Alex Filonov's  Instablog

Portfolio goal. Growth. This is high beta, unapologetic growth portfolio with some safeguards and some boring investments. The goal remains unchanged.

Basic Principles. Most of the stocks in this portfolio were chosen for long term investment, which, for me, is about 18 months. Every stock is under review all the time, with a major review of the portfolio twice a year. I can trade around any position if I feel like it. The portfolio is not diversified by sectors. Diversification reduces risk, but it also reduces potential gain. No change in basic principles either.

Strategy. As I already mentioned in my blog before, political environment doesn't look good for the economy. Strategy changes: increased cash cushion, reduced long positions, more trading around positions.

Paradigm Changers. These are stocks of companies that are changing business in sectors or even in the whole world.

Google (GOOG)

Ultimate disruptor. Google is changing the advertising world. The company is also aggressively moving to mobile internet advertising.

Risk: All great empires were destroyed by internal problems. There is also a risk of search ad market saturation.

No changes since last review.

Plan: Hold, trade around.

Intuitive Surgical (ISRG)

Robotic surgery that is changing surgery of internal organs. Company has monopoly on robotic surgery right now.

No changes since last review.

Risk: new technologies are being developed, legislation changes can reduce demand.

Plan: hold.

VmWare (VMW)

Cloud computing is all the rage, and VmWare is on the front line. If a company wants to create its own cloud, VmWare is the way to go. But it looks like trend is to external clouds.

No changes since last review.

Risk: it doesn't look like internal clouds would win over external ones or over software as a service.

Plan: Reduce position.

ARM Holding (ARMH)

Pure brain company. Company designs ARM CPUs for a wide range of mobile devices and licenses them to different companies. Most smartphones and all tablet computers I know run on ARM CPUs.

Reduced position into strength since last review.

Risk: Tech world is changing quickly, somebody can invent a revolutionary new design and beat ARMH.

Plan: hold, trade around.

Red Hat (RHT)

Company provides and supports Red Hat Linux, the most popular Linux distribution in enterprise world. Recently this OS became the most popular OS in clouds. But, as with VmWare (VMW), I'm not sure that internal clouds are winning.

No changes since last review.

Risk: high valuation requires high growth. Any slowdown can crash the stock.

Plan: reduce or liquidate position.

Facebook (FB)

The only social network company worth investing.

Added to position since last review.

Risk: Wall Street hates the company.

Plan: hold, add on weakness.

DSW Inc (DSW)

Yes, retailer can be a paradigm changer. This is a great company and I like shopping there.

Added to position since last review.

Risk: Any retailer is a high risk company. Anything can go wrong.

Plan: hold.

Qualcomm (QCOM)

This was an attempt to play on mobile net revolution. Attempt obviously failed

No changes since last review.

Risk: there are not many hardware companies in mobile world. Loss of one customer can reduce sales and profits significantly.

Plan: Sell, preferably into strength.

Banks / Financials

Banco Santander (SAN)

Probably the best Spanish, and maybe European bank out there. High yield, big investments around the world. Bought it because I believe in resolution of Euro troubles. This is also can be placed in International part of the review.

No change since last review.

Risk: Currency fluctuations, more problems in Eurozone.

Plan: Hold.

Steady growers / high yield. Companies with steady growth, high dividend or both. I am increasing weight of this group, such companies are best investments in depression times.

Polaris Industries Inc (PII)

One of the best recreation equipment manufacturers out there. Local (for me) company as well.

Added to position since last review.

Risks: another recession, people don't like buying discretionary items in recessions.

Plan: Hold, reinvest dividends.

3M Company (MMM)

Most innovative company in Dow Jones index. Another company headquartered in Minnesota.

No change since last review.

Risk: another recession, management mistakes.

Plan: Hold, reinvest dividends.

Intel (INTC)

This was a mistake, almost panic buying last spring.

This company has a big dividend, but business is shrinking.

Plan: Sell into strength.

International

Indian Fund (IFN)

India is the only part of BRIC which I like now.

No change since last review.

Risk: political.

Plan: hold, add on weakness.

Fixed Income

I have a group of closed-end funds, which are bought when at discount to net asset value or at low premium and sold at high premium. There are two groups of funds: corporate bond funds and muni funds. There are too many of them and they are rotating too fast to present them in the portfolio review. Watch my trades on stocktalk of Seeking Alpha.

Disclosure: I am long ARMH, GOOG, ISRG, DSW, FB, IFN, INTC, MMM, QCOM, RHT, SAN, VMW.

Additional disclosure: Positions can change any time.

Just calculated my return for 2012: 13.86%. Just a little bit better than S&P and worse than 15.9% of Nasdaq Composite. Well, the price you pay for little safety... I'm happy with the result anyway.

Well, I was wrong. We don't have rally, not yet. Well, today started just fine, but before that we had a week and a half of losses. @#$%^& politicians.

Never mind. I am optimistic for the next several months. And pessimistic for the whole 2013. Unless there is a big increase in government spending, economy is going down. Just look at this chart (taken from http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=M2V):

(click to enlarge)

For those, who still remembers most the important equation MV = PQ and doesn't have any ideological blinders, it tells a lot. There is no real recovery in our economy so far. Velocity of money is still falling, it's at the lowest point since Fed started following it. If not for QE (1,2,3, infinity), we would have deflation right now. But QE is not enough. Fed is pushing on the string. Credit money has one big problem: it needs two parties. Somebody has to take the credit, even if it's given away for (almost) free. There is only one entity which can so it: federal government. You can complain all day long about government expansion, how it infringes on freedoms, how it changes structure of economy (always wrong way, according to libertarians), but this picture tells us more than a thousand words: without government intervention, this economy is going down. Hard.

I am going to enjoy coming rally and trim some of my positions in the first quarter. And probably move more investment to Europe and Japan. Politicians there look more flexible. And it's all about politics now.

Anyway, happy New Year to all my readers. Even with gloomy forecast, I wish you happy and profitable year.