prices fluctuate purely based on the opinions of market
participants, and can deviate widely from the underlying business values. In the longterm,
it is the company’s assets and cash flows that determine its value and exert a
force of gravity upon the price of its securities. With security prices available on a minute-
by-minute basis, the run-of-the-mill investors focus on analyzing randomness – allowing
themselves to become happy or sad over short-term price fluctuations that are
disconnected from whether they were fundamentally right in their investment analysis.
The best investors work hard to not be affected by the short-term price fluctuations, and
instead focus on both improving their process and consistently executing it. Over the
long-term their performance is a result of the quality of their process and of the
consistency with which they execute it.

5. Minimizing behavioral biases. Behavioral biases are pervasive and nearly impossible to
eliminate, but the best investors work hard to be consciously aware of them and to take
specific steps to mitigate them. As I wrote in Behavioral Defense in Decision Making,
there are a number of steps one can take to stay as unbiased as possible. One of my
favorites is to consciously seek out the strongest possible opposite point of view that
contradicts my thesis. If done well, this can lessen the impact of many biases, such as
anchoring, over-confidence and base-rate neglect.

I frequently get asked by prospective investors about what my ‘edge’ is as an investor.
Sometimes I think the answer that they are looking for is some proprietary model, some
black-box that spits out superior answers that nobody possesses, or an ability to know what
the future holds based on some deeply proprietary network of sources. The real answer is
less exciting, but nonetheless quite effective. It is the combination of the traits and
behaviors that I described above. I would add a sixth one to the list – staying humble while
maintaining your confidence. History is littered with many seemingly great investors who fell
apart and produced disappointing results for their clients just as they had accumulated the
greatest amount of assets after a good run of performance. Perhaps some of them were
never as great as they seemed, but in other cases I can’t help but think that it was a
combination of hubris and complacency that led them astray.

The best investors stay humble – always thirsting to learn and improve as well as accepting
that they are fallible and can make mistakes. This helps them to be on guard against the
traps of complacency and overconfidence. Some view this posture as inconsistent with
confidence in one’s abilities – after all, this is an industry where some think that the best
investors are supposed to be on CNBC or on the cover of some financial magazine telling the
world how great they are, which seems incompatible with a humble, introspective approach.
Believe me, the people I admire most as investors have rejected this false dichotomy, and
are able to balance humility with confidence and competence in a way that allows them to
continue to improve for many years.

About the Author
Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value
Partners, an investment firm with a concentrated long-term intrinsic value strategy. Prior to
founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset
Management since 2011, where he was the Lead Portfolio Manager of the US Focused
Value strategy. From 2004 through 2010, Mr. Mishuris was a Vice President at Evergreen
Investments (later part of Wells Capital Management) where he started as an Equity Analyst
and assumed roles with increasing responsibilities, including serving as the co-PM of the
Large Cap Value strategy between 2007 and 2010. He began his career in 2001 at Fidelity
as an Equity Research Associate. Mr. Mishuris received a S.B. in Computer Science and a
S.B. in Economics from the Massachusetts Institute of Technology (MIT).