Seeking Alpha
Recommended for you:
Newsletter provider, research analyst, portfolio strategy, portfolio management
Profile| Send Message|
( followers)  

The day after Barack Obama was re-elected as the President of the USA, the stock market took a hit. It was not completely unexpected, but the breadth of the pullback was impressive. The "Team Alpha" portfolio took a hit of slightly over 2%, and I am certain that many investors began to think about 2007-2009 all over again.

Let's be clear, the economy is facing hurdles as it chugs ahead; the fiscal cliff, the continuing Euro soap opera, unemployment, and a tenuous housing market seem to be the most glaring issues. All duly noted and nothing should come as a surprise. After all, we have faced these issues for about 3 years now, if not longer.

None of these issues will disappear or change overnight. The likelihood is that most of the issues are fully known and cannot get much worse. Some might argue that everything will get worse before getting better, but I believe that since all of the issues are known and "out there", we (our Government) can now put the partisanship behind us (them) and do what we (they) can from a leadership standpoint, to address the issues that we (they) have some control over.

Yep, I am an unabashed optimist and I believe that American business will survive and thrive. So what do we do NOW with our "Team Alpha" portfolio?

The "Team Alpha" Portfolio

Our portfolio now consists of Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), Intel (NASDAQ:INTC), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (NASDAQ:LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), and General Dynamics (NYSE:GD).

The previous article I wrote outlined what our goals were for the long haul. Nothing has changed since then and nothing has fundamentally changed with any of the stocks within the portfolio. If anything has changed, it is the share prices of the stocks which could offer some very interesting values right now.

Keep in mind what our overall goal is during pullbacks and corrections; buy the dips, add to the core. Since fear and panic are not strategies, the actions we can take are pro-active rather than re-active.

  • Review your holdings for fundamental changes. If nothing has changed, why should you?
  • Look for some bargains. On days like today, the red tag sales were all over the place. Perhaps there is a stock you were thinking about adding to or even opening a position. Now could be a good time to make your move.
  • Do not sell positions out of fear or panic. That is the recipe of buying high and selling low. We seek to do the reverse.
  • If we add to some really great stocks that we already own, that have wonderful dividends and a history of increasing dividends year after year, we can tweak our overall yields buy adding some shares.
  • We can turn off the news, tune out the noise, and take no action at all.

I think the actions above are far more productive than watching every downtick and fretting that we should dump everything and hide under the covers, don't you?

Allocation And Diversification

For most long term investors, being diversified across a wide range of business sectors and stocks, will give us a pretty decent cushion against pullbacks and corrections. There are no free rides, and risk assets such as equities are subject to far too many factors than we can protect ourselves against. The best we can do is have a well balanced and diversified portfolio with comfortable allocations.

When I set up my own allocation I tend to look at the dividend yields, the size of the company, and the future prospects for growth which is subjective to each of us.

Remember our baseball "line-up" for allocations?

Starting LineupAllocation% GoalCurrent Allocation %
O 6% 6%
KO 3% 3%
GE 8% 8%
JNJ 8% 8%
XOM 7% 7%
T 8% 8%
PG 6% 6%
WMT 6% 6%
CSCO 6% 6%
Starting Pitcher
LNCO 7% 7%
Closer
BMY 4% 4%
Bench
KFN 3% 3%
BKCC 3% 3%
GD 6% 6%
XLV 6% 6%
INTC 3% 3%
Cash 10% 10%

After all of the re-balancing and "maneuvering" of the portfolio, I am at the allocation I think makes sense. These percentages are rounded off, of course, and are not exact to the last decimal, but all are pretty close. Now each of us can take a quick look and see if there are any stocks that we might want to tweak with some of our dry powder (cash reserves).

Actions To Consider

The two stocks that jump out are KFN and BKCC. Since these stocks are dividend "opportunities", not dividend winners, they offer a yield between 8-10.5% and adding a few shares might make sense to tweak up our overall yield.

XOM, T, GD and INTC took hits of 3-4% in just one day. Their yields went up as the share price went down. Perhaps we want to consider adding to one or two of these? As a matter of fact, AT&T has dipped about 15% in the last month or so, and they just announced an increase in their dividend to $.45/share from $.44/share. The dividend yield is now a pretty lofty 5.15% now.

The bottom line to all of this is to not panic and sell just because others are. I think this is a pullback and maybe even a correction. I tend to look at these times as opportunities, since nothing has fundamentally changed that we are aware of.

Take a deep breath, think before acting, and you'll know what you should do.

Source: Retirement Strategy: What's Next For 'Team Alpha'?