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Mister Bear's Investment Portfolio

Summary

I am sharing my portfolio and performance.

Results are as of Friday, October 19.

I have lost money so far!

I believe I am making good investment decisions, and I believe that as I gain knowledge and experience, my decisions will improve. The purpose of this blog is mainly to nudge myself to have better discipline around measuring my results, so I can have empirical evidence, and not just gut feelings, about my performance.

If I do as well as I hope, then this blog might also be useful to my friends who would like to gain from my efforts.

My data will start in 2018-February. Before that month, I did not own any stocks since 2017-January, because I sold them all after Donald Trump was elected. I voted for him, but I thought the stock market seemed overvalued, and was worried he might be the catalyst to burst the bubble. Well, I've been really wrong about that so far, and the S&P 500 is up about 23% since then.

In March, I was still worried about the overall market being overvalued, and I had been doing a lot of reading about how to protect myself from a crash. My reading eventually lead me to 2 themes: buying undervalued stocks that are likely to disproportionately /less/ affected by a crash or recession, and betting against companies that are likely to be disproportionately /more/ affected.

First, I bought some options in March to bet against the market. I had been reading about the Austrian theory of business cycles, which says that in a boom, the businesses that become most overvalued are those that are most remote from consumer goods. Remoteness, in this case, is a matter of time. Businesses where there is a long time between an initial investment and returns are most overvalued during a boom (and most vulnerable in a bust). I ended up reading about Tesla, which had been unprofitable for many years, and relied on fresh cash investments to continue operating. I figured that if there was a stock market crash, they might be hurt more than most, so therefore, it would be more effective to buy Tesla put options than S&P 500 put options. I bought long-dated Tesla put options, and have bought more over time. My thinking around Tesla has evolved to where I believe it will not succeed regardless of market conditions. In fact, I believe they are headed to bankruptcy in the near future. While at first my option strike prices were reasonably high, my later purchases are at the lowest possible strike prices, and will essentially only pay off if their shares go to $0.

On the long side, I started reading about dividend income investing. There's a whole community built around the philosophy of investing for dividends. I felt at home, because that's a system that makes sense. The popular way of thinking about stock investing I think is mystical, totally disconnected from fundamentals, and vulnerable to survivorship bias (for example, people assume certain returns from the stock market based on the history of the US stock market, but don't consider that the US had the best performing stock market in that period, but you could not have known that in advance; who knows what the next 100 years will bring?). I bought my first dividend-paying stocks in May.

The dividend investing philosophy is good, but incomplete. It is possible to be fooled by companies paying a good dividend, but with unsustainable trajectories. Some companies pay out more in dividends than they make in income (e.g. Barnes & Noble), while others have high debt levels that improve their performance now, but make the future less certain (e.g. AT&T). On the other hand, there are good investments that don't pay dividends, but instead either reinvest in their future, or buy back their own stock (e.g. AutoNation). An improvement on looking at dividends alone is measuring free cash flow to equity (FCFE), which is akin to measuring how much money /could/ be paid out in dividends.

I still have much to learn. For now, let's take a look at my decisions and performance since February. I'll go the order in which I first invested, starting with Bitcoin and gold bullion, which I already had before the start.

All of the IRR (Internal Rate of Return) numbers are annualized numbers, and take in to account the timing of purchases, sales, and dividends.

Bitcoin: I held some starting before this tracking. Its value is down about 38% since then. IRR -49%. I'm also not terribly concerned about Bitcoin. I don't own much of it. I used to own more, but sold almost all of it in 2017. I expect the price to keep going down for a while, but I'm holding on to some just in case I'm wrong, because I don't want to miss the next mania.

Gold bullion: Down about 7% since the start. IRR -9.55%. I'm honestly not very concerned with the performance of gold. I see that as a just a place to stash some value until I find some better use for it.

Tesla options: I've bought various Tesla put options with expirations varying between less than a month up to about a year and a half. I even bought call options once for reasons I can't remember. I've had a few option purchases expire worthless, for options that expired less than a month after purchase. Those would have been a very big payoff if Tesla had had a very sudden bankruptcy. Overall I'm down roughly 21% on options. IRR -63.17%.

GLD (a gold ETF): Bought in February, down about 8%. IRR -12%

Comcast: Bought in May, up about 16%, one dividend payment for about 0.6%, IRR +41%. I think I was attracted to this for it's medium dividend yield and low PE ratio, and vaguely for the monopolistic nature of a lot of its business. I'm not sure I would still buy it today.

Procter & Gamble: Bought in May, up about 23%, including 9% today alone, one dividend payment of about 1%. IRR +61%. This is a favorite of the dividend investing crowd. It is a very old company, and should be safe during a recession.

Realty Income Corp: Bought in May, up about 9%, several monthly dividends totaling about 1%. IRR +27%. This seemed very safe to me. It has a decent dividend yield which is paid monthly. It is a REIT that leases to well-known companies, biased towards "downscale" retail. That means Walgreens, and not fancy fashion boutiques.

AT&T: Bought in May for $32.38, price almost unchanged, one dividend for roughly 1.5%. IRR +7.21%. I liked the high dividend and low PE, and the monopolistic nature of some of its business. But I've seen a lot of negative articles about AT&T, concerned with its debt. I would like to do more research around this to see if I still like it.

CVS: Bought in May, up about 13%, one dividend for about 0.7% paid. IRR +40%. Another good dividend and low PE. They are also in the process of merging with Aetna. My thinking was that the stock is priced for not much growth, but there is a chance that CVS can have a big impact in the health care industry once that merger is complete.

Whirlpool: Bought a week ago, up about 3.5%. IRR +447%. I became convinced by a video from FASTCharts that this stock is undervalued. My biggest worry is the Asian competitors, like Samsung and LG.

AutoNation: Bought today, down a few cents per share. I don't remember where I first heard of this, but the stock does seem way undervalued. Since this is the largest owner of car dealerships in the country, and knowing the car industry is highly cyclical, I was worried that it might be really hurt by a recession. I looked back at what happened to this company around 2008, and it did just fine. Its net income was roughly cut in half from 2007 to 2008, but it was still profitable and cash flow positive, and recovered just fine.

Overall IRR -12%.
IRR excluding Gold and GLD: -16%
IRR when looking at stocks only +36%
IRR for everything excluding Tesla options: +35%

The Tesla options have had a huge negative impact on my returns so far. I expect to be vindicated with those, but we'll have to wait and see. If things turn out well, I should get more than a 10x return on those options.

Disclosure: I am/we are long Several stocks mentioned.

Additional disclosure: I am short Tesla via put options.