My portfolio saw a few changes over the course of 2007, but my core holdings and overall strategy remain unchanged. My strategy is very long term – I don’t make trades because frankly I’m just not that good at spotting a top, or a bottom for that matter.
My holdings fit either one of two categories (or maybe both). They either have serious long term growth potential (years – many years), create meaningful current income which can be reinvested, or both.
Securities that I have bought and sold either served their purpose or helped me tweak my understanding of my expectations and refined my strategy and discipline. As General Electric CEO Jeffery Immelt said recently: “…we tolerate failure, but we don’t tolerate a lack of learning.” That really resonates with me – because as individual or retail investors we certainly do not have the knowledge, experience, or access to resources that institutional investors have. So we have to rely on our own experience and knowledge (which should be increasing all the time).
In 2007 I increased my holdings of the aforementioned
General Electric Co. (GE) six and a half times over. I made purchases in January, March, and in October. I am getting ready to buy some more as the stock hovers in the $36 range. You might say, GE – that stock has done nothing, why bother holding a non-performer? Like I said I think long term and if you pay attention GE is always looking at businesses to get into. In the last year or so they have made a serious effort to get into energy producing businesses and get out of energy consuming businesses. Their growth prospects for 2008 look good but I’m more concerned about growth in 2028. The dividends are also attractive – they will be helping to fund my retirement one day.
The newest holding is
Harvest Energy Trust (HTE), a Canadian refiner and marketer of petroleum and natural gas. They have acquired some other smaller refiners in Canada recently and they pay a substantial monthly dividend – the reason I’m in. I bought at the end of September and collected a .3865 monthly dividend in November and then the stock got hammered after some less than encouraging news about its margins. The stock lost about a third of its market value in less than 6 months. If that wasn’t enough the dividend was cut from roughly .39 per share / month to about .30 per share / month. The cutting of the dividend is a positive for me personally. Not in the sense that I want to make less money but in the sense that management is doing what it needs to in order to protect shareholder value and attractiveness. If the numbers had come back weak as they did and management left the dividend at .38 per share / month this would have set off an alarm with me in terms of future cash flows (perhaps dividends outstripping revenues eventually) similar to the situation with the now pink sheets traded New Century Financial Corporation (
NEWCQ). New Century was trading at 31.57 just one year ago – now it’s worth a disgraceful 2 cents a share and has spent some time at just a penny a share. Obviously New Century was in a different industry that has its own problems but you get the point I’m making about cash flows with consideration to dividends. I also like Harvest’s home currency the Canadian Dollar, although some recent metrics suggest the country’s currency maybe slightly overvalued. The dividend, which is paid monthly, is whats attractive to me. Being paid monthly, it gives me more time to put that money to work by either earning interest on it or reinvesting it. I bought more recently after it was beat up which let me lower my average cost and essentially buy the income at a price that’s more inline with the current share price.
One of my first buys was
Goldman Sachs Group Inc. (GS). Goldman Sachs is in my opinion the best brokerage out there. They are always well positioned for the economy (at least as well positioned as possible). When compared with Merrill Lynch (
MER), Morgan Stanley (
MS), Lehman Brothers (
LEH), and Bear Stearns (
BSC) over the last year Goldman Sachs is hand down the winner. Merrill is down 45%, Morgan is down 39%, Lehman is down 25%, Bear is down 51%, and Goldman is up 0.2% (basically flat) in the face of these big losses. As Goldman dips under $200 I will be looking to add some more shares. I have collected the .35 per share / quarter dividend since owning it. In the very long term this is going to be a big one I think.
Big oil stocks, but which one? I couldn’t choose – I didn’t have to. I bought shares of
iShares S&P GSSI Natural Resources Index ETF (IGE). I am very bullish on oil and energy going forward, especially as oil touches $100/barrel. The fund represents the Goldman Sachs Natural Resources Index. One thing is for sure – we can’t make new natural resources. So essentially you have commodities and resources for which demand is always increasing as global growth continues and a limited supply. Its not rocket science here: increasing demand + decreasing supply = higher prices. I don’t own shares here for the short term pops and drops; I am looking at these for the long term, very long. IGE also pays a dividend, nothing exciting usually around or under .30 per share /quarter. See my upcoming post specifically my about energy and oil holdings.
The process of getting oil to where it can be consumed is often under recognized.
Magellan Midstream Partners (MMP) handles the transportation, storage, and distribution of refined petroleum products. Again, I was enticed with the dividend – which is paid quarterly. Most recently MMP paid .64 per share / quarterly and the stock price is very steady. This stability and good dividend represent an attractive holding for me – although I had considered folding this one up a few times when it was above $50 back in April, but I held on mostly for the dividend. Good solid performer.
I just sold my position in
Credit Suisse Asset Management Income Fund (CIK), which is a Closed End Fund that holds mostly fixed-income securities such as high-yield corporate debt. It paid a .03 per share / monthly dividend (about a 10% yield). I bought this about 1 year ago and it got hammered along with other Closed End Funds. It is now trading at a significant discount to its Net Asset Value (NAV). The NAV is a metric for determining the valuation of such securities. It paid a faithful monthly dividend but its share price had been battered and I sold it to post a loss against some of my gains. I was holding this to collect the income and reinvest to collect more dividends, so on and so forth. When investing for income though the efficiency at which you use your money is more evident than if you were investing for growth. You can see right away if you are getting the income your think you’re paying for. 10% is pretty good, right? Harvest Energy Trust’s (
HTE) 16.22% is better. And since both securities (which I already owned) had taken a beating in share price I looked at them compared to each other. Harvest was up almost 10% in the last year while CIK was down 18% in that same period. CIK paid less of a dividend and had more ground to make up in share price. Harvest was the smarter bet of the two for me.
A little over one year after I bought into
Freeport-McMoRan Copper & Gold (FCX) I sold my entire holding. I bought Freeport because I like materials and commodities and I thought they had more room to grow than others in the area. As I said before I invest for the very long term. This is where it gets complicated – what happens when “the very long term” becomes 14 months? I had figured that FCX would grow and develop new mines and over time I would profit nicely. It will still likely do all those things, but it ran up on me on short order. In the period I owned the stock it exploded just over 100% from about 50 to over 107 dollars. I had collected some dividends (including some sizeable special dividends) and had doubled my money – I took it. I would have been happy doubling my money a few years later, but just over 1? Dumb luck – remember that I’m not good a picking tops and bottoms. This time it just worked out for me – not because I’m smarter than anyone else. I did my research and bought in – I just “got the bat on the ball” to borrow a term from baseball. I took the profits and moved to something else.
I also sold my shares of
iShares MSCI Brazil Index ETF (EWZ), albeit a bit early. Not good at picking tops. I enjoyed about a 54% return at time of sale but the stock continued to climb after my sale. That’s okay – experiences like this help me to stay focused and not get emotional about a stock. I could have agonized about my lost gains, but I have a piece of paper above my desk that reads “You can never go broke making a profit.” This isn’t an excuse I keep on hand but rather a reminder that making a profit (54% in this case) is better than any loss (or for that matter a 53% profit). Sold and no regrets. I am looking for another place overseas to put some money to work though.
That’s about it. I did want to mention
Ruth’s Chris Steakhouse (RUTH) very quickly. Some people advocate investing in what you like. I like steak. A lot. Especially when it’s sizzling in butter on my plate with glass of something aged in a barrel. I have dined at a few Ruth’s Chris Steakhouses and when they went public back in 2005 I watched closely. A few months later I jumped in and on pull backs I bought more. Steak, and damn good at that, where can you go wrong? As it turns out the stock has gone horribly wrong, down 61% since its IPO. Downfall of the consumer, credit crunch, mortgage meltdown? Probably, the company has tons of room to grow. All I know is that investing in something you’re emotionally connected to can be dangerous and I failed to the tune of 24%, but the lesson was invaluable. Just because you like it, you buy it, Main Street likes it and buys it, doesn’t mean Wall Street will. Does that mean you should stop? Of course not, but don’t put your money on line for it. In my case it was steak. I like my steak – steak and my investments – investments. I don’t mix the two anymore.
I’ll be writing a bit about my oil and energy holdings soon. Please feel free to comment on your stocks and why you hold them or on anything that I have written here. Happy New Year.
