On December 20, 2011, I reincarnated the $10,000 portfolio, transforming it from a wildly aggressive speculative set of out-of-the-money options to not only something a bit more conservative, but something we should be able to follow and learn from over the long-term.
With a triple to well over $30,000 long in the bag, I still speculate in the portfolio, but reserve a majority of its space for buy-and-hold positions. In this article, I update the performance of the portfolio's core and speculative holdings as well as make three new buys.
By comparing, over the long-term, lump-sum investing and dollar cost averaging in dividend-paying growth stocks, we can assess the efficacy and appropriateness of each method. I also made a $500 DCA buy in each of the following four core stocks. The next-scheduled purchase occurs this Friday.
|Company (Ticker)||Lump-Sum Investment||Lump-Sum Price (Shares)||Close Price, 01/13/2012||Value (% Change)|
|American Electric Power (NYSE:AEP)||$6,000||$39.70 (151.1)||$41.37||$6,251 (4.2)|
|HCP, Inc. (NYSE:HCP)||$6,000||$39.35 (152.5)||$41.11||$6,269 (4.5)|
|Rogers Communications (NYSE:RCI)||$6,000||$36.91 (162.6)||$37.40||$6,081 (1.4)|
|Verizon Communications (NYSE:VZ)||$6,000||$39.04 (153.7)||$38.92||$5,982 (-0.3)|
But that's not the whole story. One of the stocks in the portfolio, VZ, paid a $0.50 dividend on January 6, 2012. Here's how that position stacks up, from both lump-sum and DCA standpoints.
|Stock||Lump-Sum Dividend||DCA Dividend|
|VZ|| || |
I'm with fellow Springsteen fan and Seeking Alpha contributor Tim McAleenan, no better investing plan exists than one that focuses on dividend-paying stocks. Collecting the quarterly dividend on my 153.7 shares of VZ, tacked on two free shares and turned a 0.3% loss into a 1.0% gain. It also raises the value of the portfolio's core to $24,661 from $24,583 without the dividend. That takes the core's percentage gain from 2.4% to 2.75%. That doesn't sound like much now, but, over time, it matters.
Almost two weeks ago now, I sold out of the first two speculative positions in Apple (NASDAQ:AAPL) calls. Because I felt like the July calls made most sense as a real-life investment, within the context of this new-look portfolio, I use them to keep track of performance, not the bigger wins on the riskier, but rewarding January and February calls.
|Option Contract||Investment/(# Of Contracts||Value/% Change, As Of Close, 01/06/2012||Value/% Change, As Of Close, 01/13/2012|
|AAPL Jan 2012 $380 Calls||$8,492 (4)||$17,140 / 101.8%||$16,060 / 89.1%|
|AAPL Feb 2012 $380 Calls||$8,310 (3)||$13,995 / 68.4%||$13,170 / 58.5%|
|AAPL July 2012 $395 Calls||$8,110 (2)||$10,900 / 34.4%||$10,150 / 25.2%|
Because it's difficult to turn down a 25% profit heading into what could be an incredibly volatile time, I'm closing the AAPL July 2012 $395 calls. I will still track performance because the point of opening all three positions was to compare how near-term calls function versus contracts with more time to expiration.
AAPL's the big mover here. When I got into the calls on December 20, the stock opened at $387.76 and closed at $395.95. Until recently, it has barely looked back, closing this past Friday's session at $419.81.
With that in mind, taking profits on the July AAPL calls brings the value of the $10,000 portfolio, including the VZ dividend payment, to $34,811. For the record, profits from the January calls would have brought the total to well over $40,000.
This decision leaves the portfolio with its core and $10,150 worth of cash to play with. I'm putting that money to work and following the rationale I articulated in Creating A Basket Of Audio And Video Entertainment Stocks. I love the broad space and want to be part of it. The core already owns Canadian juggernaut Rogers. Now, I add to that core with:
- A 200-share buy of Time Warner (NYSE:TWX) at $37.27, Friday's closing price. Cost: $7,454.
I treat TWX like the rest of the core stocks. It's a long-term buy-and-hold. There's so much upside here, plus, from CEO Jeff Bewkes to the people in the company's HBO division, these guys just get it:
Guys like Bewkes at companies like Time Warner have more power over the future of entertainment and all that it entails than people (e.g., Reed Hastings) give them credit for.
Every once in a while it pays to go to a company's latest quarterly report to see a quick and concise picture of what comprises their business. Start here in Time Warner's most recent filing. With that type of scope and scale, look for Time Warner to strike some major partnerships in 2012 that make the excellent HBO GO look like a trial run.
From there, with $2,693 in cash left over, I get a bit more speculative:
- A 500-share buy of Cumulus Media (NASDAQ:CMLS) at $3.76. Cost: $1,880. Stop loss: $3.00.
- A 380-share buy of Sirius XM (NASDAQ:SIRI) at $2.14. Cost: $813. Stop loss: $1.95.
All three stocks have crossed key technical levels and now sit at critical technical junctures.
Click images to enlarge
Because it becomes a core long-term holding, I'm not too concerned with TWX's chart. Not only do I love the company's story and the vision Bewkes, often sarcastically, illustrates, but the stock is flat cheap. And I'm not a guy who values "value" as much as other investors.
From a cost-cutting standpoint, Cumulus continues to make all the right moves, plus the company starts to benefit from its partnership with Clear Channel (CCMO.PK) and the integration of the Citadel stations into its stable this year. Add to this, an infusion of political advertising revenue and Cumulus could be your best bet for a radio pure play in 2012.
I set a relatively tight stop loss on SIRI because, if it moves too far below $2.00, I think it free falls. Even if it bounces back, I will not feel bad about getting shook out. I only want to be in this stock if this move, unlike this past summer's move, is real. If it is, chalk my connection between company strategy and its stock price up as wrong, in SIRI's case, and bestow riches upon me for having whatever it takes to hedge against myself.
Additional disclosure: I intend to initiate long positions in CMLS, RCI and TWX this month.