Sunday, April 3, 2016

Portfolio Results and Weekly Review

I was eager to calculate the portfolio results as Q1 came to an end. What a ride it has been. Back in January volatility was so high many people were expecting another 10-15% drop. Alas the market fought back and the S&P 500 ended the quarter with a .08% gain to the surprise of many. The S&P staged one of the wildest quarters in history as the index was down nearly 13% shortly after the year started only to rally all the way back. If you went to the moon January 1 and came back April 1 you would have never known it even fell. It remains to be seen how the rest of the year will finish, but I think this will be one exciting year to say the least.

So let's start with the laggards.  Hard to believe but there were a few stocks that either made no progress since the beginning of the year, or went down further despite the huge market rally. COST, DEO, HCP, MA, SAM, V, and VGR all ended the quarter down from where the year started. I'm not at all worried about any of the picks.  HCP hit us really hard when they lowered their FAD guidance for the year. Of course I bought before the news with my fabulous timing!. Investors seemed to shrug off the dividend raise too. VGR is one I'm a bit surprised about, even more so than MA and V.

Stocks that really didn't move much were BUD, CTSH, HAIN, PG, and WWAV. I think HAIN and WWAV will continue to have some rough stretches in 2016. The organic and healthy food space is more competitive than ever this year. PG is a slow steady pick, and their Gillette line is under attack from cheaper options.  I want to add to this one again as it's not very volatile, and an income investors dream for reliable cash production.

The big winners for us this quarter were CHD, CMI, EMR, GPN, FB, IBM, MKC, PM, and WAB. Not all the picks were up huge amounts, although some of the picks in the portfolio are up over 20% from their lows this year. Emerson was a classic example of basically nailing the bottom which is extremely difficult. Since our purchase the stock has rallied all the way from $42 to $54.  I definitely would like to add more shares of this industrial and engineering giant at a better price if I can get it. In hindsight I really should have added once more to CMI, and even MKC.  Each represent the epitome of being highly undervalued, and the latter a stalwart blue-chip.

Overall since I started tracking the portfolio has returned 4.81% while an investment in SPY would have yielded 4.30%*. Quite the difference from December when the portfolio was down and the SPY was up almost 3%. Feels good to beat the benchmark for one quarter, but I'll need to work extra hard to keep it up. For the year overall here is how the indexes have fared.

  • Nasdaq Composite -2.8% YTD
  • Russell 2000 -1.9% YTD
  • S&P 500 +0.8% YTD
  • Dow Jones +1.5% YTD

Now time to recap the weeks action. There was not a lot of significant news in the portfolio. Some of the stocks were upgraded and downgraded or given new price targets.  I don't base any of my decisions off that as I do my own research. Although I periodically will poke fun at some, or mention one if it's noteworthy. IBM purchased BlueWolf which is a big Salesforce partner.  A lot of people have underestimated this company.  Not me, nor Warren Buffet.  The market liked the news and the stock has had a great run from the $120's to $150. I for one would never bet against a company that has found multiple ways over time to transform itself into something better. Also GPN completed its financing to acquire Heartland. 

Wall Street started off quiet as Easter was observed in Europe, and likely many traders took an extra day off too. Then Janet Yellen spoke on Wednesday at the Economic Club of New York.  Everyone went nuts. Janet basically rebuked recent comments from James Bullard, and made it clear fewer rate hikes were coming.  I didn't believe the Federal Reserve was really serious about 4 rate hikes in 2016. My belief is it was a test to see how everyone took the information.  Well Janet Yellen probably fielded a lot of phone calls from the IMF and other central banks to cool it. As everyone else in the world goes negative, a stronger dollar will cause huge disruptions worldwide. Janet Yellen hinted towards that exact concern as she stated global affairs are very important right now. 

Why would it be important?  In a nutshell a stronger dollar will cause even more international capital flow into the USA.  Not to mention all the dollar denominated debt issued internationally during the Fed's QE program which would make the debt rise in value. Now we have filled the powder-keg just waiting for a spark.  In essence past decisions have handcuffed Janet Yellen, and she'll likely have to deal with the repercussions. 

That's all for now. Hope everyone had a great weekend. With spring hitting full gear let's take time to enjoy the change in seasons!

The Long Haul Investor

*This is based off a total return calculation which will be used going forward. See the spreadsheet for calculation details.

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