Friday, June 29, 2012

A "risk on" day as they are fond of quoting in the newspapers now.   This type of mentality is typical of hedge funds where the general thought is "what have you done for me lately?"  Most hedge funds have at most a quarter's worth of time leeway where they can lag behind their peers before clients become uneasy.

I am fortunate not to put that kind of pressure on myself and most investors should not either.  "You can't be smart every day" an wise boss of mine used to say and I try to think of that.  The important thing is to have a plan.  The last few down days I was buying a few core stocks because I still thought they were good values.  It hurt for a while because prices kept going down.

Today is a bit of a pay back.  However, it is important to consider if anything has really changed.  Germany has shown some softening in their approach so that is a bit new, but as Jim Rogers recently said, "You can't solve a high debt problem by adding more debt!"

I usually don't agree too much with him, but I am with him on this in the long term.  You can however, try to buy the market time to work it's way out of the mess.  This should be by combining reasonable tightness in fiscal policy with pro growth monetary policy.  Germany would have us just rip the band aid off immediately whereas Greece Spain and Italy want the mummy treatment.

Something in between would probably work best but we do need to give it time.  Constant reminders of "risk on" "risk off" and short term views won't lead us anywhere good.

Given that I don't really believe things have changed, I have taken the opportunity to trim back my CAT (losing) and GE (winning) positions as they had become rather large relative to other stocks.  I was trying to keep positions in the 1-2.5% range and CAT had grown to 4% and GE to 3% so I'll take the up day to trim a bit.  Overall though stocks are still about 46% of my portfolio.

Tuesday, June 26, 2012

Today I bought some JCP.  The stock has gotten pretty beaten up and is down near the lows of the last few years, and almost half off the highs.  I know perhaps JCP is an outdated model, but they have a good team in place and I think we could get a pop in the stock if the economy starts moving at some point.  So I would call it a pro-cyclical value play.

I also bought some more of my Muni ETF, MHN.  This is a spiced up way to earn NY muni income.  It is a bit leveraged which is why it yields 6% tax free.  I do not think the leverage will hurt however, unless short rates spike up.  I do not see that happening anytime soon.  Currently it is at parity with it's net asset value.  In the past I have preferred buying it at a discount of about 10% but over the last year or so it has been behaving much better and at times trades at a premium.  In fact if it gets to a premium of 5% I look to sell a bit.

I bought a little GOOG because it is a relatively cheap internet stock.  In addition, I bought soome BRCM which a friend recommended.  It was hit badly yesterday and really for no good reason.  It is trading near a local low and could be in for a nice up move if the market rallies.

This last I would put squarely in the spec camp.  The JCP is halfway between, wheras the MHN is a core holding of mine.

Monday, June 25, 2012

As a value investor, there is a central tension.  On the one hand, we want there to be stocks that the market undervalues and therefore provide an opportunity for us to purchase undervalued assets.  On the other, the fact that the market doesn't prize them that much means that we don't get the big increase in value in any given period.  It is only through the gradual increase in earnings and dividend payments that we accrue our gains.

Periods like this one test the value investor as there seems to be no respite from bad news and stock prices reflect this with continual downward movement.  We must ask ourselves, has the world changed? (it always does in some ways)  Are we just trying to catch a falling knife? (happens all the time when we fall in love with an idea and we are missing some piece of information)

An example of the latter is CAT (one of my favorites) which is undervalued by any measure, but given that a big piece of it's growth is derived from emerging markets, and those economies are currently at risk of slowing down, there is seemingly no bottom to the stock price!

The answer is to make sure it is appropriately sized in your portfolio and not to treat this like a trade.  If it goes lower, then hopefully you have some powder to add to the position and improve your cost average.

No great ideas from me these days.  Just that I think government bonds are overpriced and your are better off in cash, some municipals and floating rate corporate loans, and stocks.  28%, 21% and 45% are my current approximate weights in those buckets.

Thursday, June 21, 2012

Nothing new and exciting as I see it.  The Fed continued TWIST butI do not see this as a game changer.  If anything it reinforces the idea that we need to go further out on the curve (longer maturity bonds)  to get some return and the Fed will be there to back you up.  I think this is probably safe for the next few years.  I am looking to buy back some long term TIPS if we ever get any pull back in bond prices, but I am not too hopeful.  The biggest event that could cause a drop in bond prices (government bonds) would be some sort of positive development in Europe.  I can see that happening, but perhaps not until the late fall or into next year (vacations, and all that (yes, there was some sarcasm there)).

Stocks will wallow along.  Emerging market slowdowns will impact our stocks to the extent it means a slow down in global growth.  Any companies that have a large business outside the US will be impacted.  A few are in my portfolio and are very painful - CAT, ETN, PG.  These all rely on foreign revenues and have been chopped by 25%.  I think this is a bit overdone and still like the names but though it is the correct thing to do,  it is painful to keep adding to them.

VZ has been a real star as have been most telecoms.  I think there is a good long term story there and still like the stocks at these prices.  There is a chance for a pullback, but it is too difficult to be too cute timing the market.  Better to hold on for the ride.

JCP is interesting at these prices.  They have been beaten up badly but they have a reasonable team and a good brand.  This could be a good cyclical play, meaning they will do well when the economy improves.  If you think that is close, then consider buying some JCP as a speculative position (not core since no dividends).

Overall, I am still banking on dividends and eventual economic growth leading to higher stock prices/lower bond prices.

Thursday, June 14, 2012

Hi all,

A few days away from the market and...nothing is resolved.  That is par for the course as there are always open questions.  For myself, I started bailing on some of my speculative names AVP, TEF, AMZN only one of which (AMZN) did well.  I am not certain that the speculative names will lead us out of the morass.

I will look to buy the safer dividend names GE, CL, LO, KO, JNJ as well as the telecom sector VZ or T, 2 stocks which have done particularly well in this environment.  I have been struck recently with how much wireless we will be consuming in the future and these two players have the existing infrastructure to provide it.  Other will challenge, but they are there and are paying nice dividends to boot.

The banks are still iffy and I would keep any positions in the speculative bucket and keep it small.  I imagine that JPM Chase is/will be a good buy as they have been hammered by the risk management fracas.

On the bond side, my TIPS sale is now looking ok, but in my view there is significant more downside in bonds so I am holding off on any re-buying.  If the 30 year TIP gets back to the 1% level, I may have a look there. (currently around 0.5).

Also, MHN, one of my favorites, is a ETF that holds mostly New York muni's.  Watch the premium on this one as it is now around +4%.  This is historically high for this stock and we could see some pullback.  If I were inclined to trade it more, I would sell a piece and look to rebuy when the premium is at 0% or lower.

Finally, as I look over my portfolio I can break it down into two segments - ETF's and stocks.  Dollar wise they are not too far from each other, but from a volatility and yield point of view they are worlds apart.  My ETF portfolio yields over 8% (pre tax) and does not move much wheras my stocks have about a 2+% yield and have moved a lot with the overall market.  I do still believe stocks are cheap and I will be rewarded over time for holding them, but I do wonder if I should hold a bit less there and put more into my ETF portfolio which is mostly bond like but with juiced yields.  The components of the ETF side are HYG,JNK,PFF,MHN,VVR,BKLN.

Friday, June 1, 2012

Oops!  Sold the bonds too early.  Jobs numbers were terrible and rates are heading lower immediately.  I am not sure that lower rates are going to fix anything as the issue is more structural.  Whether it is regulatory uncertainty coming from our leadership or global uncertainty from Europe, investors are increasingly risk averse and just looking to take their ball and go home.  Government bonds are just the default investment and will benefit.

My choice currently is to maintain a high level of cash rather than government bonds.  My mix is 45% equity, 21% credit and the balance in cash.  The equity feels like an overweight position because I wake up every day losing money :(   but it is right on my benchmark.

Staying focused on value can be very trying.

A friend shared a joke with me:

Q:   What is the definition of a long term investor?
A:    A trader who is undewater

As all good jokes have elements of reality, this can be painfully true.

I updated the performance page.  I underperformed the benchmark because I am underweight government bonds in the 5-10 yr range (45% of the benchmark).   From an equity perspective, the portfolio has outperformed the S&P which is my equity benchmark.  So overall, disappointing because it is never fun to lose money, but investing is rarely a straight-line prospect.