My 2016 Portfolio Review

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Includes: AAPL, ABBV, AGN, AMGN, AMZN, BA, BLK, BMY, BRK.A, BRK.B, BUD, BX, CELG, CMCSA, CSCO, CVS, DEO, DIS, DLR, EXPE, GILD, GOOG, GOOGL, HON, HSY, IBM, INTC, JNJ, KMB, KO, KR, LB, MA, MDT, MKC, MMM, MO, MRK, MSFT, NKE, NSRGY, NVO, O, OHI, PEP, PFE, QCOM, REGN, SBRA, SBUX, SJM, SPY, SWK, T, TROW, TWX, UAA, UL, V, VER, VTR, VZ, WBA, WFC, WHR, WPC, XLK
by: Nicholas Ward

Summary

In 2016, after a major portfolio restructuring, I made 88 trades, 75 purchases and 13 sales.

My portfolio's income was up 22.3% in 2016.

I now own 61 stocks and maintain a cash position of 34.2%.

Welcome to my 2016 portfolio review. I'm very pleased to say that after hours sitting on my couch compiling data into spreadsheets I'm finally able to begin writing this piece which will highlight my portfolio's holdings. 2016 was an interesting year for the markets with ups and downs and unexpected twists and turns that kept investors on their toes. As I compiled all of the data regarding my performance/the trades that I made this year it dawned on me just how long a year can be when thinking about portfolio management. Some of the trades that I made earlier in the year seem like they were made ages ago. The Yuan devaluation dip early in the year and the mid-year Brexit surprise seem like distant memories (to me, at least). In reality though, and especially in terms of the timeline of a long-term investor, these events didn't happen all that long ago. Maybe it's just me and 2016 flew by for other managers. Who knows? Either way, I'm grateful for the time and energy that I'm able to dedicate towards portfolio management and I look forward to doing more of the same in 2017.

Part of why 2016 seemed so long to me was probably that, from a household financial management standpoint, this year was abnormal for my family. Early in the year we sold a property which meant that we had a significant new cash infusion to the portfolio. Not long after that, I decided to part ways with the professional financial advisers who were in charge of managing a significant portion of our savings, taking over 100% responsibility of my family's finances myself. I had been butting heads with these professionals for several years. They were much more bearish on the markets than I was. They've been calling for a 40%+ correction in the markets every year since 2013 and had positioned themselves accordingly, holding primarily fixed income assets with a focus on municipal bond CEFs alongside absolute return funds, all of which had been underperforming the markets in recent years. For some time I viewed their uber-conservative allocations as a decent means of diversification to my 100% equity portfolio, though after a while I grew tired of having to pay fees for their underperformance and decided that I was now knowledgeable enough to take over the reins. You see, I didn't study economics or any sort of finance at the university level; I spent my time reading books and making art. However, since graduation I've found a real passion for the stock market and with 4 years of self directed investing under my belt I felt confident in my ability to meet my family's goals. And lastly, my wife retired from her professional running career and decided to head back to graduate school. This changed our income situation and added extra expenses to the household budget. A few years back we paid off all of our high interest debt and when looking at the new tuition costs, I decided we would be better off using some of the cash position that I had in the investment accounts to pay it rather than going back into costly debt.

I give all of these personal details for two reasons. One, because I think being transparent is important when blogging about personal finance. When I'm at a book store and pick up a novel I'm interested in reading, I always flip to the back cover and read the author's biography. I enjoy knowing who wrote the piece - it gives me a better understanding of where they're coming from. I think the same thing goes for financial blogging. I take pride in giving a more Main Street perspective for other self directed investors to consider when managing their portfolios. Though, I always caution others not to blindly follow me into or out of a trade because of my lack of credentials. I don't write to influence others directly, but instead to entertain and to grow as an investor myself. Taking the time to put my investing related thoughts into words has proven to be a benefit to me as a portfolio manager. It ensures that I've formulated balanced, well rounded opinions. It also gives me time to reflect upon decisions in a somewhat objective light. I've learned a lot from writing here at Seeking Alpha and from all of the comments that readers have left me. And along the way, I've received enough positive feedback to know that my writing here has also been enjoyable and helpful to others, so the way I see it, it's a win-win for everyone.

The second reason I've offered those details is to preface the fact that I simply wasn't able to calculate my overall return percentage for the year. I regret this, because I always enjoy comparing myself to the S&P 500 (NYSEARCA:SPY) when looking at annual performance. I'm a competitor at heart, which is why I like portfolio management so much. However, due to the abnormally high amount of money movement in 2016 after sitting down and attempting to figure out my exact annual returns I realized it was going to take entirely too much time/energy to come to a final figure. I studied art, and not accounting, for a reason. Chasing/crunching numbers just isn't all that interesting/fun to me. In the past it's been much easier to come to this total; "X" amount would be my brokerage total at the beginning on the year and "Y" would be my total at the end…I'd find the difference and that would represent my total return. With money coming and going and being moved around between a handful of brokerage accounts it simply got too confusing this year. Hopefully next year this won't be the case now that I've got the vast majority of the funds settled into their respective accounts. I know I did well in 2016, I just don't know how well. I was however able to more quickly and easily track portfolio income. I've got a fair amount of data compiled with specific regard to dividend growth so I've decided to separate that out into a separate piece. Expect that to be published in the coming days.

So, what I've decided to do with this my 2016 year end review piece was to go over the trades that I made during the year and post my complete portfolio with each position's overall cost basis for interested readers to view. When I write about individual tickers that I've bought or sold, readers oftentimes ask me about my overall portfolio. Hopefully this piece will be interesting to those individuals as I cover my path towards financial freedom through a much wider lens. I've said this in the past, but I'll say it again here because I've gained a handful of new followers during the year and they may not have heard me say it before: I always discuss my personal portfolio in terms of percentages rather than specific dollar amounts to protect my family's privacy. I want to be honest/transparent with readers with regard to portfolio management, though I don't feel comfortable with complete strangers knowing just how much money I've got sitting in my bank accounts.

2016 was a busy year for me. After the property sale and the liquidation of bond/absolute return funds I had a lot of cash on hand that I wanted to put to work. This led to a high volume of trades on the year - 86, to be exact. Of these 88 trades, 75 were purchases and 13 were sales. These 75 purchases allowed me to reduce my cash position from ~75% earlier in the year to ~35% today. It's difficult, and admittedly risky, to be putting so much cash to use this quickly in a market that I believe, for the most part, to be fully valued. I've had to be vigilant, looking for weakness and picking my spots carefully when looking for high quality companies trading for fair/undervalued prices. As a dividend growth investor, putting this cash to use was even more difficult because many of the high quality companies that I closely follow that offer reliably increasing income streams have become overbought over the last couple of years as yield thirsty investors piled into certain equities as bond substitute type investments. For much of the year this general trend forced me to focus more on growth oriented companies whose valuations could be more easily justified on a relative basis to their bond equivalent peers. It wasn't until more recently that I was able to put comfortably put funds to work in the higher yielding more income oriented companies, now that we're seeing a rotation out of the more interest rate sensitive stocks into more cyclical vehicles due to a brighter outlook on near-term economic growth. But, difficulty and risk aside, I decided early in the year that maintaining such a high cash position wasn't in my best long-term interest. My end goal for my short-term cash position is in the 15-20% range and I'm happy to say that I'm almost there. I'm also happy to say that I believe I've found great value in the markets throughout the year and I am satisfied with the timing of my purchases (though, obviously there were some mistakes made along the way).

I think my portfolio has evolved nicely during 2016. Below you will see my sector allocations, but I'll ruin a bit of the surprise here. I consider myself to be "overweight" in 4 areas: cash, consumer discretionary, technology, and healthcare. Cash remains my largest holding, with a 34.2% weighting. Like I said before, I hope to reduce this weighting to the 15-20% range by the end of 2017. Consumer discretionary is my largest sector allocation with a 17.26% weighting, though it's worth noting that this allocation is so high partially due to the outsize Time Warner Inc (NYSE:TWX) position that I currently hold due to the wide arb spread that I hope to capture as investors wait to see if the company's acquisition by AT&T (NYSE:T) will be finalized. I think it's fairly likely that the vast majority of these shares will be sold sometime in the near future (shares are nearing the target sell price that I had in mind when originally formulating this trade), meaning that this 17.26% weighting is a bit misleading. Technology is my second largest sector allocation at 12.72%. My holdings in this space increased significantly in 2016 as I focused on growth. I expect this exposure to continue increasing over time. I feel exceptionally comfortable holding technology companies due to my long-term investing horizon. I'm still overweight healthcare as well, with an 11.81% sector allocation. This sector was down 4.3% on the year, making it a major underperformer as the major averages posted double digit growth. Healthcare stocks face major headline risks associated with pricing pressures and over regulation concerns. Many conservative investors have reduced exposure to the space because it is becoming more and more difficult to predict earnings due to these potential pricing issues. It's also worth noting that a series of Tweets affected this sector throughout the year, which is a bit concerning from a shareholder's perspective. However, the fear associated with these headwinds also created what I believe to be great value for long-term shareholders and I've been willing to stomach the risk in pursuit of the long-term rewards I expect to see from the highest quality companies within this sector.

Moving forward, I'd like to balance out my sector exposure a bit, increasing my overall positions in consumer staples, financials, industrials, and real estate, as I see value appear in these spaces. Financials stand out as an area of my portfolio that I need to improve as we move forward into the Trump presidency. I don't own any of the big banks after having sold my Wells Fargo (NYSE:WFC) shares earlier in the year, locking in nice profits as the news broke of the legal mess that they're currently dealing with. I discussed this in my recent "Nick's Picks" article, but in general, I feel as if the surprising de-regulation that investors now expect to see for the financials has turned the big banks from being blacklisted to seemingly must own stocks for the next four years (at least). With that said, I don't want to chase these companies and I'm hoping to be able to take advantage of a pullback sometime in the near future, believing that a bit of a correction would be a healthy thing for the market after such a fast run up post election.

My real estate exposure has been falling over recent years. I love the yields that can be found in this space, though I haven't put new capital to use buying REITs in a couple of years due to expected rate increases. I sold my Realty Income (NYSE:O) stake earlier in the year due to valuation concerns and I've been looking forward to buying these shares back. There are a handful of other REITs on my watch list as well and I hope to have the opportunity to buy these companies should the experience further weakness as the FED continues to normalize. There was a time when real estate made up more than 10% of my portfolio. I don't expect for my REIT weighting to hit levels that high anytime soon, though I wouldn't mind doubling my current weighting of 3.35% should value appear.

And speaking of interest rate sensitive stocks, I wouldn't mind increasing my consumer staples exposure as well. Right now I have a 7.55% weighting in the space and would like to see this climb into the double digits as I rotate out of cash and further into equities. Many companies in this space have sold off during the last couple of months, though I still view their valuations to be too high. In certain cases, they're getting close though, and I expect that a market wide correction could send several of the more popular staples into buy territory.

I have an interest in increasing my real estate/consumer staples exposure because I would like to increase the overall yield of my portfolio moving forward. Right now, based upon the current quarterly payments that my holdings offer, my forward portfolio yield is 2.52%. This doesn't take any 2017 dividend increases into account however, so I think this yield is more like 2.6-2.7%. This is an ex-cash yield. When factoring in my 34.2% cash position, the overall portfolio yields 1.6%. I use the 2.52% yield when thinking about my holdings however, because I expect to reduce my cash position over time. While I'm happy with my 2.52% yield, which is still significantly higher than the 2% that the SPDR S&P 50SPY yields, I'd like to see this figure climb above 3%. With that said, dividend growth is even more important to me than dividend yield, so I will continue to prioritize generating double digit annualized income growth over current yield.

So, with all of that being said, let's get to the data. Below you will see several graphs. The first is a very long list of all of the trades I made in 2016. Included information is the trade date and purchase/sale price of shares. I always post trade stock talks in real time, though now readers be view them in a consolidated form. Also posted below are my complete holdings, with cost basis and portfolio weightings provided. Best wishes to all! Enjoy! And happy new year!

2016 Purchases

Date Ticker Share Price
1/5 GILD $99.49
1/5 AAPL $102.78
1/11 CELG $102.82
1/11 GERN $3.41
1/13 GILD $92.90
1/19 GERN $2.95
1/20 VZ $44.42
1/25 QCOM $48.02
1/27 BA $115.81
2/5 CSCO $23.02
2/1 GILD $82.68
2/1 GOOGL $775.29
2/10 DIS $88.80
2/26 GERN $2.36
3/15 CELG $97.93
3/23 ABBV $56.27
4/4 NKE $60.00
4/5 DIS $96.19
4/11 UAA $40.97
4/18 AAPL $107.15
4/21 SBUX $60.51
4/22 SBUX $57.14
4/22 GOOGL $735.56
4/27 AAPL $96.61
5/5 LB $70.55
5/5 AAPL $92.87
5/5 GOOGL $710.83
5/11 UAA $37.38
5/12 AAPL $90.13
5/17 SBUX $55.25
5/17 CMCSA $61.57
5/19 LB $60.81
5/20 GILD $82.68
6/1 UAA $36.07
6/1 NKE $54.72
6/27 MSFT $48.56
6/27 GILD $78.18
6/27 EXPE $98.46
6/27 GOOGL $679.98
6/27 REGN $331.10
6/27 GERN $2.43
7/5 BX $23.43
7/28 DIS $95.97
7/28 CVS $93.27
8/3 TWX $77.92
8/5 BMY $63.45
8/5 NVO $49.98
8/8 BMY $60.02
8/8 NVO $47.43
8/23 DIS $95.88
9/21 BMY $55.63
9/29 PFE $33.39
10/4 T $39.84
10/7 HON $106.52
10/10 BMY $49.89
10/10 MRK $63.73
10/14 T $39.32
10/14 VZ $50.41
10/19 MO $61.84
10/21 T $37.52
10/24 AMGN $158.59
10/25 WHR $151.06
10/25 KMB $114.23
10/27 TROW $63.67
10/28 CVS $83.84
10/28 AMGN $143.36
10/31 DEO $107.54
11/2 AGN $199.58
11/3 PFE $30.38
11/4 SBUX $52.93
11/18 BUD $101.45
11/22 MDT $73.73
11/30 MA $102.12
11/30 V $77.93
12/2 AMZN $741.93
12/28 UL $40.30

2016 Sales

Date Ticket Sale price Result
1/7 TGT $73.83 21% gain
1/7 ED $65.41 17.3% gain
1/8 SWK $96.38 16.7% gain
1/8 SO $46.61 13.3% gain
1/11 PM $88.66 1% gain
1/20 DE $70.17 20.5% loss
3/23 GILD $90.25 34.1% gain
6/24 AFL $69.73 5% gain
7/18 O $69.95 76.2% gain
9/22 WFC $45.40 6.6% gain
10/31 GE $29.22 14.8% gain
11/9 WFM $29.69 19.1% loss
12/16 GILD 73.49 13.1% loss

Name Ticker Weighting Cost Basis 2016 year End Price
Healthcare 11.81%
AbbVie ABBV 1.13% $57.09 $62.62
Allergan AGN 0.52% $200.28 $210.01
Amgen AMGN 2.02% $140.49 $146.21
Bristol-Myers Squibb BMY 1.94% $57.45 $58.44
Celgene CELG 0.56% $100.38 $115.75
CVS Healthcare CVS 1.08% $89.48 $78.91
Johnson and Johnson JNJ 0.99% $97.65 $115.21
Medtronic MDT 0.57% $73.94 $71.23
Merck MRK 0.45% $63.95 $58.87
Novo Nordisk NVO 0.71% $49.32 $35.86
Pfizer PFE 0.99% $31.94 $32.48
Regeneron REGN 0.36% $331.10 $367.09
Walgreens Boots Alliance WBA 0.49% $58.94 $82.79
Industrials 3.20%
3M Co MMM 0.54% $148.84 $178.57
Boeing BA 1.50% $126.32 $155.68
Honeywell HON 0.55% $106.87 $115.85
Whirlpool WHR 0.61% $151.56 $181.77
Technology 12.72%
Alphabet GOOGL 2.88% $718.27 $792.62
Amazon AMZN 0.55% $741.93 $749.87
Apple AAPL 4.68% $96.16 $115.84
Cisco CSCO 1.12% $23.27 $30.22
Expedia EXPE 0.41% $98.46 $113.28
Intel INTC 0.27% $20.94 $36.30
IBM IBM 0.32% $180.71 $165.99
Microsoft MSFT 1.44% $45.47 $62.19
Qualcomm QCOM 0.91% $67.20 $65.22
Technology SPDR XLK 0.14% $47.93 $48.36
Consumer Staples 7.55%
Altria MO 1.47% $50.29 $67.62
Anheuser-Busch InBev BUD 0.50% $101.80 $105.44
Coca-Cola KO 1.27% $39.78 $41.46
Diageo DEO 0.48% $107.91 $103.94
Hershey HSY 0.49% $85.62 $103.43
J.M. Smucker SJM 0.49% $93.81 $128.06
Kimberly Clark KMB 0.47% $114.64 $114.12
Kroger KR 0.34% $17.87 $34.51
McCormick MKC 0.22% $62.40 $93.33
Nestle OTCPK:NSRGY 0.69% $71.07 $71.74
Pepsico PEP 0.62% $79.31 $104.63
Unilever PLC UL 0.51% $40.43 $40.70
Teleco/Utility 4.07%
AT&T 2.14% $37.68 $42.53
Verizon VZ 1.93% $48.46 $53.38
Consumer Discretionary 17.26%
Comcast CMCSA 0.63% $61.57 $69.16
L Brands LB 0.66% $68.39 $65.84
Nike NKE 1.21% $58.75 $50.83
Starbucks SBUX 4.31% $52.99 $55.52
Time Warner Inc 4.37% $85.36 $96.53
Under Armour UAA 1% $39.90 $29.05
Walt Disney DIS 5.08% $93.16 $104.22
Financials 5.84%
Berkshire Hathaway BRK.B 1.35% $121.27 $162.98
Blackrock BLK 0.54% $300.57 $380.54
Blackstone BX 0.72% $23.41 $27.03
MasterCard MA 1.03% $87.96 $103.25
T. Rowe Price TROW 0.56% $63.89 $75.26
Travelers TRV 0.53% $80.75 $122.42
Visa V 1.11% $63.17 $78.02
Real Estate 3.35%
Capital Care Properties CCP 0.07% $31.20 $25.00
Digital Realty Trust DLR 1.39% $52.87 $98.26
Omega Healthcare Investors OHI 0.41% $29.53 $31.26
Ventas VTR 0.76% $52.72 $62.52
VEREIT VER 0.28% $12.04 $8.46
W.P. Carey WPC 0.44% $63.56 $59.09
Cash 34.20%

Nick's Portfolio Breakdown

Disclosure: I am/we are long AAPL, AGN, AMGN, ABBV, BX, BLK, BMY, CELG, CVS, JNJ, MDT, MRK, NVO, PFE, REGN, WBA, MMM, BA, HON, WHR, AMZN, GOOGL, CSCO, EXPE, INTC, IBM, MSFT, QCOM, XLK, MO, BUD, KO, DEO, HSY, SJM, KMB, KR, MKC, NSRGY, PEP, UL, T, VZ, CMCSA, LB, NKE, SBUX, TWX, UAA, DIS, BRK.B, MA, TROW, V, TRV, CCP, DLR, OHI, VTR, VER, WPC.

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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.