The Reluctant Bull: My Portfolio 29 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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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)