Last month marked the first “sell” position of my model portfolio. News broke out that Bank of America (BAC) had made a mistake with their financials, which caused the suspension of their dividend and share buyback program.
You can read my analysis about that situation here. While the shares have bounced back since that initial day sell off (I sold at the end of that day), I don’t expect the exuberance to continue.
It’s a toss up whether the Fed will allow BAC to continue paying a dividend or suspend it indefinitely, and it’s not a risk I’m willing to wait around and find out about. We sold the position at a 7.9% profit.
I believe the accounting errors are systematic of a much bigger problem. It seemed for a while like the company was back on solid footing, but now I’m not so sure. Like I said, I’m not willing to risk returns to find out.
There’s plenty of fish in the sea, as they say.
As far as the rest of the portfolio went, it is performing very well. While we saw a bit of a pullback in the technology stocks of the portfolio, such as WDC, GLW, and MSFT, other top performers like XOM and HFC picked up the slack.
Finally, it seems, the HFC pick is paying off. Shares jumped to over 10% returns on both positions in the portfolio.
XOM continues to perform strongly ever since we bought it and I anticipate this performance to continue, while collecting dividends all along the way.
Despite the bad month for technology, the model portfolio only lost 0.1% compared to last month, bringing the average return for all positions from 18.0% to 17.9%.
May 2014: Looking Forward
I’ve increased financial exposure to the portfolio by replacing BAC with 2 solid insurance companies. Both of these companies are growing briskly and are CHEAP, CHEAP, CHEAP.
My mouth is watering.
It’s nice to feel confident enough to make these aggressive plays because the portfolio is properly hedged. If worse came to worse, I know that FCX and ADM would perform even better than normal. This kind of security really helps me sleep at night.
Not only that, but I know that all of my picks up to this point have been extremely risk averse. These companies are conservatively managed both financially and strategically.
Andrew Sather’s Model Portfolio
The portfolio has a healthy balance right now. There’s exposure to the great American oil boom with XOM, NOV, HFC and CVX.
Of course, part of the portfolio has technology exposure also, as mentioned earlier. We have machinery, telephone, and auto manufacturing exposure with RBC, TDS, and VLKAY. MOS also could work as a hedge if agriculture booms.
The best part of all of this is that I’m still collecting dividends on all of these companies. In some cases, it’s just these dividends alone that are driving returns.
The longer that this portfolio grows, the more these compounding dividends will play their part. Knowing that time is on my side is a fantastic advantage.
The market is seeming to get toppy and frothy. We can’t know for sure if this will lead to a correction or not.
So, it’s important that you are hedged. Protect yourself on the downside. You need the psychological and mathematical edge that this will bring you.
I’ve stressed this message over and over, I know.
Yet it still rings true. Only when everybody has stopped sharing this warning message will the market finally turn in the other direction. It always happens when people least expect it. Remember that.
The reason behind my cautious outlook is my observance of the general market. Formerly hot bubble stocks like Tesla and Twitter are taking a beating. I don’t understand why investors in Twitter were surprised by this. I’ve been warning about it over and over and over again.
Also, did you hear the news that Facebook’s CFO is stepping down? He’s probably moving on to bigger and better things, but what do you think that says about how he feels about FB? Nobody knows their numbers better than he does, if you’ve made the mistake to buy their shares it’s not too late to get out now.
This macro musing might be entertaining but it isn’t pertinent towards your success. Instead of trying to figure out what’s going on, learn how to analyze businesses instead. Read a book.
It’s a much more profitable endeavor.
**April 2014 Report / May 2014 Outlook**
**All Rights Reserved. Investing for Beginners 2014**
**Photo shown above can be found: Photo Attribution**