Team Alpha Portfolio Update: Doing Nothing Also Works

by: Regarded Solutions

Believe it or not, there are times when the best strategy is to do nothing. Our Team Alpha Retirement Portfolio has been outperforming the overall markets, and as of this moment there are no changes being made. As we enter the next earnings season, I anticipate some very solid results throughout our core holdings, and I strongly believe our longer term trend will be heading significantly higher.

In this very recent article, I put myself "out there" by stating my opinion on where I believe the markets are headed:

At some point, the markets will pause, but in the longer term, I feel that the Dow, by virtue of the fact that it contains the biggest and the best dividend paying stocks, could go over 16,000 this year, and as long as the earnings, events, and actions noted above remain in place, 2014 and beyond could see even more remarkable numbers.

In light of my prognostication, Jeremy Siegel, professor of finance at the Wharton School of Business, and author of "Stocks for the Long Run," seems to have reading my articles (well, maybe!) predicts that the Dow is headed in the direction I suggested:

He predicts the Dow Jones Industrial Average (INDEXDJX:.DJI) - will continue the bull market run, ending this year in the 16,000 to 17,000 range. For 2014, he says, the "best bet goal" is the Dow will climb to 18,000.

His thesis also runs parallel to mine:

Digging deeper into the numbers, Siegel found that five-year cycles of negative returns have normally been followed by two years of positive returns. The five-year return through March 5, 2013, falls into the lowest third of all returns of five-year cycles that were analyzed.

The median annual return on the 45 two-year periods following the five-year periods of the biggest declines was 14.59%. Based on this pattern, Siegel applied that 14.59% to 14,254, where the Dow closed March 5, and - voila! - the Dow reaches 18,000 before the end of 2014. With the market trading around 14,500, "15,000 by year-end looks pretty easy now," observed Siegel, "with 16,000-17,000 within range by the end of the year."

Perfect! My sentiments precisely! Of course for every Jeremy Siegel, there is a Harry Dent, who proclaimed earlier this year that the markets are ready to crash by around 60%:

Dent cited U.S. demographic shifts and the nation's debt crisis as the main drivers of a crash. He said had it not been for the U.S. Federal Reserve's recent moves to stimulate the economy, the stock market would already have collapsed.

"We call this the economy in a coma," he said. "Basically, without these trillions of dollars of stimulus, we would be in a downturn, in a depression, because we also have $42 trillion in private debt, the greatest debt bubble in history, and that needs to unwind."

His comments, according to the article noted, were made back in early January on CNBC. This far, Harry has been completely wrong. I believe he has been completely wrong simply because the Fed has shown absolutely no proclivity to alter its course for the foreseeable future.

At some point the Fed will begin taking the foot off the gas, but they would have to be crazy to slam on the brakes at the same time. If they did that, Dent might have a better case.

The Team Alpha Retirement Portfolio Update

Since our last update, the portfolio popped another 3% in March, not quite matching the S&P 500's 5% gain for the month. One month does not mean that the portfolio is falling apart however. Since we began our journey, the portfolio has grown by 39.25%, while the S&P 500 has "inched" up by a mere 34.98%. I am being sarcastic of course, as the markets have had a wonderful run up during the same time frame. Even though Team Alpha has outperformed the S&P by about 12% (or 427 basis points), I would be completely thrilled even if the portfolio matched the numbers.

Our Team Alpha portfolio now consists of Ford (NYSE:F) Chevron (NYSE:CVX) Apple (NASDAQ:AAPL), McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), CSX Corp. (NYSE:CSX), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Annaly Capital (NYSE:NLY), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), and iShares S&P U.S. Preferred Stock Index Fund (NYSEARCA:PFF).

Stock #Shares 3/29/2013 TotValue Orig. Price
XOM 100 90/shr 9000 75
JNJ 100 82/shr 8200 62
T 250 37/shr 9250 27
GE 500 23/shr 11500 15
BKCC 600 10/shr 6000 10
AAPL 20 443/shr 8620 436
PG 100 77/shr 7700 61
KO 100 41/shr 4100 34
XLV 200 46/shr 9200 39
PFF 100 41/shr 4100 39
O 200 45/shr 9000 32
KFN 600 11/shr 6600 10
NLY 200 16/shr 3200 14
CSCO 400 21/shr 8400 18
CVX 50 119/shr 5950 116
BMY 175 41/shr 7175 32
MCD 100 100/shr 10000 86
CSX 200 25/shr 5000 19
F 300 13/shr 3900 13
Cash Rsvs x x 2359
Tot Value x x 139254

A 39% increase over the course of 16 months or so, is nothing to sneeze at, and Team Alpha has been a solid success. While I strongly believe that the markets are headed higher (much higher), I also realize that the markets will eventually correct.

As prudent dividend seeking investors, we do NOT have to react all of the time. We should, however, monitor our stocks as well as any policies that could impact core holdings going forward. For now however, we will be sitting tight and collecting our wonderful dividends.

Dividend Income For March

Obviously our main focus is on generating income. March had 6 stocks in our portfolio go ex dividend; BKCC, KFN, KO, NLY, O, PFF, and XLV. A total of $388 for the month was placed into our cash reserves.

The one holding I will be taking a closer look at in April is PFF. I was not thrilled with the dividend paid this month of only $.10/share. It actually pulled down our overall yield to 4.71%, and I believe there are several factors.

  • PFF is heavily weighted in the banking sector.
  • The banks have been calling in some of their preferred shares (like Bank of America most recently) so that they do not have to pay out the higher dividends.
  • As the banking sector becomes healthier, I believe more of the higher paying preferred shares will be called. This could impact the future dividend yield of this ETF.
  • Many of the preferred shares are also being sold by investors, as the share prices have moved well above par value. This behooves the banks to have more reason to call in the shares since they will only pay par to shareholders.
  • With both investors taking profits, and banks calling in the higher yielding stocks, the overall yield could be negatively impacted.

With the headwinds facing PFF, I would be watching this carefully, and if the trend continues during April, I believe selling PFF and using the cash elsewhere could be advantageous to our portfolio. That being said, I am NOT going to jump the gun yet.

The Bottom Line

Don't just DO something, SIT THERE! Yes I am saying this tongue in cheek, but there are times when doing nothing is the best strategy to employ.

See you in April.

Disclosure: I am long AAPL, BKCC, BMY, CSCO, CSX, GE, JNJ, KO, MCD, NLY, O, PFF, T, XLV, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.