'Team Alpha' Continues To Crush The S&P 500 Index

by: Regarded Solutions

With all of the nail biting fiscal cliff horror stories, and a stock market that has vacillated in confusing directions, Team Alpha has weathered the storms so far. As a matter of fact, with some of the simple put option hedging we implemented, as discussed in this article, we were able to add over $2,500 to our cash reserves while limiting some of the downside in the recent sell off.

The markets rebounded, and we reminded everyone in this article not to sell in fear. Our portfolio actually gained a few notches since our last update.

Our Team Alpha portfolio consists of McDonald's (NYSE:MCD), 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 (LNCO), Wal-Mart (NYSE:WMT), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), and General Dynamics (NYSE:GD).

Actions Taken In November

As previously mentioned, we bought put options on some of the high profile stocks and actually made about $2,500. The money was placed directly into our cash reserves and enabled us to purchase 100 shares of McDonald's at $86.00/share.

We went ex dividend on; XOM, JNJ, LNCO,KO, INTC, O, CSCO and MCD. This generated roughly $510 in income this month (or when we get paid) and will also be placed directly into our cash reserves.

No other moves were made, and we did not sell out of fear or panic. Selling our positions in Annaly (NYSE:NLY) and American Capital (NASDAQ:AGNC) in October saved us from declines in those stocks of up to 20% (in NLY alone) and would have severely impacted our performance if held.

Other than the moves stated, we held firm, and came out just fine. Sometimes, doing nothing is a strategy as well.

Team Alpha's Impressive Results Continue

Stock #Shares 11-30-pps TotValue
XOM 100 88/shr 8800
JNJ 125 70/shr 8750
T 250 34/shr 8500
GE 500 21/shr 10500
BKCC 300 10/shr 3000
LNCO 200 39/shr 7800
PG 100 70/shr 7000
KO 100 38/shr 3800
XLV 200 40/shr 8000
INTC 200 20/shr 4000
O 200 40/shr 8000
KFN 300 11/shr 3300
WMT 100 72/shr 7200
CSCO 400 19/shr 7600
GD 100 67/shr 6700
BMY 175 33/shr 5775
MCD 100 87/shr 8700
Cash Rsvs x x 7986
Tot Value x x 125411

In November, we added another 2% increase in the portfolio, from our hedging profits and our dividend income stream. Team Alpha now stands with a 13-month gain of 25.4%, in which the S&P 500 also increased by 16.5%.

We have outperformed the S&P by more than 50%.

The strength of this performance cannot be dismissed, even if we outperformed the index by 20%. A gain of 50% shows our determination to make certain that we have a sound mix of stocks that can deliver results through the ups and downs of the markets.

Over the last 13 months, this portfolio has had income from dividends totaling over $5,000. Based on our current allocation, we have an overall yield of 4.62%.

We began our journey with $100k, and we now have over $125k. I believe that says it all.

Actions To Take In December

We have already rebalanced the portfolio significantly through the year, and I believe that December will be one of those "sit tight and see what unfolds" months. There are several income strategies that can be investigated.

  • Review your stocks and look at the December options charts. If there are any stocks that offer a decent premium (over 1%) in out of the money calls, consider selling those calls for added income.
  • There might be some stocks you would consider adding to on another pullback. Take a look at the premiums offered to sell puts in those stocks to gain income as well as an entry price you feel is appropriate if the stocks get assigned.
  • December is a great month to review each stock and see if you still want to keep them for 2013. I am currently thinking about Intel, since so much of the PC market has changed. I am not selling the position yet, but it most definitely is on my watch list.
  • Let me stress this one more time: DO NOT PANIC IN THE FACE OF THE FISCAL CLIFF SOAP OPERA. Your income needs will not magically change on January 1st, and the dividends will not suddenly cease to exist.

As I wrote about in this article, do not let this political drama derail your long-term goals.

The Bottom Line

While this portfolio is far from perfect, and many dividend investors decry some of our dividend "opportunity" stocks, I believe that having flexibility and diversity adds "punch" to a well rounded and diversified core of income producing equities.

So far it seems to be doing very nicely.

Disclosure: I am long XOM, JNJ, GE, T, BKCC, KFN, O, XLV, KO, WMT, MCD, BMY, INTC, CSCO, 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.