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2013 was the first complete year in which I used My Mad Method [MyMM] to select and retain stocks in my IRA and my wife's IRA accounts. If you're unfamiliar with MyMM, it is my way of measuring and ranking stocks that I either hold in my accounts, or that are on my wish list, to determine which stocks I should keep, which ones I should add more to (before others), and which stocks I should add to my portfolios. It is based on ranking each stock according to 15 financial metrics, and then taking the average of all of those metrics and ranking that number. The lower the number, the better the rank; we all want to be #1, right?

You can find a complete description of these metrics and how they are used in a 2 part article that starts here, but to summarize, these are the 15 metrics that I currently use in my MyMM spreadsheet:

  • Yield
  • Payout Ratio
  • 5 Year Dividend CAGR
  • TTM Cash Margin
  • Dividend Champions, Contenders and Challengers "Rank"
  • P/E
  • Price to Book
  • Graham Number Ratio
  • ROE
  • Gross Margin
  • Net Profit Margin
  • 5 Year Revenue Growth
  • Current Ratio
  • Total Debt to Equity Ratio
  • The BMW Method RMS (Root Mean Square)

In this article I will review both my IRA portfolio and my wife's IRA portfolio, and discuss which positions I held in each at the beginning of 2013, which positions I closed completely during the course of the year, which ones I added to them, and what stocks I finally ended up with at the end of the year in each of them. Of course, I'll also discuss how each one did in terms of both growth of these portfolios, and whether or not I was able to improve on my ultimate goal for these IRAs, which is to have them generate a healthy and growing income from dividends.

My IRA

Let's start with the positions that I held in my IRA at the beginning of last year and some key metrics as they were at that time:

Comb.

MyMM

Rank

Rank

Company

Ticker

Yield

% Alloc

19

22

Apple

(AAPL)

1.99%

2.44%

3

1

AFLAC, Inc.

(AFL)

2.64%

2.68%

9

7

American Capital Agency

(AGNC)

17.30%

4.37%

1

2

Alliance Resource Partners, L.P.

(ARLP)

7.48%

5.32%

5

9

BreitBurn Energy Partners, LP

(BBEP)

10.07%

4.90%

2

4

BHP Billiton plc

(BBL)

3.24%

5.80%

7

3

ConocoPhillips

(COP)

4.55%

4.51%

17

21

Crescent Point Energy Corp

(CSCTF)

7.30%

3.98%

24

20

Exelon Corp

(EXC)

7.09%

2.71%

5

26

Freehold Royalties, Ltd.

(OTCPK:FRHLF)

7.46%

4.33%

24

19

France Telecom

(FTE)

9.14%

2.02%

23

16

Hasbro, Inc.

(HAS)

4.01%

3.45%

9

12

Johnson & Johnson

(JNJ)

3.48%

4.17%

12

23

Kimberly Clark Corp

(KMB)

3.51%

3.09%

26

15

The Coca-Cola Company

(KO)

2.81%

3.32%

20

11

Linn Energy, LLC

(LINE)

8.23%

2.58%

8

17

Main Street Capital Corp

(MAIN)

5.90%

4.75%

15

8

MV Oil Trust

(MVO)

12.63%

3.59%

28

25

National Grid, plc

(NGG)

4.00%

2.63%

4

5

Annaly Capital Mgmt

(NLY)

14.25%

1.93%

21

24

Nokia Corporation

(NOK)

4.56%

1.45%

18

14

National Presto Industries

(NPK)

9.41%

3.29%

21

18

Prospect Capital Corporation

(PSEC)

12.14%

2.84%

9

28

SeaDrill, Ltd.

(SDRL)

9.24%

4.55%

16

27

AT&T

(T)

5.34%

3.24%

12

10

Vanguard Natural Resources

(VNR)

9.35%

4.76%

26

13

Vodafone Group, plc

(VOD)

4.05%

2.65%

12

5

Walgreen Company

(WAG)

2.97%

3.73%

Avg>

6.93%

3.54%

I began the year with 28 positions, which meant that the "parity" target that I like to aim for in terms of any one position's value versus the overall value of the portfolio was a 3.57% Allocation. The "Comb. Rank" above is the combined ranking of each stock vis-à-vis the others of its MyMM Rank, the Rank of each stock in terms of Gains or Losses it has realized, and the Rank of each stock in terms of the Projected Dividends that I expected to receive from each stock during last year.

During the course of the year, I made a number of "macro" changes, including selling off all of my AAPL, which had appreciated nicely and which I sold before it took a bit of a dive; and turning my back on holding any Master Limited Partnerships [MLPs] in my portfolio at all. I also dropped a few "duds", and cashed in on a bit of speculation that I had indulged myself with.

Here is a summary of the positions that I closed out completely during the year, and how they had done in my portfolio before I ended up ditching them:

Comb.

MyMM

% Gain

Rank

Rank

Company

Ticker

Yield

% Alloc

or Loss

19

22

Apple

AAPL

1.99%

2.44%

39.78%

1

2

Alliance Resource Partners, L.P.

ARLP

7.48%

5.32%

2.10%

5

9

BreitBurn Energy Partners, LP

BBEP

10.07%

4.90%

-2.79%

24

20

Exelon Corp

EXC

7.09%

2.71%

-27.83%

24

19

France Telecom

FTE

9.14%

2.02%

-11.64%

20

11

Linn Energy, LLC

LINE

8.23%

2.58%

-14.45%

15

8

MV Oil Trust

MVO

12.63%

3.59%

-30.01%

21

24

Nokia Corporation

NOK

4.56%

1.45%

41.68%

12

10

Vanguard Natural Resources

VNR

9.35%

4.76%

-8.45%

NOK ended up doing very well for me in the relatively short time that I held it, but I was getting a bit nervous about it, and despite its healthy 4.56% yield at the time, I felt that I had benefited enough from this dalliance in speculation, and used the liberated funds to purchase some companies that I thought would be a bit more stable in the coming years.

One thing that I knew when I sold off these positions was that, aside from AAPL, losing them would have a negative impact on the overall average Yield of my portfolio. However, it's not necessarily the Yield that matters in the end, but the amount of income actually generated by the positions I hold in my account; I'll get to those numbers in a bit.

Since this activity was all taking place in an IRA, and since I don't really believe in holding onto too much cash, the money that came from selling off the above companies (plus dividends collected during the year) was put to use purchasing other companies that I had had my eye on for quite some time. Of course, all of this activity didn't happen at one time, but was spread out during the course of the year. The exception to this is when I dumped all of the MLPs that I held in my account (ARLP, BBEP, LINE and along with them, MVO), which I did out of concern for future tax implications when the time eventually came for me to sell them out of my IRA.

I really like MLPs, but feel that since they are already tax-advantaged, holding them in an IRA would expose me to a potential future tax burden that I didn't want to get surprised by. When the time comes that I can fully fund both my wife's IRA and my IRA, and can open a regular, taxable account and contribute to it annually, I will certainly start by looking at the most favorable MLPs that there are at that time. In the meantime, it was time to bid farewell to these excellent sources of income and move on.

The following are the new positions that I added to my IRA throughout the course of the year, including the Yield that each had as of the close of 2013, the Percent Allocation in my portfolio that they enjoyed at the end of the year, and the Percent Gain or Loss that I realized between the times that I added them to my portfolio and December 31st, 2013:

% Gain

Company

Ticker

Yield

% Alloc

or Loss

General Dynamics Corp

(GD)

2.34%

3.33%

43.94%

Harris Corporation

(HRS)

2.41%

3.40%

48.31%

Lockheed Martin Corporation

(LMT)

3.58%

3.62%

68.27%

Lorillard, Inc.

(LO)

4.34%

3.53%

27.79%

Altria Group, Inc.

(MO)

5.00%

1.87%

8.37%

Microsoft Corporation

(MSFT)

2.99%

3.13%

37.09%

New York Community Bancorp, Inc.

(NYCB)

5.93%

3.75%

24.68%

Omega Healthcare Investors, Inc.

(OHI)

6.44%

1.97%

0.39%

Philip Morris International

(PM)

4.32%

2.97%

-3.31%

Resource Capital Corp

(RSO)

13.49%

2.79%

-3.22%

Textainer Group Holdings Ltd.

(TGH)

4.67%

2.10%

10.12%

Two Harbors Investment Corporation

(TWO)

11.21%

2.20%

-25.67%

Universal Insurance Holdings, Inc.

(UVE)

2.21%

5.55%

141.62%

Wisconsin Energy Corporation

(WEC)

3.70%

3.17%

5.60%

Overall, I'm very pleased with how things turned out with these new additions, especially UVE, which was a recommendation by one of my regular readers and a bit of a risk, but which has paid off handsomely. Mortgage Real Estate Investment Trusts [mREITs] took quite a hit overall starting about mid-year, as illustrated by TWO's performance, but I think that things have stabilized for mREITs for a while now that the Fed has made its most recent moves, so I'll be holding on to TWO, NLY and AGNC throughout 2014, and may possibly add to one or more of them, depending on my cash resources.

So with those positions being sold and added, here is a picture of the state of my portfolio at the end of 2013:

Comb.

MyMM

% Gain

Rank

Rank

Company

Ticker

Yield

% Alloc

or Loss

4

7

AFLAC, Inc.

AFL

2.22%

3.49%

47.04%

9

4

American Capital Agency

AGNC

13.48%

2.22%

-42.96%

13

4

BHP Billiton plc

BBL

3.80%

2.81%

8.42%

7

9

ConocoPhillips

COP

3.91%

3.44%

24.01%

31

29

Crescent Point Energy Corp

CSCTF.PK

7.11%

3.11%

-6.39%

27

32

Freehold Royalties, Ltd.

FRHLF.PK

8.08%

2.68%

8.20%

17

13

General Dynamics Corp

GD

2.34%

3.33%

43.94%

20

26

Hasbro, Inc.

HAS

2.91%

3.45%

46.13%

17

16

Harris Corporation

HRS

2.41%

3.40%

48.31%

11

12

Johnson & Johnson

JNJ

2.88%

3.19%

38.26%

25

31

Kimberly Clark Corp

KMB

3.10%

2.91%

45.37%

25

17

The Coca-Cola Company

KO

2.71%

3.02%

8.45%

16

30

Lockheed Martin Corporation

LMT

3.58%

3.62%

68.27%

1

6

Lorillard, Inc.

LO

4.34%

3.53%

27.79%

3

10

Main Street Capital Corp

MAIN

6.06%

3.19%

20.86%

32

19

Altria Group, Inc.

MO

5.00%

1.87%

8.37%

2

2

Microsoft Corporation

MSFT

2.99%

3.13%

37.09%

17

21

National Grid, plc

NGG

6.15%

2.96%

17.48%

5

0

Annaly Capital Mgmt

NLY

12.04%

1.98%

-36.97%

23

20

National Presto Industries

NPK

8.07%

2.91%

-3.47%

13

23

New York Community Bancorp, Inc.

NYCB

5.93%

3.75%

24.68%

33

27

Omega Healthcare Investors, Inc.

OHI

6.44%

1.97%

0.39%

30

13

Philip Morris International

PM

4.32%

2.97%

-3.31%

5

11

Prospect Capital Corporation

PSEC

11.85%

2.93%

-0.95%

21

22

Resource Capital Corp

RSO

13.49%

2.79%

-3.22%

15

28

SeaDrill, Ltd.

SDRL

9.25%

3.43%

19.23%

28

33

AT&T

T

5.23%

2.57%

17.32%

24

7

Textainer Group Holdings Ltd.

TGH

4.67%

2.10%

10.12%

7

3

Two Harbors Investment Corporation

TWO

11.21%

2.20%

-25.67%

22

25

Universal Insurance Holdings, Inc.

UVE

2.21%

5.55%

141.62%

10

18

Vodafone Group, plc

VOD

5.24%

3.15%

35.84%

11

13

Walgreen Company

WAG

2.19%

3.20%

56.20%

28

24

Wisconsin Energy Corporation

WEC

3.70%

3.17%

5.60%

Avg>

5.72%

3.03%

17.38%

YoY Increase>

-1.21%

This left me with 33 positions as of the end of last year, which lowered my parity target for percent allocation of any one position to 3.03%. My overarching goal is to hold up to 50 positions in total, and to have them as reasonably balanced between them so that no one position represents too much of a threat to my overall bottom line; the parity number at that point would be a 2% Allocation of any one position.

One question I am frequently asked is, "Why not just invest in an indexed fund, such as the S&P500, rather than messing around with trying to manage so many individual stocks?" Well, for one thing, while the average Yield of my portfolio fell from 6.93% at the start of last year to 5.72% by the end of the year, that's still considerably higher than the S&P500's anemic 1.93% yield. Remember that income-generation is the goal of my portfolios; dividend income that grows at a reliable rate that beats inflation. But I do also care about my bottom line, and in that regard my IRA did much better in 2013 than it did in 2012:

% Change

% Change

Change In

In Value:

In Value:

Better or

My Dividend

My IRA*

S&P500 (SPY)

Worse

Income

2012:

9.64%

13.56%

-3.92%

100.08%

2013:

33.45%

29.69%

3.76%

19.04%

Net Result Over 2 Years:

47.26%

47.16%

0.10%

138.17%

(* = Not counting any contributions to my IRA during that year.)

I ended up beating the S&P500 in terms of the gains in my IRA's value over the course of last year, and by a goodly amount, too, given that I am an "amateur retail investor." And, due to the value of my portfolio increasing, the gains from last year wiped out the losses vs SPY in 2012 and puts me just a hair above the gains that SPY has realized over the last two years. So I can say with some satisfaction that, yes, I have managed to beat the performance of the S&P500.

More importantly, I've realized a considerable increase in the income from dividends and distributions that my IRA has generated in the last two years, and that's the real yardstick for me.

My Wife's IRA

Now let's take a look at my wife's (much smaller) IRA in the same way. First, let's see what she started the year with:

Comb.

MyMM

Rank

Rank

Company

Ticker

Yield

% Alloc

2

1

Alliance Resource Partners, L.P.

ARLP

7.48%

8.94%

5

6

BP plc

(BP)

5.19%

9.62%

4

3

The Clorox Company

(CLX)

3.50%

11.28%

6

9

Crescent Point Energy Corp

CSCTF.PK

7.30%

18.93%

9

7

MAKO Surgical Corp

(MAKO)

0.00%

5.84%

1

4

McDonald's Corporation

(MCD)

3.49%

16.30%

8

5

MV Oil Trust

MVO

12.63%

8.23%

3

2

Republic Bancorp, Inc. - Class A

(RBCAA)

3.12%

10.58%

7

8

Westar Energy, Inc.

(WR)

4.61%

9.92%

Avg>

5.26%

11.07%

During the course of the year I closed out her positions in ARLP and MVO (which I had greedily tried to double up on across both of our accounts when I took over manager hers in 2012), and MAKO, which was (at the time) quite a disappointment; another trip down the road of speculation that had a tragic end.

% Gain

Company

Ticker

Yield

% Alloc

or Loss

Alliance Resource Partners, L.P.

ARLP

7.48%

8.94%

-10.68%

MAKO Surgical Corp

MAKO

0.00%

5.84%

-65.25%

MV Oil Trust

MVO

12.63%

8.23%

-22.96%

However, thanks to our ability to make some contributions to my wife's IRA account during the year, plus the pitiful amount of dividends that the account realized, I was able to add the following positions, bringing her total number of stocks held up from 9 at the start of the year to 11:

% Gain

Company

Ticker

Yield

% Alloc

or Loss

Cablevision Systems Corporation

(CVC)

3.35%

7.75%

19.49%

NTT DoCoMo, Inc.

(DCM)

3.33%

7.49%

5.77%

Darden Restaurants, Inc.

(DRI)

4.05%

6.97%

11.53%

Kinder Morgan Management, LLC

(KMR)

6.82%

8.48%

-7.69%

Rogers Communications, Inc.

(RCI)

3.62%

7.25%

15.61%

This lowered her "parity" number from 11.1% to 9.09%, and left her with the following portfolio in her IRA at the close of 2013:

Comb.

MyMM

% Gain

Rank

Rank

Company

Ticker

Yield

% Alloc

or Loss

2

4

BP plc

BP

4.69%

7.79%

16.46%

4

9

The Clorox Company

CLX

3.06%

9.90%

27.02%

9

9

Crescent Point Energy Corp

CSCTF.PK

7.11%

13.48%

2.22%

3

5

Cablevision Systems Corporation

CVC

3.35%

7.75%

19.49%

7

1

NTT DoCoMo, Inc.

DCM

3.33%

7.49%

5.77%

11

8

Darden Restaurants, Inc.

DRI

4.05%

6.97%

11.53%

10

11

Kinder Morgan Management, LLC

KMR

6.82%

8.48%

-7.69%

1

2

McDonald's Corporation

MCD

3.34%

12.43%

12.40%

4

6

Republic Bancorp, Inc. - Class A

RBCAA

2.85%

8.52%

16.75%

7

3

Rogers Communications, Inc.

RCI

3.62%

7.25%

15.61%

6

6

Westar Energy, Inc.

WR

4.23%

9.45%

8.98%

Avg>

4.22%

9.05%

10.60%

YoY Increase>

-1.03%

Once again the average Yield of this account ended up lower at the end of the year than at the beginning, but that's not the complete picture; there were substantial gains in the amount of cash that my wife's IRA generated during the year, which you will see represented below as a percentage increase:

% Change

% Change

Change In

In Value:

In Value:

Better or

My Wife's Dividend

My Wife's IRA*

S&P500

Worse

Income

2012:

-8.59%

13.56%

-22.15%

120.55%

2013:

17.39%

29.69%

-12.30%

59.14%

Net Result Over 2 Years:

23.80%

47.16%

-23.37%

250.97%

(* = Not counting any contributions to my IRA during that year.)

As the chart above clearly shows, my wife's little IRA has not done very well when compared to the S&P500. However, this is, in my opinion, somewhat understandable considering the toll that MVO and MAKO took on her bottom line during the year, and the significantly smaller number of positions in this IRA when compared with SPY. I expect this to improve in the years to come, especially as and when we're able to make further contributions to this account and thereby grow the number of positions, thereby reducing the risk of any one position dragging the whole ship down with it.

On the other hand, the increase in dividend and distribution income that my wife's IRA generates has grown substantially over the past two years, which bodes very well for the future. The challenge now is to be able to contribute as much as possible to her account, where the impact will be considerably more significant than adding the same amount of cash to my IRA.

Summary

Overall 2013 was a very good year for most investors, but in terms of my IRA, My Mad Method seems to be working out very well. There's work that needs to be done to improve the performance of my wife's IRA in terms of enjoying an increase in the value of it over the next year vs the S&P500, but judging by the almost 251% increase in the amount of dividends that it generates now compared with the end of 2011, MyMM is achieving the desired effect in this account.

Source: My Mad Method: 2013 EOY Review

Additional disclosure: Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.