The Art Of Balance

Jan. 13, 2018 10:01 AM ET42 Comments
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Long Only, Value, Growth At A Reasonable Price, dividend income

Contributor Since 2010

I am a retired dividend investor focused on total shareholder return through a diversified equity portfolio that is designed around quality, growth and relative safety.



  • I want to balance patience with readiness; confidence with humility; and I want to ride bull market momentum--with caution.
  • A week of vacation: movies, writing, and a memorable football game.
  • Gems gleaned from the week.
  • Portfolio update: I made one transaction this week, adding some VPU.
  • The week ahead: Taking what Mr. Market gives.

A "balanced fund" usually means a blend of stocks and bonds. A "balanced portfolio" usually means one that includes broad sector representation. I'm trying to design and manage a balanced portfolio. But more importantly, I'm trying to be a balanced investor and portfolio manager.

What does it mean to be a balanced investor?

I see at least three crucial characteristics:

  1. Patient readiness. Have you ever been too impatient to perform adequate due diligence on a stock? Patience doesn't come easily for me. I'm more patient now than 5 or 10 years ago, but it requires effort. I want to balance patience with a readiness to act, to buy or reallocate capital. The best action is not "knee-jerk," but the timely application of patiently developed principles and convictions.
  2. Confident humility. 35 years in the market has given me a degree of confidence, but the velocity of change is increasing in both the market and the world. I want to balance confidence with humility, wisdom's twin children, evidenced by the avoidance of arrogance and over-confidence, a passion for learning, a self-deprecating sense of humor, and a desire to collaborate with others.
  3. Cautious momentum. There's wisdom in riding the current wave of bull market momentum. It would have been a mistake to exit the market when I first became concerned about stretched valuations several years ago. But I want to balance momentum with caution to avoid complacency or the illusion that success is more about me than the bull market.  I want a caveat emptor prudence that is defensive and diversified.

Some gems gleaned from the week

My wife and I enjoyed some R&R this week. I re-read Justin Law's excellent December 13 article about Pattern Energy Group (PEGI), his first SA article. The article and the ensuing conversation were very insightful and timely in light of recent tax legislation.

The more leisurely pace of the week gave me an opportunity to check some SA articles about the recent federal tax legislation. John Engle's December 21 article about the impact on REITs was particularly relevant for dividend investors. His bottom line: "...the impact of tax reform on the REIT sector can be called positive. ...REITs will benefit from the range of new provisions and deductions...."

While researching my Kimberly-Clark article (linked below), I was helped by David Trainer's December 28 article, "Hidden, Classic Value in a Rich Market." This introduced me to a new metric: NOPAT, or net operating profit after tax, which excludes unusual losses and gains, financing costs, goodwill and other non-cash items. I always learn something new when I explore Seeking Alpha.

Brian Gilmartin's January 13 article provides some understanding for the strength of this leg of the bull market.

We saw three movies that dealt with the struggle between competing centers of power in three very different contexts:

  • The Last Jedi, which (I hope) ends a memorable 40-year theme of "trouble in the galaxy" when the emperor embraces the "dark side" of the Force;
  • The Darkest Hour, which presents a glimpse of the U.K. and its new prime minister, Winston Churchill, in May 1940, reminding us that the quality of leadership is crucial but a nation's greatness comes from its people; and
  • The Post, which tells how the Washington Post publisher Katherine Graham made the difficult decision to publish excerpts of the "Pentagon Papers" in June, 1971, the very week of the newspaper's initial public offering on the American Stock Exchange, risking a felony indictment during the 7-day window when The Post's IPO could have been rolled back by underwriters.

One takeaway, quoted in the movie, was part of the U.S. Supreme Court's 6-3 decision in the Nixon administration's suit against the New York Times (which first broke the story) and the Post, written by Justice Hugo Black: "In the First Amendment, the Founding Fathers gave the free press the protection it must have to fulfill its essential role in our democracy. The press was to serve the governed, not the governors."

The relaxed pace of the week made it possible for me to write three articles:

As I described in a January 6 blog post, it's my intent to write a weekly blog post (such as this one--for Week 2, 2018) about the week just past, a review of the week ahead and a brief portfolio update. I'm writing these weekly blog posts as a way to express my gratitude to those (now 10,000+) who "follow" me. I appreciate your friendship and your collegiality.

Portfolio update

This week, I made one transaction. I added some shares of the Vanguard Utilities Index Fund (VPU) at $112.25. Prior to the purchase, this ETF was 0.48% of the portfolio. Now it's 0.70% of the portfolio. My target is 1.0%.

The current portfolio yield is 3.63%. The cash position is 4.09%. A year-end update of the portfolio is available here

The week ahead

I'm reviewing several holdings this week: Toronto-Dominion (TD), Royal Bank of Canada (RY), Dominion Energy (D), KMB, PPL Corp (PPL), Realty Income (O), WP Carey (WPC) and NNN. REITs and utilities appear to be attractive for long-term investors. The market is closed on Monday, so we get an extra day of preparation for the week ahead. 

Oh, yeah. The football game.

Sometimes I've given up too quickly on a stock. Deere (DE) comes to mind. Sometimes I've stayed with a stock too long. The jury is out on General Electric (GE), but some of my friends think I should have dumped it.

It's important to know when to make a change. Nick Saban demonstrated that on January 8 when he put in a freshman quarterback at halftime. The freshman and the sophomore he replaced showed extraordinary maturity and class in the way they handled themselves. There are many ways to practice the "art of balance." 

(Photo from Sporting News)

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You can access a list of previous articles here

It's not my intent to advocate the purchase or sale of any security. My purpose is to offer ideas for stocks to study and to share a journal of my effort to design and build a retirement portfolio that puts a priority on relative safety, a history of dividend growth and solid future prospects. Your goals and risk tolerance may differ, so please do your own due diligence.


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