Yearly Review of My High Beta, Unapologetically Growth Portfolio

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 |  Includes: BAM, BBD, BNA, BWF, C, EAD, GOOG, HTR, IFN, ISRG, MO, NFLX, NLY, PGF, PM, SNF, USB, VMW
by: Alex Filonov

The portfolio in this article does not include my retirement plans.

Portfolio goal: Growth. This is a high beta, unapologetically growth portfolio with some safeguards and some boring investments.

Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio once a year. I can trade around any position. The portfolio is not diversified by sectors. Maybe "diversification is the only free lunch" (Jim Cramer), but I'm a big believer in TANSTAAFL (There Ain't No Such Thing As A Free Lunch, popularized by Robert Heinlein). Diversification reduces risk, but it also reduces potential gain.

Paradigm Changers. These are stocks of companies that are changing business in sectors and, in some cases, in the whole world.

Google (GOOG)
Ultimate disrupter. Google is changing the advertising world. Advertising is moving from newspapers, TV and radio to the internet. But that's only part of the story. Another part: many companies are advertising on Google to increase their market reach. There is no significant competition. I'm not sold on other possibilities yet. Android phones might work for Google or might not. But advertising works great and will continue for years to come. This is my biggest position right now.
Risk: All great empires were destroyed by internal problems. There is no external threat to Google right now, I'm watching for internal developments.
Plan: Hold

Intuitive Surgical (ISRG)
Robotic surgery that is changing surgery of internal organs. Initial estimates of demand by analysts were all wrong. Company, with its leading customers, is constantly developing new medical procedures with its Da Vinci system and successfully selling systems around the world. My second biggest position. The company has a monopoly on robotic surgery right now.
Risk: New technologies are being developed, legislation changes can reduce demand.
Plan: Hold.

Netflix (NFLX)
This company completely changed the video rentals model. It's going to put Blockbuster (BBI) out of business soon, becoming almost a monopoly.
Risk: Video rentals are going to move to the internet. Netflix has some internet rental business, but I don't think it will be the leader.
Plan: Hold, add on weakness, sell when rentals start moving to the 'net.

VmWare (VMW)
Cloud computing is all the rage, and VmWare is on the front lines. If a company wants to create its own cloud, VmWare is the way to go.
Risk: It's not clear that internal clouds would win against external ones or over Software as a Service.
Plan: Hold.


Banks. I didn't invest in banks until last year, with exception of quick trade in Goldman Sachs (GS) in 2008. But currently banks are priced way too low.

US Bancorp (USB)
I live in Minnesota so this is a local company for me. Extremely well run, with conservative management. USB picked up several failing banks in different regions, which positions it well for the future.
Risk: Possibility of management mistakes.
Plan: Hold until economy recovers.

CitiGroup (C)
Most speculative position in the portfolio. Pure bet on the US and world economy.
Risk: World economy can fall back into recession/depression, management can run company into the ground even in good economic times.
Plan: Hold until economy recovers.

Steady growers / high yield. Companies with steady growth, high dividend or both.

Annaly Capital Management (NLY).
Just started this position. Huge dividend and good management are the main reasons. The company makes money on distressed mortgages and the current holdings are mostly supported by US Government.
Risk: Possibility of management mistakes, another real estate crash.
Plan: Hold, add on weakness, reinvest dividends.

Brookfield Asset Management (BAM).
The company owns a lot of high income properties, including power generation and transmission, commercial real estate etc. It's also involved in financial asset management. Sometimes referred to as a "mini-Berkshire". It's a Canadian company so it can also be in the "International" category.
Risk: Successful asset management is an art, and management changes, if they happen, can kill any such company quickly.
Plan: Hold, add on weakness.

Altria (MO).
I don't smoke. I don't recommend that anybody smokes. But people do anyway, and they pay exorbitant prices for tobacco products. Altria grew profits steadily in any environment, ignoring tobacco lawsuits, tax hikes and anti-tobacco campaigns.
Risk: Ban on tobacco, tobacco deregulation, but both are highly unlikely. Possible huge legal expenses.
Plan: Hold, reinvest dividends.

Phillip Morris International (PM).
Same reasons to hold as for Altria. Can be also put into "International" category.
Risk: Same as with Altria.
Plan: Hold, reinvest dividends

International.

Banco Bradesco (BBD).
Position was bought as a part of BRIC. I don't think well of Brazil anymore, and decided to sell BBD. You can read more about my reasons here.
Plan: Sell into strength.

Indian Fund (IFN).
India is the only part of BRIC which I like now.
Risk: Political.
Plan: Hold, add on weakness.

Spain Fund (SNF).
I don't actually like the EU, and Spain either. But this fund was priced lately for Armageddon, and I don't think Armageddon is gonna happen any time soon.
Risk: EU financial and political problems
Plan: Hold.

Fixed Income. Usually very small part of my portfolio, but increased sharply in size last year.

Blackrock Income Opportunity Trust (BNA).
Bought it in 2007 as a cash management position. Don't like it anymore because there are funds with much better yield.
Plan: Sell when it trades at par with NAV, replace with some other fixed income fund.

Wells Fargo Capital Trust XII (BWF).
I use it to hold cash I don't need right now. Good yield.
Risk: Bankruptcy of Wells Fargo.
Plan: Hold, sell when need cash.

Evergreen Income Advantage Fund (EAD).
Picked it up at the bottom in March 2009. Great dividend paid monthly.
Risk: Currently trades at premium to NAV, can lose value if dividend decreases.
Plan: Hold, sell if trades at 10% premium to NAV.

Helios Total Return Fund (HTR).
Fund holds mostly mortgage backed securities. I think they are underpriced. I bought it when it was traded at 10% discount to NAV.
Risk: I might be wrong and we might have another real estate crisis.
Plan: Hold and enjoy dividend, sell if need cash.

PowerShares Financial Preferred ETF (PGF).
This is a bet on recovery in financials plus excellent cash management tool.
Risk: Another crash in financials.
Plan: Hold, sell if need cash.