Total USD Portfolio Review - February 2019

by: Steven Chen

Stock markets globally continued their marches in February.

At the end of last month, after withholding taxes and fees, the portfolio generated 3.3% for the month, 11% YTD, or -3.1% since last October.

The average reported revenue growth rate in February is 9%.

Over time, I am hoping for a more concentrated and small-cap focused portfolio with reasonable entry points and fewer activities.


This is my second monthly review of my total USD portfolio (see my first episode - Total USD Portfolio Review - January 2019). This "real cash" portfolio aggregates all my positions in USD-denominated securities, including ADRs and OTC stocks, across my taxable and non-taxable accounts.

Through monthly reviews, I hope to keep track of my lessons learned and monitor the evolution of businesses that I have invested in. Please note that my strategy is ultra-long term focused, and hence, I would not pay too much attention to factors of short-term impacts, such as price movements and earnings surprises.


The stock market continued its upward momentum during February. The performance of my portfolio was approximately in line with that of the benchmark with slight outperformance.

On a time-weighted average basis, after withholding taxes and fees, the portfolio achieved 3.3% for the month, 11% YTD, or -3.1% since last October. Comparisons against selected benchmarks are shown below. The purpose of choosing the period from last October is to include the full recent market swing since the previous market highs. As was mentioned multiple times, it is fair to expect my portfolio to slightly underperform when Mr. Market is highly greedy but to outperform during bear markets thanks to the high qualities (e.g., superior profitability, high efficiency, strong balance sheet, durable competitive advantage) of the businesses invested in.

The portfolio beat all indices and Berkshire between October and February. It is worth noting that BRK.B is my largest holding, occupying over 8% of the total portfolio, while the stock significantly underperformed all indices here.

Feb. 2019 YTD (till Feb. 2019) Oct. 2018 ~ Feb. 2019
Total Portfolio 3.3% 11% -3.1%
S&P 500 3.2% 11.5% -3.6%
MSCI World Equity 3.1% 11.1% -3.7%
Wilshire 5000 3.5% 12.4% -3.6%
Berkshire Hathaway A (BRK.A) -3% -1.2% -5.6%

All the index numbers above are gross total returns, which assume dividends reinvested but do not count in any taxations. My numbers are returns after all fees and withholding taxes. Therefore, it is not exactly an apples-to-apples comparison. The reasons behind are that: 1) it would be time-consuming to maintain a hypothetical portfolio instead of using tools like SigFig to calculate the real-world return numbers, 2) I aim at beating the benchmark by a sizable margin, and 3) I would like to evaluate my total return investing skill, including the ability to minimize trading costs and taxes.

There is no single index that can perfectly fit to measure the performance of any portfolio. However, ordering in terms of relevance, I would pick MSCI World Equity to benchmark my added value against passive investing and Berkshire Hathaway A shares to gauge my capital allocation skill. It is worth mentioning that Warren Buffett's Berkshire actually suffers from a size disadvantage (i.e., the necessity of deploying large capitals in order to "move the needle"), while my portfolio (just like many other individual ones) does not.

Position Changes

There was no buying or selling during the period, which I consider a good job in terms of my goal of being as less active as possible. Compared to what it may sound, doing less in today's investment world surrounded by information is particularly difficult to implement but is of quite a significance, because: 1) it costs capital to be active, and 2) doing more leads to more mistakes. As the old saying goes, "Returns decrease as motion increases."

According to SigFig, my TTM trade cost is 0.12% of the total portfolio value. Over the long term, I am anticipating to reduce this ratio to below 0.1%.

Portfolio Breakdown

Financials are still the largest sector in my portfolio, simply because Berkshire Hathaway is regarded as an insurance business by Personal Capital. I do not directly hold any banks, as I feel that the banking business is out of my circle of competence in terms of knowledge and insight.

I am pretty comfortable with consumer defensive and healthcare being my second and third largest sectors, as both of them are recession-proof.

Source: Personal Capital; data as of 3/7/2019

I do not invest in any business of basic materials or energy due to its high cyclicality and avoid communication services and utilities as well because of high CapEx requirements.

There was not much change in terms of the top holding list, except that SEI Investments (SEIC) replaced Johnson & Johnson (JNJ).

Source: Personal Capital; data as of 3/7/2019

SEIC had a nice price recovery from its low valuation point after having underperformed the market for months. The company provides financial institutions around the globe with investment processing, investment management, and investment operations solutions. The business has been not only capital-efficient (i.e., high ROIC) and cash-generative (i.e., high FCF margin), but it is also enjoying competitive advantages thanks to high switching costs and economies of scale.

Source: Morningstar; data as of 3/8/2019

Source: Morningstar; data as of 3/8/2019

As the time of writing this article, SEIC is still cheap in light of its historical averages of price multiples (see below).

Source: Morningstar; data as of 3/8/2019


I try to focus on the long run but love to track the evolution of the business from time to time. The chart below summarizes the earnings releases coming out from the busy month of February.

Revenue Growth (YoY) EPS Growth (YoY)

Domino's Pizza (DPZ)

21% 25% (adjusted)
Monster Beverage Corp. (MNST) 14.1% 22.7%
TJX Companies (TJX) 1.6% 0% (adjusted)
Anta Sports Products (OTCPK:ANPDY) 25.1% 22.7%
Berkshire Hathaway (BRK.B) 8.36% 71.4% (operating earnings*)
British American Tobacco (BTI) 2.2% (half-year) -88% (half-year)**
Clorox (CLX) 3.5% -21%***
Evolution Gaming (OTCPK:EVVTY) 38% (operating revenues) 42%
Fuchs Petrolub (OTCPK:FUPBY) 4% 7%
Gilead Sciences (GILD) -2.5% -19% (adjusted)
Hermes (OTCPK:HESAY) 10% FY 2018 earnings release in March
Novo Nordisk (NVO) -20% 6.2%
NetEase (NTES) 31.4% 35%
NetEnt (OTCPK:NTNTY) 9.5% -12.3%
Pandora (OTCPK:PANDY) 3.8% 1.7%
Philip Morris (PM) -9.5% -5.3%
Swedish Match (OTCPK:SWMAY) 7% 6%
Wal-mart de Mexico (OTCQX:WMMVY) 5.5% 11.2%
Equally-weighted Average 9% 6%

* The operating earnings are cited instead of EPS for Berkshire Hathaway due to its special business model and the newly introduced accounting rule regarding booking investment gains/losses in any given quarter.

** 2017 was affected by a one-off gain related to the acquisition of RAI and by the deferred tax credit due to the US tax reforms, both of which do not repeat in 2018.

*** Clorox delivered earnings of $1.40 diluted EPS compared to $1.77 diluted EPS in the year-ago quarter. The 37-cent lower diluted EPS reflects the implementation of U.S. tax reform in 2018, which provided a one-time benefit of 40 cents in the year-ago quarter.

The average of the revenue growths released during the period is 9% and the average EPS growth is 6%. I tend to pay more attention to the revenue growth in the short run versus the EPS growth, as the latter one is more volatile especially from quarters to quarters. Over the long term, a good business is expected to grow EPS at a faster rate than revenue, indicating decent cost management and scale advantage.

Among these 18 reporting businesses, 4 (or 22%) experienced revenue growths less than 2% (the "poor" rate - I set 2% to mirror the normal GDP growth rate in the developed world), 4 (or 22%) companies grew revenue at between 2% and 5% (the "mediocre" rate), 4 (or 22%) grew at between 5% and 10% (the "quality" rate - I set 5% to mirror the economic growth rate in the emerging market) and the remaining 6 (or 33%) grew their revenue in double digits (the "high-growth" rate). Again, short-term results mean relatively less to equity investors. In the long run, I would favor a business growing at high-single-digit rates (the "quality" rate) or low-double digit rates (the humble "high-growth" rate), which are decent and sustainable. It is worth mentioning again here that growth should be inferior to return on capital in terms of importance (see "Growth Trap: Why Is Earnings Growth Not Always A Good Thing?").


Statistics show that as high as over 50% of the total stock returns could come from dividends over the long-term investing horizon. Hence, investors should pay attention in this regard, especially related to sustainable dividend increases.

At the end of February, 38 out of the total 45 holdings (or 84%) in my total USD portfolio pay regular dividends. Among them, 6 stocks paid dividends in February as described below.

Dividends Paid (per share) Dividend Increase
Paychex (PAYX) $0.56 No increase
Colgate Palmolive (CL) $0.42 No increase
Federated Investors (FII) $0.27 No increase
Apple (AAPL) $0.73 No increase
British American Tobacco (BTI) $0.635875 3.9% decrease QoQ, but 26.5% increase expected for next quarter
Clorox (CLX) $0.96 No increase for this and next payments

Some readers may notice the no dividend increase at Clorox for the upcoming payment in May, which will be the consecutive 4th quarter of no dividend increase. This is because in last February the company has accelerated declaration of its dividend increase (due to tax reform benefits), which has typically taken place in the month of May. Therefore, investors should expect the schedule to go back to normal (look for a possible dividend hike in July/August).


I am happy with my portfolio performance so far, though it underperformed the benchmarks by a tiny margin YTD. Holding quality companies, the portfolio aims at beating the market average consistently in the long run, which I am pretty confident about.

Whenever there is the opportunity moving forward, I am looking to reduce the number of holdings for the portfolio to be more concentrated in order to deviate from the indices. Also, my other strategies are to move more of my investments into small-caps, benefiting from size advantage, to make use of market downturns to accumulate more shares of wonderful businesses at reasonable prices, and to try to act as less as possible.

Disclosure: I am/we are long MOST OF THE STOCKS MENTIONED. 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.