Let's just say October was not a great month. Actually the month was not even "flat". It was lousy.
Between the global market uncertainties that persist, and the sell-off of some of our larger cap equities, to the devastation of Hurricane Sandy, October was a month to forget. Even our "Team Alpha" portfolio dropped a bit, but the portfolio has held up better than the market averages over 12 months.
We even re-balanced the entire portfolio by selling positions in American Capital (NASDAQ:AGNC), Annaly Capital (NYSE:NLY), Southern Company (NYSE:SO), 3M (NYSE:MMM), and Bank of America (NYSE:BAC). This gave us plenty of cash to redeploy into other equities like General Dynamics (NYSE:GD) and to take advantage of dividend "opportunities" such as the BDCs we added.
We also added to several key existing positions as the share prices dropped. Remember what our main goal is: Buy the dips, add to the core. That is what we did by adding more shares in General Electric (NYSE:GE), AT&T (NYSE:T), and Johnson & Johnson (NYSE:JNJ). Our reasoning was explained in this article which I urge you to read carefully.
Finally, we added a new stock that we believe will be a future dividend winner, Linn Co, LLC. (NASDAQ:LNCO). Even though it is a new issue, this stock could be a wonderful income producer as well as a "SWAN" stock. This article delves into many compelling reasons for adding this stock directly into the heart of "Team Alpha's" core holdings.
Where Does "Team Alpha" Stand Now?
The S&P 500 dipped from 1441 to 1412 during the month of October. It seemed as though nothing was saved from this broad based sell-off. The earnings reports that came in were not very good. Revenues from companies that even beat earnings estimates were down for the most part, and there seemed to be more fear and confusion than optimism and confidence.
During the same month, Team Alpha declined from being up about 26% since October 23rd 2011, to being up about 19.6%. That is a drop of nearly 7% for one month, and we do not like that at all, but for a one year period, the S&P 500 rose by roughly 16% and Team Alpha beat the S&P 500 by 18% regardless of the October swoon.
Here is how our completely revamped Team Alpha Portfolio looks right now:
|Stock||#Shares||10-31-pps||TotValue||Div. Yield||div rcvd|
Dividend yields have increased from 4.28% to 4.62% by virtue of the fact that we rebalanced cash into more stocks with solid dividend yields, even as we sold off our mREITs.
Our cash reserves were used to expand our portfolio as well as deepen our core holdings. Currently we have about 10% in cash reserves which was added to with $363 in dividends received.
Future Actions Being Considered
Many of our readers have requested a "heads up" before I write about a change I am making. I agree that I should alert everyone as to what I am thinking about.
This month (November) I will be doing a complete review of Intel (NASDAQ:INTC). The stock has underperformed and there are some major headwinds the company and the stock are facing.
Most notably, the incredible impact of tablets being sold that has eaten into the PC business. This is the core business of INTC and since they have come to the tablet party quite late, the stock has taken a hit. Understanding that the stock has a 4.20% dividend yield, we should reflect on the potential of the total return that Intel could have.
If the earnings and revenues are impacted to the point of a diminishing share price and a weaker total return, I believe prudent investors should keep an eye on the company. If they show few signs of actual growth, then the money from selling off this stock can be used to either find another new stock, or add to an existing position.
No decisions have been made, and I would welcome anyone and everyone to offer their comments about Intel here. Sharing solid input so all of us can make informed decisions makes Seeking Alpha the wonderful resource it has become.
Another action I will explore will be that of hedging our positions. Since I feel 2013 could be somewhat tumultuous, a simple hedging strategy will be explored and discussed in future articles. I am not a huge hedge fan since it limits our upside, however I also believe that preservation of capital will be an important component for our portfolios in the next 12 months.
My initial thoughts are to look at put options in key positions. That strategy is a time honored one that targets specific stocks or indices, and is perhaps the least expensive insurance. Another strategy would be the utilization of inverse ETFs within our portfolio which has become a hedge fund favorite recently.
In a future article being worked on now, we will explore those strategies.
The Bottom Line
A 20% return is still a wonderful performance for the Team Alpha portfolio over a one year period. As we move into our 2nd year, I feel that the portfolio is stronger now than it was before.
The income generated is greater, and the key dividend winning stocks are now stronger within the portfolio core holdings. The next 12 months could be very challenging and I feel Team Alpha is well positioned to achieve even greater results.
Disclosure: I am long XOM, JNJ, GE, T, LNCO, O, KFN, BKCC, XLV, CSCO, INTC, WMT, KO, GD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.