Happy New Year and great investor returns to all in the coming year. 2013 was certainly a fun year to be an investor as the market posted fantastic returns. On an absolute basis my portfolio has done well, up 22.2% versus the spectacular 29% return of the broader S&P 500 index. I attribute most of my underperformance to the lackluster performance of Philip Morris this year. As always, I have continued my long held strategy of doing absolutely nothing while running my mouth from the sidelines, a true armchair quarterback. Not a single sale or purchase this year.
My Current Portfolio
Enterpise Products (EPD)
Far and away my largest holding, Enterprise is my kind of company. They own essential infrastructure that supports critical public services. A textbook worthy example of a "toll bridge" operator. At 57.5% of my portfolio, EPD represents a macro bet on natural gas replacing coal as America's second favorite fossil fuel. Due to tax implications I am married to this position unless something truly drastic occurs to motivate me to sell. The year ahead promises more of the same from Enterprise, another 12 cents added to the dividend payout by years end, like always.
Philip Morris (PM)
Sales continue to slow for my second largest holding (28% of portfolio), and new EU regulations are a serious threat if implemented. Philip Morris' famous pricing power is showing signs of weakness as counterfeits and discount brands battle for cash-strapped customers throughout Europe, and the company faces the never ending threat of lawsuits and further government regulations. That said they continue to grow their dividend and have a world class brand name. Cigarette volume shipments is the key metric I will be using to monitor my investment. As sales start to fall, price increases can only buy you so much time and right now volume shipped is a real concern.
A stock I still prefer to call Kraftbury, at 9.6% of my portfolio this is still an important part of my portfolio. The company has great growth opportunities in the emerging markets, but trades at rich valuation. Competition from the likes of Nestle (OTCPK:NSRGY) and Hershey (HSY) will be the determining factor for success of this global confection business.
Accounting for the remaining 4.9% of my portfolio is the domestic side of Kraft. The trend towards private label brands will be a key factor to watch for the domestic groceries business. The generous yield has convinced me to hold this position, but I'm nervous. Increasing raw material costs on one end and a price war with private labels on the other are a cause for concern for all U.S. consumer staples. Will customers still pay up for brand names when the stuff inside the box is basically the same?
My Year Of Giving Advice
As I look at the list of articles this year I see three obvious themes. Passive versus active, conglomerates, and gold. I spent a lot of time thinking about the opportunity cost of managing my own portfolio versus owning index funds, and I have to say that index funds make an awful lot of sense. If you really, actually enjoy researching and learning about businesses and stocks you should manage your own portfolio. If you'd rather have an extra hour or two per week to play with the kids or watch a football game, then index funds are definitely the way to go. As a reader of Seeking Alpha, you're obviously in the active management camp, but that doesn't mean you always will be. Life can change pretty fast sometimes, and maybe future you won't have the time or inclination to continue an active management strategy.
I just can't help myself from bottom fishing. Even taking that into account, all of the time I spent looking at gold was a waste of time because gold is a ridiculous investment. A true store of value would be an income generating asset, and not just an inflation hedge. I fellow Seeking Alpha contributor that I really respect, The Lonely Value Investor, is longer Harmony Gold (HMY) on a price/book basis, but I just don't see any long term values in this space.
One positive take away from digging in the golden ruble was finding Dundee Corporation (OTCPK:DDEJF), an interesting conglomerate run by Ned Goodman. Investors who simply can't shake the gold bug should look into this one. It is a Canadian based investment holding firm focused on inflation protected real assets like gold, real estate and agriculture, and it looks pretty good on a sum of parts analysis. Speaking of conglomerates...
Brookfield Asset Management (BAM) is still a wealth creation machine. I think Brookfield is very high quality business and if interest rate risks and fears drive the price down I would love to own this one. One of the best articles I ever wrote.
The Year Ahead
The end of the year is a great time to stop and think about how you got here, where it is you think you're going and how to get there. If you can't defend your investment thesis for owning a particular stock then it's time to sell and move on. 2014 may well find me sitting on the sidelines again, but I have a close eye on my holdings of PM and KRFT. I'm less worried about EPD and MDLZ, but that's no excuse for complacency.
Brookfield Asset Management is high on my watchlist, along with some of my other long term favorites like Loews (L). I've had those two stocks on my watchlist since forever and have always held back because of a lack of dividend.
My emphasis for the new year will be to focus on my stocks as life long income generating assets. After such a big run-up, reversion to the mean certainly isn't out of the question. Given the investing backdrop of rising rates, slowing emerging market growth, and what appears to be full valuations in the US, investing in wide moats seems the smart way to go.
As always, I will be visiting the interwebs daily in hopes of riding someone else's coattails to investment success, so please keep reading and contributing to Seeking Alpha. Happy New Year and best of luck to everyone.