Retirement Strategy: Portfolio Update - Time To Take Profits In An Overbought Market (Part 29)

by: Regarded Solutions

Our "Team Alpha" portfolio has had an awesome run thus far. Any of our readers who have followed this step by step portfolio, and strategy, would be well ahead of any of the market indexes and in very good shape for the balance of the year.

That being said, I feel that Friday was a great day to take profits, rebalance and set some strategic goals for what I consider a market that has gotten ahead of itself.

Our "Team Alpha" portfolio consists of ExxonMobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), Annaly Capital (NYSE:NLY), Southern Company (NYSE:SO), Procter & Gamble (NYSE:PG), Philip Morris (NYSE:PM), Intel (NASDAQ:INTC), Realty Income (NYSE:O), Chevron (NYSE:CVX), E.I. du Pont (NYSE:DD), Coca-Cola (NYSE:KO), Bank of America (NYSE:BAC), Tenet Healthcare (NYSE:THC).

What The Market Is Telling Us

I realize that everyone loves to ride a winning horse. The most difficult thing to do is realize when to jump off the horse and give it a breather. The signs of an overbought market cannot be any clearer to me.

  • The economy is sluggish and has slowed to only 1.5% growth, but the market keeps going up.
  • Globally, the news has been mixed and we rally on any news of a positive step in the Euro mess.
  • Corporate profits have come in only fair, even though the estimates for most companies were significantly reduced.
  • Many of our core stocks are at or near 52-week highs or better.
  • The Fed has very little ammunition to use right now.

These are all red flags to me, and since we have had a wonderful run, we should take the prudent approach and build up our cash reserves for the inevitable pullback. Keeping a nice chunk of "dry powder" is the retiree's best friend, along side those sweet dividends we always get.

Our "horse" needs a breather, and I took action Friday by selling positions, reducing others, and adding cash to our reserves. Here is how we have done right up through 7/27/2012:

stock #Shares 7-30 PPS TotValue
XOM 100 88/shr 8800
JNJ 100 70/shr 7000
T 100 37/shr 3700
GE 100 21/shr 2100
NLY 110 18/shr 1980
BAC 500 7/shr 3500
PG 200 65/shr 13000
KO 50 80/shr 4000
PM 140 90/shr 12700
INTC 300 26/shr 7800
O 100 42/shr 4200
CVX 100 110/shr 11000
DD 100 50/shr 5000
THC 400 5/shr 2000
SO 300 49/shr 14700
Cash Rsv 0 22469
Total x x 123949

For the month of July, our portfolio gained 4.9%, including dividends from T, GE, NLY, PG, KO, PM, SO, and O. This added $520.00 to our cash reserves. During this same period, the S&P went from 1362 to 1386 for an increase of 1.7%. Our Team Alpha portfolio beat the S&P for the month once again, by 3.2 points.

We began our portfolio back on October 23rd, 2011 when the S&P stood at 1215. Now it stands at 1386 for a solid increase of 14.10%. Our Team Alpha portfolio has increased by a cool 23.95% during that same period, handily beating the S&P by nearly 10 percentage points.

Actions We Have Taken During July

We did not sell any covered calls because most of the premiums were not significant enough, nor did we sell any naked puts to add to our positions.

We did sell Duke Energy (NYSE:DUK) prior to their merger, and bought Tenet Healthcare, which has not performed up to our expectations. After the close on Thursday 7/26, we decided to sell some positions and reduce others on 7/27, as we believe the market has once again become overbought. Given the headwinds we face going into August and the early fall, We want our portfolio to be more streamlined as well as having a very healthy cash reserve position.

  • We closed our position on the following stocks: DD, CVX, THC, and PM, primarily because we feel the share price of most of them have gotten ahead of themselves. In the case of THC, we felt we could do better elsewhere.
  • We reduced our positions on the following stocks: SO, PG, INTC, and BAC, to either lower our exposure/risk, or take some profits.

Our current portfolio is now rebalanced with more cash:

stock #Shares 7-30 PPS TotValue
XOM 100 88/shr 8800
JNJ 100 70/shr 7000
T 100 37/shr 3700
GE 100 21/shr 2100
NLY 110 18/shr 1980
BAC 300 7/shr 2100
PG 100 65/shr 6500
KO 50 80/shr 4000
SO 200 49/shr 9800
INTC 200 26/shr 5200
O 100 42/shr 4200
Cash Rsv 0 68569
Total x x 123949

Team Alpha now has a cash position of roughly 55% to seek out stocks that will increase our cash flow from dividends, wait for pullbacks in existing positions, and also seek out some bargains.

We have also locked in some profits and have given ourselves enough dry powder to take advantage of the inevitable opportunities while we ride out some of the bumps ahead.

We also have maintained our positions in the majority of our key core stocks. We will continue to see the income from the dividends in these, while we wait.

Actions To Take In August

With our new streamlined portfolio, we will focus on our basic options strategy of selling covered calls and naked puts to increase our cash flow from the premiums received, as well as potentially add to our core portfolio holdings.

Over the next few weeks we will select which stocks to implement these strategies on, and we will alert everyone to the moves made.

Keep following us for our next chapter in this series.

Disclosure: I am long XOM, JNJ, GE, T, KO, SO, BAC, INTC, O, NLY.