Portfolio Update : October 2017

Executive Summary:

Time Flies


What the hell happened to Summer? Time is flying by pretty damn fast this year, but it’s all good. Halloween is just around the corner and it’s the month of Okterberfest, which just means another reason for me to unleash “Frank the Tank”!


Hint: That’s probably what I look like when I drink


Partying aside, I wanted to write a quick post about my investment portfolio and how it has performed so far this year and my strategy going into year-end. I hope you can find this helpful in analyzing your investments.


The Portfolio


This has been an interestingly tough year for most stock pickers, which I mentioned in my Rising Risks of ETFs post. As asset prices continue to rise, finding undervalued stocks becomes increasingly more difficult. As such, there hasn’t been much action in my portfolio and I’ve slightly underperformed the market so far this year. Year-to-date the S&P is up around 15% while my portfolio is up around 14%. With so few opportunities out there, I’ve just focused on building up my cash reserves. This has partly been responsible for my performance drag.


Below is my portfolio as of 10/9/2017.

As you can see in the top left corner, cash and money market funds are about 26% of my portfolio, which is a pretty large chunk to have just sitting in cash. However, with stocks at all time highs I’m perfectly fine holding cash as opposed to chasing overpriced stocks – that strategy usually doesn’t end well.


The backbone of my portfolio is made up of big boring companies that just know how to make money. There’s nothing fancy about it. In football, offensive linemen have a nickname called “The Big Uglies”. These guys don’t get a lot of credit for what they do, but they are usually the determining factor in helping their team win. Similarly, talking about a railroad company like UNP (NYSE: UNP) doesn’t seem that exciting, but its companies like these that hold a portfolio together.


Most of my stock holdings are trading around fair value, but they are financially sound companies that earn high returns on capital. Over the course of time, I believe these companies will outperform the market, even though there may be some speed bumps along the way.


I believe the main drivers of my portfolio return moving forward will rely on three stocks: SPG (NYSE:SPG), INFY (NYSE:INFY) and CVS (NYSE:CVS). In my opinion all three have about 20-30% upside from current levels. But the problem with investing is that you can’t time when that will actually happen, which is why I play the long-term game. So for now I wait…


I’m not too worried about SPG and INFY, but as I write this article CVS stock is taking a pretty big dump. Word on the street is that Amazon wants to get into the healthcare prescription business and that would be bad news for CVS. I believe Amazon is one hell of a company, but I think it’s a little irrational to conclude that all competitors to Amazon will automatically go extinct. I have no doubt that they will take market share from CVS and other competitors in the space, but as of now the actual impact to CVS is really unclear, if it even happens at all.


I have to admit when you see a stock you own dive into the red, it is pretty irritating. Ironically, while CVS stock was taking a dump and I was pulling my hair out, it was just announced that economist Richard Thalor just won the Nobel Prize for his research in the field of behavioral economics. Basically, Mr. Thalor researches human emotional behavior and how it impacts financial decisions. For example, people who immediately sold CVS stock were not selling based on actual fundamental facts, but on fear due to Amazon’s reputation for success. Sure, Amazon could have a serious impact to CVS’s earnings at some point, but as of now Amazon doesn’t even officially have a drug prescription business yet! That’s why I remind myself to not judge myself based on short-term performance, because in the short-term the market isn’t always rational. Anyhow, all I can do now is just try to keep my nerves in check and hope CVS will be able to adapt accordingly.


Are There Any Gold Nuggets Out There?


There are two interesting stocks that I’m keeping an eye on at the moment. I’m not drooling over them, but if they were to drop just a little bit more, I may be tempted to hit the buy button. Those two stocks I’m thinking of are Nike (NYSE:NKE)  and General Electric (NYSE:GE). Typical of most stocks that fall onto my radar, both are dogs with fleas. Nike is seeing a slowdown in North American revenue, but long-term I think Nike it’s a pretty solid play with a good brand and sound balance sheet. GE faces some uncertainty while it continues a difficult transformation, but it has been in business for a long-ass time and their 4.0% dividend yield looks pretty attractive. However, I would need to dive into GE’s balance sheet since it looks like it has a decent amount of debt, which concerns me. I would say both stocks need to drop about 5% more for me to pull the trigger. At this point Nike seems like the most attractive option, but I will be sure to follow-up with another post if I decide to make a move.


Other than Nike and GE there is really nothing out there that I’m interested in right now. I’ve taken a look at some foreign stocks, but nothing in that arena seems interesting to me at current prices. If you have any good ideas, please share!


Wrapping It Up


Assuming Amazon doesn’t turn my investment in CVS into roadkill then I’m actually liking my odds here. I’m slightly below the market right now, but based off of fundamental analysis I think my portfolio has decent upside potential, which will be mostly driven by 3 stocks. I run a concentrated strategy where I don’t like to just buy every random stock under the sun. Being different gives me the opportunity to outperform the market, but sometimes I may underperform it as well.  We’ll see what happens in the next few months to close-out the year, but in the meantime I’ll just sit on my 26% cash balance waiting for an opportunity to deploy some capital.


If you’ve got any investment ideas, please share below!


Cheers to all of you and have a great October =)