The average American makes $33,000 a year. Without compounding savings over time, the average American has a slim chance of being able to pay for life, plus retirement. Interest rates being so low these days it is hard to find a "safe" investment with a return that even beats inflation. So the average American, not having the money for life and retirement, must take on risk to find return. And there's the rub. The very people that can afford to lose their money the least because they don't make it fast enough, must risk their money the most, and risk getting further behind.
So this is for you, average American. A portfolio to make up the ground between you and retirement, to provide home-run potential with acceptable risk.
We'll start our portfolio with $33,000 in honor of the average American and give our portfolio the following purpose: The purpose of the $33,000 American Portfolio is to be a learning tool for seeking home-run potential with acceptable risk.
So let's begin. First lets look at some of the investing themes that will guide our portfolio:
- No Fluff. Every pick must have big ability to pop.
- Dividends. We'll look for names that pay us to wait.
- Options. We'll get income, leverage, and a hedge by buying puts and calls, and writing cash-secured puts.
- Diversification. Acceptable risk means spread risk.
- Long and Short. We'll be hedged against a correction with short positions.
- Cash. We'll be cash-heavy to secure puts, guard against a broad market sell off, and buy on corrections.
- OTC, Pink, and undiscovered. We'll be looking at major exchange-traded stocks, as well as stocks that are not listed on major exchanges and have gone under the radar.
The $33,000 American Portfolio
JG Boswell (BWEL)
For our first buy, we will start with a cutting edge...er, farm. The largest single farm in America as a matter of fact and while it grows cotton profitably, it is its water rights that provide the home-run potential in thirsty California. It carries its land on its books at decades old values; a proper book value has it so much more valuable, it is staggering. So why does it not go up 1000%?
Well, the value needs to be unlocked for that to happen. The third generation Boswell family has now taken the reins and sometimes the third generation is the one that "sells the farm." A look at the year-on-year balance sheets reveals that it might have started liquidating. Maybe. JG Boswell doesn't tell you what it is up to, it is just fine leaving investors in the dark and is able to because it does not trade on a major exchange. The flip-side of that problem is our opportunity. In the meantime, it yields about 3%, paying us to wait.
As I'm writing this (5 am EST on Friday, May 25, 2012) E-Trade lists a BWEL ask @ 717.00, we'll pick up 6 shares.
6 shares BWEL @ 717.00 = $4,302 (13.04% of the portfolio)
Waterfurnace Renewable (WFIFF)
Housing has probably found a bottom and while we may not see a housing explosion, the worst should be over. The problem is that home builders like Toll Brothers (TOL) have already run, Toll having almost doubled off its October lows. Waterfurnace, however, has not run. Here we have a compelling technology that plays on energy efficiency (using the earth's potential to retain heat and cold) wrapped in a stock linked to home building, two compelling trends and the stock remains cheap. Add to that a 6% yield and we are sold.
As I'm writing E-Trade lists a WFIFF ask @ 15.28, we'll buy 200 shares.
200 shares WFIFF @ 15.28 = $3,056 (9.26% of the portfolio)
Alliance Grain Traders (AGXXF)
The vegan in me is still looking for a pure play on quinoa or chia seeds, but Alliance pleases vegan-me. AGXXF processes pulses (peas, lentils, beans and the like) around the world and is a play on demand for pulses. As boring as that sounds, these are great sources of protein-building amino acids and are the kind of thing that can feed the world and be trendy in the fitness magazines. This plays on what I think is a powerful trend toward veggiedom and yes, yields 6%.
As I'm writing E-Trade lists a AGXXF ask @ 10.78, we'll buy 150 shares.
150 shares AGXXF @ 10.78 = $1,617 (4.90% of the portfolio)
Check out Kevin Quon for the lowdown on SZYM, an exciting company that is scaling its oil-producing algae technology into seemingly every business that uses oil. Home-run potential: check. There are two problems with SZYM's stock: no catalyst and no dividend. We play the waiting game, while it scales, and we are not being paid to wait. It could be a year or two or three until it hits its stride. It has no dividend, but we can go long and get some income by using the ancient art of writing cash-secured puts. We'll use a high strike so that if the stock gets away from us and we miss our chance to buy we pocket a hefty gain.
As I'm writing E-Trade lists a SZYM Sept 22 $12.50 Put bid @ $3.20, we'll write 11 contracts.
11 contracts SZYM Sept 22 $12.50 Put @ $3.20 = $3,520 (10.67% equivalent of portfolio)
Arch Coal (ACI)
Our riskiest short-term position and a long-term bet, Arch has been absolutely hammered along with the entire coal sector as natural gas prices fell. If NG remains relatively elevated now, this could be a big win for Arch. Enormous downside if ACI goes belly up, but big premium on near-term expiration justifies the risk on puts given that Arch just got financing. This could be a long-term winner and dividend payer - it all depends on natural gas prices. If all goes well then we'll exercise the calls come January 2014 and have a fine dividend payer bought at a fraction.
As I'm writing E-Trade lists an ACI July 21 $8.00 Put bid @ $1.27, we'll write 13 contracts.
13 contracts ACI July 21 $8.00 Put @ $1.27 = $1,651 (5.00% equivalent of portfolio)
As I'm writing E-Trade lists an ACI Jan 2014 $8.00 Call ask @ $2.13, we'll buy 8 contracts.
8 contracts ACI Jan 2014 $8.00 Call @ $2.13 = $1,704 (5.16% of the portfolio)
As I'm writing E-Trade lists an AMZN Jan 2014 $150.00 Put ask @ $16.90, we'll buy 1 contract.
1 contract AMZN Jan 2014 $150.00 Put @ $16.90 = $1,690 (5.12% of the portfolio)
Like Amazon, but without the charm. A ton has been written about its ridiculous valuation and creative accounting gymnastics; 19 months ought to do it.
As I'm writing E-Trade lists a CRM Jan 2014 $100.00 Put ask @ $14.90, we'll buy 1 contract.
1 contract CRM Jan 2014 $100.00 Put @ $14.90 = $1,490 (4.52% of the portfolio)
I'll provide analysis on the $33,000 American Portfolio in coming articles, but I wanted to get it on record for others to follow and learn from its fortunes. Please take this portfolio as a learning tool and do your own research before investing.
For now the break down is as follows:
- Stocks and Options: $13,859
- Cost to close puts: ($5,171)
- Cash: $24,312
- Total: $33,000
Disclosure: I am long ACI.