FIRE Building Portfolio: Initiated Positions In November

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Includes: AMRN, BHFAL, BMWYY, CAT, DB, GNTX, IDCBF, MGA, NWL, QCOM, SSUMY, TIF, YMAIF
by: Big Alpha Research
Summary

Growth themed portfolio with seven-year investment horizon.

Initiated long positions in NWL, DB, BHFAL.

Shorted CAT, TIF and YMAIF.

Shortlisted to buy GNTX, MGA , IDCBF, QCOM, BMWYY, SSUMY.

Background

I am looking at building a portfolio that is high yield and growth-oriented in order to retire within 7 or 8 years. At the point of retiring, this portfolio will transition into a safer distribution yield-based portfolio which is targeted to yield 4% or 5% to cover my daily expenses.

Note: This is meant for a 5 to 7-year portfolio and I hence take a longer-term approach to stock-picking and selection.

There is a need for some active management in terms of selection and market timing. I am not assuming I am confident or more intelligent in being able to beat the market, but I am willing to take more risks to generate the returns while I continue to have a stable job supplemented by a high savings rate.

Objectives of the portfolio

Please do read this to understand my context of building the screen but I also welcome feedback and opinions about building this nest egg because at the moment, I have decided while still young, to incur more risks and to hunt for growth, in what I call a FIRE Building Portfolio.

FIRE or Financial Independence Retire Early is a lifestyle decision of foregoing current luxuries or excesses and saving them up. In doing, so the FIRE saver would then get used to living on less (and hopefully innovate, create and thrive later on). At the same time, taking the savings to invest into a retirement nest egg.

Once this nest egg is large enough to yield a stable annual return adequate to cover yearly expenses, then in essence, a yield to perpetuity would be established, and that income generated should technically cover retirement needs for the rest of your life.

In order to be able to learn and grow with fellow Seeking Alpha community, I have decided to be absolutely transparent with my portfolio positions so that I will be accountable to myself as well, and I strive to be open to good feedback however direct they are.

Breakdown of my current portfolio at the moment is as follows:

Cash: $50,000 (additional $50,000 for portfolio investments)

Peer-to-peer lending: $220,000 (all of which are under 12 months) yielding just under 9% per annum

Traded endowment policies: $60,000 maturing mostly in 7 years time

Existing stocks and shares portfolio: $85,000

Amarin Corp (AMRN), 100 shares in Brighthouse Financial Preferred (BHFAL), 100 shares in Newell (NWL) and 200 shares in Deutsche Bank (DB). Short positions on Yoma Strategic (OTCPK:YMAIF) with a 50,000 shares, 6 Caterpillar (CAT) put options expiring Jan 2020 at $100 strike, and 4 Tiffany & Co (TIF) put options expiring Jan 2020 at $95.

The objective is to grow the portfolio currently about $465,000 to a $2 million portfolio in 7 years when I hit 45 years old. I have an annual savings rate that would be contributed to this pool of funds at about $80,000 per year. As a family unit, our savings rate is about 75% of annual income but those include mandatory pension contributions and annuities which I have excluded from this early retirement plan. For the purposes of attaining this unencumbered lifestyle goal in 7 years, we had tried to live on my monthly net employment income and for the past 1.5 years have roughly been able to save between $80,000 to $110,000 per year just by living frugally.

Building my shortlist of stocks

I was long AMRN since writing on Seeking Alpha, when I bought my first position at $10 and averaged down at $3, for a total of 3,000 shares at $5.50. AMRN has since done well as an investment and I liquidated 1,0000 shares just to recover the cost and I probably will evaluate what next to do with the balance 2,000 shares.

The intention is to deploy more cash into stocks that are growth oriented, and the peer-to-peer lending has been a fantastic way to park my "holding funds" before I deploy them.

While building my initial investment portfolio for Seeking Alpha in 2013, I started discovering stocks that were still unfamiliar to me, but worth checking out through equity screens. Most of these stocks which were shortlisted in the article about my first equity screen posted on Seeking Alpha had yielded good returns. The article can be found here, and it covered stocks that had net cash and low PE.

Current shortlisted stocks include:

Gentex (GNTX): covered this in my article, in summary good value at 14x PE, 2% yield and a history of earnings growth. At the same time, GNTX products are exciting ones that fit into the future cars trend.

Magna International (MGA): for the same reasons above and also covered in another article here. Trades at 7.5x PE and near 52 week lows, good time to consider picking stocks.

ICBC (OTCPK:IDCBF): which is one of the largest banks in China (trading at a P/E of only 5.2x historical earnings).

BMW (OTCPK:OTCPK:BMWYY): BMW has a preferred stock that pays EUR0.02 more per share in dividends but trades at a significant discount to BMWYY.

Sumitomo Chemicals (OTCPK:SSUMY): Wrote about this as well. Promising stock that is under the radar and share price has factored in current negativity with Japanese healthcare regulations limiting drug prices. Possible upside on flexible screen phones.

Qualcomm (QCOM): This stock has been battered by the market and looks set for a continued bruising. However, there is a potential on the back of 5G telecommunications deployment.

New positions initiated

Took small positions just to get skin in the game and get serious about some stock ideas I had. Recently went ahead to invest in Deutsche Bank which I hope has an opportunity to finally turn things around. David Einhorn's stock pick - Brighthouse Financial, has a preferred stock that I like for the dividend yield of 6.25%. Newell (NWL) which is a Carl Icahn turnaround bet is also a new addition to my portfolio. In total I have under $8,0000 in these stocks, which is not a big impact on the overall portfolio.

I have a further $46,000 of leveraged positions where as disclosed I have shorted stocks like CAT and TIF, both of whom derive income through discretionary consumption/capital expenditure and have significant business outside US. Also short Yoma (OTCPK:YMAIF) as a short term trading position because the share price bounced on positive sales in their property project and fair value adjustments to property. I do see short term headwinds in Myanmar, primarily through lack of exports and FDI and depreciating local currency against the dollar. Overall I do feel YMAIF is still a long term bet on a potential turnaround in Myanmar.

Disclosure: I am/we are long DB. 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.

Additional disclosure: Long BHFAL, DB, NWL, AMRN, Short TIF, CAT and YMAIF

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.