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Long only, deep value, growth at reasonable price, carmakers
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When I first started the "Retire Young Portfolio" I promised to post performance updates over time to see how the portfolio is performing compared to the rest of the market. For those that haven't been following the portfolio, I will list the stocks in the portfolio and link to the articles that explain the rationale for investing in them (please click the name of the company to view the relevant article):

1. Monster Beverage (MNST)

2. Statoil (STO)

3. American Express (AXP)

4. Wells Fargo (WFC)

5. Disney (DIS)

6. Hewlett-Packard (HPQ)

7. Smith Wesson Company (SWHC)

8. The Cheesecake Factory (CAKE)

9. Santarus (SNTS)

10. Hertz (HTZ)

11. First Solar (FSLR)

Our portfolio started on April 17th when the Dow Jones index was at 14,618 points and the S&P 500 index was at 1,552 points. At the time of writing this article, the Dow Jones index is at 15,570 points and S&P 500 index is at 1,697 points. In other words, Dow Jones index is up by 6.51% and S&P 500 index is up by 9.34% since the initiating of this portfolio. Here is how each stock in the portfolio has performed during this time:

Company

Buy Price

Current Price (dividend adjusted)

Percentage Difference

Monster Beverage

$56.49

$64.63

+14.43%

Statoil

$23.00

$23.54

+2.34%

American Express

$67.75

$75.41

+11.31%

Wells Fargo

$37.88

$44.99

+18.77%

The Walt Disney Company

$62.75

$64.73

+3.28%

Hewlett-Packard

$20.62

$25.56

+23.96%

Smith Wesson

$8.77

$11.04

+25.88%

The Cheesecake Factory

$40.74

$42.95

+5.42%

Santarus

$22.20

$24.98

+12.25%

Hertz

$25.30

$27.57

+9.29%

First Solar

$51.55

$49.73

-3.76%

Overall (Cost Basis)

$108,602

$120,806

+11.24%

Since its inception, our portfolio has outperformed both the S&P 500 and the Dow Jones indexes where the gap between the Retire Young portfolio and the Dow Jones index was much larger than the gap between the former and the S&P 500 index. We effectively outperformed Dow Jones index by 72% and S&P 500 index by 20%. Not bad, eh?

Now, we also had an alternative strategy to our portfolio, which included writing covered calls to reduce the breakeven price of stocks and create our own dividends. Now let's view the performance of this strategy (note: we didn't write calls on Statoil since it has a high dividend rate).

Company

Buy Price

Call Premiums Collected

Strike Price

Current Price

Gain/Loss

Monster Beverage

$56.49

$5.60

$57.50

Above SP

+12.99%

Statoil

$23.00

---

---

---

+2.34%

American Express

$67.75

$1.18

$70.00

Above SP

+5.15%

Wells Fargo

$37.88

$0.56

$39.00

Above SP

+5.34%

The Walt Disney Company

$62.75

$1.42

$65.00

Below SP

+5.90%

Hewlett-Packard

$20.62

$0.82

$22.00

Above SP

+11.06%

Smith Wesson

$8.77

$0.50

$10.00

Above SP

+20.91%

The Cheesecake Factory

$40.74

$0.90

$42.00

Above SP

+5.42%

Santarus

$22.20

$0.90

$25.00

Below SP

+17.37%

Hertz

$25.30

$1.40

$27.00

Above SP

+12.97%

First Solar

$51.55

$4.80

$55.00

Below SP

+6.37%

Overall (Cost Basis)

$108,602

$119,559

+10.09%

Our writing covered call strategy underperformed out buy-and-hold strategy. It looks like we were able to pick the right stocks but we did ourselves some bad by selling covered calls and limiting our upside by a little bit. Keep in mind though the market is trading pretty close to all-time high levels and the Fed continues to pump the market up. Under these conditions, it is difficult to beat the market, although it is relatively easy to post a profit. This portfolio has long-term goals, so we must be prepared for times when the Fed will not be pumping the market up with its unlimited liquidity. When those times come, our strategy involving writing covered calls will be very beneficial. After all, the market can't go up forever. When the market is trading at all-time high levels, writing covered calls may limit some of the upside but it definitely protects from a lot of downside by bringing the breakeven price down. Keep in mind that those who retire early are not necessarily those that pick high-flyers but those that can protect their portfolio the best when there is downside risk. Furthermore, writing covered calls provides investors with extra cash which may be needed for averaging down when the market has a correction.

Having said that, I will be making a couple adjustments to this portfolio in the coming days. We'll replace a couple stocks with substitutes in order to keep our high performance going.

Source: The 'Retire Young' Portfolio Continues To Outperform