The Reluctant Bull: My Portfolio 27 comments
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Lately, I've been thinking that there are probably more than a few readers on SA that think of me as an old, cranky "Perma-Bear". While I'm willing to concede that I may fit a fairly generally accepted definition of "old" (especially in the eyes of those under, say age 30, or so), and I admit that I can be out-spoken, and as the years have passed, I'm less likely to suffer fools gladly, and find no problem in calling a spade a spade, I bridle at the thought of being considered a "Perma-Bear".
Having said that, I started wondering, "What WOULD be an accurate an appropriate label for my investment outlook at the present time?". Considering what was in my portfolio, and why, I decided the most accurate label would be "reluctant bull".
To my way of thinking, if I truly were a "Perma-Bear", I'd be either mostly, or all in cash....or perhaps overweight cash, with exposure to various short bets...possibly a good chunk in gold/precious metals, either physical, and/or via ETFs. Does that sound about right? The fact of the matter, is that I'm definitely net long, albeit defensively postured.
I don't think the "world is coming to an end"; at least not within the next 5 years (the outer edge of my investing horizon). I'm a fan of John Mauldin, and I like, and agree with his assessment that we're in for a "muddle through" scenario for at least a few years as mistakes and miscalculations are rectified. From a "30,000 foot" perspective, I do think the dominance of the US will wane. Certainly not all at once, nor in the next week, or few months, or even in the next few years, but as things stand, I think the trend is downward...or actually, to be more accurate, the US will basically flat line, while other economies will grow.
My portfolio (position and weight) is as follows:
Equities:
PVX 9.6%
MMP 6.1%
KMR 5.8%
JNJ 8.1%
UPS 7.5%
O 5.4%
GG 5.2%
FTE 4.1%
Enel Spa (ESCOF) 2%
Debt/fixed income:
GIM 31%
TEI 4.8%
Hedges/cash
SDS 4.9%
Cash 4.8%
Keep in mind that this is a retirement portfolio, designed to generate a fairly high income stream, while minimizing draw downs to preserve capital. The performance, YTD, is +25% (with reinvested dividends), while yielding 8.2%.
Full disclosure: all positions mentioned above.
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This article has 27 comments:
It is also curious that Transports and Utilities, as well as the Nasdaq have already started to turn over. The S&P is trying hard. But, the DOW has hardly shown a pause. I believe that lends credence to my prior comment, and shows where the Fed is active.
TEI is a fairly recent addition, resulting from the decision to add EM debt weight. While I'm also an oil bull, I eliminated a second Canroy (PGH), because I didn't feel its prospects were as good going forward. MMP and KMR are less exposed to the volatility of oil prices, and are almost like utilities.
granger,
Thanks...I'm glad you found the article informative!
Alex,
LOL @ "half pregnant". I know that a lot of people won't, or don't like shorting, feeling that its somehow "immoral", or "unpatriotic", but along with being a "reluctant bull", I'm a pragmatist. If its legal, and I feel it will help my portfolio and its returns, I'm willing to use it. I've mentioned in previous blog posts that I've taken to "trading around core positions" ; adding when I feel a stock is under valued, and then selling the "extra" weight (above the target weight) when its arguably over valued. I've done this PVX, O, UPS, and GG.
I haven't missed telecomunications, FTE is France Telecom, which I like because they've been making moves in emerging markets. The same is true with ESCOF, which used to be a NYSE ADR, ticker EN, when I first bought it. That's the Italian utility company, now it can be bought via the pink sheets, or on the Milan exchange.
rob134,
You're correct on what's happening with Transports, Utilities, and the NADAQ, and I can't argue with your projection on what may well happen with the markets, over the next 6-8 months.
You're 100% correct, but this has been a long term holding that was purchased at lower levels. Unlike many CEFs, it rarely, if ever, trades at a huge discount to NAV. I wouldn't be a buyer at current levels, and in fact, I've been thinking of trimming my holdings in it a bit, given the outsized weight it has in the portfolio.
On Nov 08 12:04 PM biomedlives wrote:
> GIM has been volatile lately, and it was selling at a 5% premium
> to NAV at the close on Friday. At this point, I'd prefer to invest
> in the no-load income funds run by the same manager.
My holdings are within an IRA. The "problem" that you refer to is the UBIT (Unrelated Business Income Tax). When "income" from a MLP reaches/exceeds $1k ( on an annual basis), this tax is triggered. However, the distributions paid are rarely, if ever, all "income". KMR sidesteps this problem by paying in additional shares, rather than $, which reduces the cost basis on the position. Additionally, there's a CEF that holds pipeline MLPs ( I don't recall the ticker), which also would bypass the issue.
Arguably, the best article on the topic of MLPs I've seen here on SA, came out about a month ago, by Howard Gue. Be ceratin to read the comments, as well, since there's a wealth of info there, too, as a number of the commentors are accountants/CPAs.
On Nov 08 01:06 PM 4Annie wrote:
> When you say retirement portfolio, are your investments held inside
> or outside an IRA? I've wanted to buy MLP's for the reasons you point
> out, but have hesitated as I understand there can be a problem (K-1')
> reporting the dividend that can invalidate the tax free status of
> IRA's.
Sorry, the author's name is Elliot Gue, not Howard, and the article I'm referring to ran on Oct. 21, 2009. Hope it helps.
First off, you're not "old" by any definition I use. Second, thanks for sharing your well-thought portfolio. It seems well selected to achieve the objectives mentioned in your profile. Third, appreciate your individual responses to comments...more good info came out of the comments and responses. This is the way SA works at its best, for the benefit of the whole community: Thoughtful article, thoughtful comments, thoughtful responses to the comments.
Thanks.
Thanks for your kind words. I wholeheartedly agree that often comment streams can be as valuable, if not more so, than the article that gave birth to them. As far as responding to the commentors, I feel something of an "obligation" to respond to those who've taken the time to read what I've written, and taken further time to formulate and post a comment, whether its in the form of a question, observation, or a criticism.
Thanks! I'm not terribly knowledgeable when it comes to options, and option strategies. Because I'm trading/investing within 2 IRAs, shorting is not an option for me. In addition...maybe its just me, but I think that as hard as it is to pick stocks with upside potential, its a LOT harder to pick those that will collapse, LOL.
My other criticism of options (again, possibly a "quirk" on my part), is that they require one to be right "twice"...first, directionally, then within a specific time horizon. I realize these "criticisms" don't apply to an investor such as yourself that is writing covered options.
On Nov 08 10:48 PM svosavvy wrote:
> Thank you for sharing your thoughts/positions. Fellow pvx'er, I also
> follow a weighting strategy through options call sales against a
> portion of my core holdings when I think they are overpriced and
> put sales when I think it is a yard sale out there. I think dividends
> are about the only way to fly right now as we may be in for an extended
> period of non growth despite the hoi polloi of the last few months.
> This "young" trader thinks you're alright. I also like ED (bit pricey
> right now) despite what the almighty goldman has to say. Betting
> my beer money on PRGN. I like your hedge with SDS you weight 5% and
> get 10% (daily rebalanced) hedge (in theory) with a defined ultimate
> downside as opposed to an outright short which could ruin someone
> who doesn't have their gameface on 24/7. Way to be a man for all
> seasons.
Yes indeed very valid reply, and options are generally not for the overly conservative. I become more conservative by the year, but, at 32 I fancy myself more of a cowboy. That or a mouse that thinks it can take on an elephant (an excerpt from a book my kiddies love). I hold pvx in my IRA as well so any shorting in there takes place as a put/buy. I do short in my brokerage acct. I have a healthy stack of 5 puts in my IRA, I bought when the stock broke 6. Some expire in dec some in mar, I am pretty much underwater on these nickels and dimes, however, what they represented for me was the option to continue being long the stock (and collecting the dist.). I was highly interested in selling at 6. I had carried a small position into the crash but I backed up the truck in march becoming titanically overweight, buying around the 2.50 mark and as a value investor not believing my eyes. Basically, I throw a little party every time my puts devalue because it means I get to keep the stock I think is irrationally high here and if it falls I would sell the purchased puts for proceed to cushion my oversized butt instead of exercising them. Anyway I think the theme here is a person who is balanced or hedged in approach generally tends to sleep better at night. Then there's ones in my brokerage acct like AA I've got 10 put/sales 17.50 call/sales and the proceeds go toward the underlying position which I have no love for. Hedged long pvx aa aci. naked long ed ge pwe silver and actual TIPS not the etf. Nakeds hedged with 25% cash.
I have held KMR for years. During Fall meltdown, I added (for income) KCAP, PFF, and TICC.
I also added to my FRO holding- which disappointed; and IRE, which suspended dividends, but price has gone up nicely.
I would like to know what you think of:
DDI (industrial)
DKA (oil)
CGW (water)
DGG (telecom)
You well may be correct (about it being a wonderful week, I mean), but as the market keeps climbing, I get increasingly nervous, LOL.
On Nov 09 12:49 PM Alex Bernstein wrote:
> I think that today's bull market rally should convert you from "Reluctant
> Bull" to "optimistic bull". We are for very wonderful week. There
> is nothing in a horizon to take us from bull market course until
> this Friday. Look for JP Morgan move 2 to 4% this week.
It certainly sounds like you've got your bases pretty well covered. Great call, as far buying in March! That'll certainly put a spring in your step. Do you ever use LEAPs in your options trading?
On Nov 09 02:23 PM svosavvy wrote:
> Old Trader:
>
> Yes indeed very valid reply, and options are generally not for the
> overly conservative. I become more conservative by the year, but,
> at 32 I fancy myself more of a cowboy. That or a mouse that thinks
> it can take on an elephant (an excerpt from a book my kiddies love).
> I hold pvx in my IRA as well so any shorting in there takes place
> as a put/buy. I do short in my brokerage acct. I have a healthy
> stack of 5 puts in my IRA, I bought when the stock broke 6. Some
> expire in dec some in mar, I am pretty much underwater on these
> nickels and dimes, however, what they represented for me was the
> option to continue being long the stock (and collecting the dist.).
> I was highly interested in selling at 6. I had carried a small position
> into the crash but I backed up the truck in march becoming titanically
> overweight, buying around the 2.50 mark and as a value investor not
> believing my eyes. Basically, I throw a little party every time
> my puts devalue because it means I get to keep the stock I think
> is irrationally high here and if it falls I would sell the purchased
> puts for proceed to cushion my oversized butt instead of exercising
> them. Anyway I think the theme here is a person who is balanced
> or hedged in approach generally tends to sleep better at night.
> Then there's ones in my brokerage acct like AA I've got 10 put/sales
> 17.50 call/sales and the proceeds go toward the underlying position
> which I have no love for. Hedged long pvx aa aci. naked long ed
> ge pwe silver and actual TIPS not the etf. Nakeds hedged with 25%
> cash.
I'm encouraged by your long term holding of KMR. They really seem to be sharp operators in the segment ( I mean that in a positive way).
I've got a tiny stake in DHT, which also skipped its last dividend, and caused the stock to plummet, unfortunately (its around 1% of the portfolio, which is why I didn't list it). I'm looking to add more in the shipping sector and have FRO on my watch list.
As you might detect from my holdings, I normally don't invest in ETFs....the reason I own GIM and TEI, is that I don't have the knowledge to properly evaluate debt, and Templeton (the managers of both) have an outstanding long term track record. Having said that, CGW might be interesting. I tend to agree with those who suggest that water may be the next "oil", and over the longer term, CGW could work out well.
On Nov 09 04:24 PM Chancer wrote:
> Old Trader:
>
> I have held KMR for years. During Fall meltdown, I added (for income)
> KCAP, PFF, and TICC.
>
> I also added to my FRO holding- which disappointed; and IRE, which
> suspended dividends, but price has gone up nicely.
>
> I would like to know what you think of:
>
> DDI (industrial)
> DKA (oil)
> CGW (water)
> DGG (telecom)
The bulk of my options are of a leap variety. I mostly like selling leaps especially if I have a strong feeling about a position and am willing to back up my feeling with action. The reason I like the leaps is there is generally more leeway regarding time premium issues. In other words I think you can be less right and still make out, but, anyway you slice it if you make the move you gotta be willing to live with the consequences. I actually had a scary little adventure here a little while back and discovered something about myself. What I learned is that I am in love with my pvx position which is a scary proposition, attaching sentiment to a thing is setting yourself up to fail. Anyway, I sold 5 leap calls against 40% of my pvx for a dollar proceed, it promptly and abruptly flew up in price to the point where the contract was trading at 1.65 (not a big stop loss guy) I was beside myself that I let it go too easy. I spent a couple tense weeks a few weeks ago then it came back to me and I covered at 1.15. So only put buys for "my precious" now, something Buffett said in an address to a group of graduating mba's years ago that I saw on a youtube clip rang true for me. You absolutely cannot bet what you can't stand to lose, he made reference to a person getting millions of dollars to take a bet of playing russian roulette with a gun that had a thousand chambers and only one bullet. Yeah the odds are in your favor, but, you are betting what you can't lose and therefore it is reckless. It is wierd pvx is my first "lover" when it comes to stocks, man it is really wierd looking at that admission in type on the screen. I am generally more stoic than that, sorry. I actually remember back in march when they paraded out louise yamada on fast money and she called for some s&p level that was just absurd and I said to myself this is complete BS. The next day I went out and sold leap puts for I believe AA at 7.50 and ACI for 10.00 and I was real with myself, I had been a good boy and had a pile of cash, I said I would be thrilled to own at these levels. Anyway I think I got like 3.90 per for the aci one which is crazy that's like 39% of the risk in the first place. Covered both of these bets last month for monster gains. I find that if you can see an inflection point making the long bet against the grain can be huge. I am applying the same idea to my T tips, I bought them last spring. I opted for the 20 year the longest I could get, it is my belief that we will be screaming at the top of our lungs about inflation in 5years or so or longer. At the height of our screaming the prevailing bias will be that it will be like this forever, from what I have observed about human behavior (helps to have hands on psych experience) is that when a person is squarely in the center of some form of crisis or negative stimuli the prevailing "voice" (in your head or on tv) will continue to utter that it will be this way forever, however, if you subscribe like me to "the only constant is change" and "this too shall pass" you can overcome the idea that it will be like this forever. Kinda like if you ever want to see time stand still watch a person having a seizure. Anyway, while the crowd believes this rotten scenario will persist the crowd will seek comfort (pay up) in instruments that guarantee long term protection from a short term squeeze. So anyway I want TIPS that will have 10 years of comfort (premium) left on them because someone will pay up for that. That's my tested hypothesis anyway. Back to leaps, a nice conservativally aggressive play is to find a company you love that is in real distress and people are freaking out about it, calmly walk in and sell the longest put you can get (for the most premium) because unbeknownst to them your intention was to buy it all along and the premium collected can be your margin of safety. If the option isn't exercised you get an awesome payout and if it does you get the stock you wanted at a killer price. If the stock goes up you cover for pennies on the dollar you collected, if it stagnates time premium is your friend. It just came to me that if I remember right buffett had a truckload of bni puts sold that now will expire worthless with the buyout so yet another boon to buffett.
On Nov 09 11:53 PM svosavvy wrote:
>Yes yes I know this is an unholy
> spin on value investing, almost like watching Ben Graham go bungee
> jumping.
I bought more JPM. I believe that AMT will have comments that will make stock move. All telecom utilities shot of cell phone capabilities, and one of very few that they can go for leasing tower space is AMT. telecoms utilities like VZ is continuously moving up this week, and the next will move AMT.
On Nov 09 07:42 PM Old Trader wrote:
> Alex,
>
> You well may be correct (about it being a wonderful week, I mean),
> but as the market keeps climbing, I get increasingly nervous, LOL.
>
I think the market will slowly be turning over. AMT is to telecom like the pipelines are to oil/gas...connected, but not necessarily correlated.
I'm still not comfortable with financials....I'm still hearing JPM has big CDO exposure...but in the sector, I'd think it was one of the better of the group.
On Nov 10 03:35 PM Alex Bernstein wrote:
> Do you have any comments on today's market?
>
> I bought more JPM. I believe that AMT will have comments that will
> make stock move. All telecom utilities shot of cell phone capabilities,
> and one of very few that they can go for leasing tower space is AMT.
> telecoms utilities like VZ is continuously moving up this week, and
> the next will move AMT.
Yes, I've gathered that LEAPs are long-dated options. Some day, when I've got some time, I really should do some "homework" on options. There's no such thing as "too many tools" in an investor's/trader's toolbox.
On Nov 09 11:53 PM svosavvy wrote:
> oh yeah, I have this strategy going with etfc too. A while back i
> sold the $5 leap put for a premium of 3.90. So that means my defined
> downside is $110 on the hundred. Meanwhile someone gave me $390
> on the hundred to invest as I please to cover a downside of $500.
> I am mildly bullish on etfc, this is why I picked it, I'm not insane
> over it, but, I think it is worth more than a 1.10 so I keep and
> invest in sure things the 3.90 I received. It will be called in
> some time, etfc at $5 in the next year is the same as me looking
> good in a speedo. This is a winner if it is called in above my initial
> 1.10 which I consider a freak out level. When it is called in I
> cash in my chips and pay up. My interest earned in the meantime
> is a (small) margin of safety. Yes yes I know this is an unholy
> spin on value investing, almost like watching Ben Graham go bungee
> jumping.
I agree with the tool box analogy, however, you and I both know the best investment is a good nights sleep, so, we only do things that are comfortable. That said, I really enjoy options as they let me "fly my freak flag", but, they are a form of leverage and thusly an implement of financial mass (self) destruction. I am a big prescriber in moderation in everything from single malt scotch to investments. I have to say I have a real bias toward selling leap (long dated) puts in companies that I love or at least have a lot of confidence in. I am not the only one, it appears Mr. Buffett is also a put seller here and there. Just watched his special with Bill gates on cnbc, I realize that it could be classified as cheerleader BS, but, there are few people that anything they say I soak up like a sponge, Warren Buffett is one of those people, that and seth klarman. Anyway leap put sales are from what I have found an excellent tool to distill cash from a bullish bias you might have. It has been my experience that this play really shines in an extremely negative environment. let me first accentuate the absolute downside, if you sell a leap put in a company you love, the real downside is that they lay an egg somewhere along the line of the life of that contract, the real downside is that the egg they lay actually makes you not believe in the company anymore. Then they lay the egg, and you cease to believe in them and then you get stuck with their shares on the downslide. However, if that egg does not occur and you continue to believe in the business this can pay handsomely. When I take a look at a company(stock) at the end I kind of think of an absolute bargain basement price my dream price per se, thsi price means a lot to a potential put sale. Anyway I may store that in my brain for a long time waiting because it appears every dog has its day. If it goes down down down I will usually buy the stock with what I feel a good margin of safety, anyway if it continues down, but, I feel that I would compromise myself by buying more as I need a fair cash position to sleep at night, I will sell a put generally in a negative environment and receive a nice premium for it. I will then take the cash to cover that put, be it the premium received plus the balnce in cash and take that number and invest it in whatever I consider to be the safest best yield of the time be it treasuries in a dollar strengthening bias, TIPS in a dollar weakening bias, or even as of a couple years ago when online savings accounts had an incredible yield matched with fdic guaranty. I then wait, if it is exercised I get my stock at a price I consider to be "dreamy"plus the premium received upfront is mine to keep. I did this as I mentioned before with AA. After the covering of those puts I have again sold the leap put at a 10 strike on AA which I wouldn't mind a few more shares of AA at 10 for this leap I recieved 2.10 on the hundred which nets me AA at 7.90 a share which rivals a march buy I made in this at 6.76. I have a bias that AA at or around 7.50 is a steal imho. I made the contract on a negative day in the end of october. I then take the $1000 per contract which is 2.10 premium plus 7.90 my cash and invest conservatively. If it hits I get my stock if it doesn't I get 2.10 on the hundred per contract. Similar I guess to an insurance float model. Anyway it is a style, and this makes up a very small amount of my portfolio most is more traditional. I would argue that that this kind of stuff is the reason I get out of bed in the morning to research. Cheers. Oh yeah, p.s. 99% of the time I buy cover if or when the trade swings my way in a significant fashion, that way I can reload it at a later date instead of waiting until the bitter end.