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In March, my portfolio started to outperform all its benchmarks for the month and YTD.
I disposed NetEase, but increased my stakes in Berkshire Hathaway and Altria.
The mission for the short run is to build a more concentrated portfolio in order for the performance to further deviate from major indices.
The US stock market (SPY) (DIA) just booked the best starting quarter in decades. The gross total return (assuming dividend reinvested) for the S&P 500 during Q1 was 13.6% after a 1.9% gain in March.
Meanwhile, my total USD portfolio generated an almost 15% return on a time-weighted basis for the quarter. I certainly do not expect this type of quarterly return to continue. Actually, while a short-term bet is never my cup of tea, I would guess (if I have to) that the market would more likely go down than up for the short run. Of course, in case that indeed happens in the future, I would be more comfortable than now thanks to lower valuations and less optimism in the market.
My portfolio had a small gain of 2.9% in March compared to 7%+ in January and 3%+ in February. The market has been definitely losing its steam, and so has my portfolio, which is inevitable and should not be cared for by long-term investors. Despite the lowest monthly return for the year, the greatest significance of March is that my portfolio started to outperform all its benchmarks for the month and YTD.
Again, I would like to point out that the performance data of my portfolio (usually calculated by SigFig) includes all impacts from withholding taxes and trading fees, while the index data does not. Another point is that positions of recently underperforming Berkshire Hathaway (NYSE:BRK.A) (BRK.B) now comprise nearly 9% of my total portfolio.
Source: Personal Capital; data as of 3/31/2019.
As a result, my stock picking strategy should produce more alpha than the data below appears to when benchmarked against both equity indices and Warren Buffett's investment flagship. This means that, technically, I was actually able to outperform major indices even more if withholding taxes and trading costs are added back and that I outperformed Berkshire even more if the impact from Berkshire's stock in the portfolio is removed.
As I indicated before, my most admired benchmark is the Berkshire Hathaway stock, while the most appropriate one in my view would be the MSCI World Equity.
According to SigFig, my current portfolio risk (i.e., beta) is 0.8 compared to the S&P 500. This is another advantage of my investment approach - the ability to achieve superior returns with less short-term volatility.
My patience with NetEase (NTES) appears to have run out in March. With the mission of building a more concentrated portfolio and considering the fundamental deterioration, I decided to sell my positions in NTES.
As mentioned in my previous article, "In A World Full Of Numbers, These Non-Numeric Factors That Matter More," NetEase looks like a quality trap, which I, unfortunately, fell into.
NetEase develops and operates online PC and mobile games, advertising services, email services and e-commerce platforms in China. Despite the previously superior ROIC and decent growth rate of the company, none of its business lines possesses absolute market leadership. In the meantime, it is widely recognized that the Chinese Internet sector means quite a lot of competition, uncertainties, and even self-disruptions. Although NetEase is one of the largest video game companies in the world, it is by no means a wide moat stock, facing regulatory uncertainties as well as rivalries from Tencent (OTCPK:TCEHY, OTCPK:TCTZF) and other aggressive disruptors. The strategic focus at the company drifted from portals to gaming and to high-CapEx e-commerce, and from domestic only to more international. Until the story proves to work out well for shareholders, I would like to play defensive on NTES.
In March, I increased my stakes in Berkshire Hathaway and Altria (MO) in light of the favorable risk/reward ratios.
Much more attractive value somewhere else, which requires me to sell the stake in some relatively less attractive business to fund the purchase.
My short-term mission of building a more concentrated portfolio in order to deviate from major indices in terms of performance has been propelling the need to search for more such situations (as above). I think that in the near future you would see more Situation 2 occurring than 1 (more details to come in the next section).
Certainly, if you are familiar with my investment strategy, you would by now have recalled one of the pillars called "doing less." Therefore, in terms of this portfolio restructuring, the process should be a slow move.
One advantage of "doing less" is lower trading cost. According to SigFig, the percentage of the TTM fees out of my total portfolio value is 0.12%. In the long term, I would like to reduce this number to below 0.1%.
As you can see below, I am currently all-in equities. The split between US and overseas stocks is roughly 2:1, which I am comfortable with at the moment. In the medium term, I may want to move some international exposures to my international accounts in order to invest directly in those companies (rather than through ADRs or OTC).
Compared to the S&P 500, my portfolio overweights consumer defensive and underweights industrials and technology. A lot of long-term winners have historically come from the consumer defensive sector, while the technology sector has proven to been value-destructive to investors and a typical industrials business is generally cyclical and capital-intense - two characteristics that I dislike when picking stocks.
You may have already noticed that I still do not own any utilities, basic materials, telecom or energy. This is because they are highly cyclical, capital-intense, vulnerable to competition (i.e, narrow or no moat), or a combination of such traits.
Please note that the weighting of financial services (being the largest) is simply due to the holding of Berkshire Hathaway.
Moving forward, I am hoping for more weighting in healthcare and consumer defensive and less in industrials and technology.
My portfolio is significantly over-concentrated in large caps. To leverage the so-called size advantage, I should deploy more fund capital into smaller companies.
Starting with this edition of the portfolio review, I am adding the following table showing the position-weighted fundamentals and valuation of my entire portfolio.
Per the figures above, I believe that my portfolio owns pretty decent businesses with superior returns on capital, high profitability, strong cash flow, and current financial strength. What concerns me (along with many other value/quality investors) is the unattractive valuation of the overall market worldwide, partially reflected by the average EV/EBIT of 23.3x even for the group of top-quality companies in my portfolio.
March is a light-volume month in terms of the earnings release. The majority of the reported results among my portfolio companies for the month came from overseas.
Coincidentally, the equal-weighted average of business growths reported during March is the same as those in February - 9% in terms of revenue and 6% in terms of EPS. When it comes to investment decision-making, I cannot emphasize enough on how important long-term focus is and how useless short-term results are. However, I believe that it would be helpful to track business progression at least from quarter to quarter (or on a half-year basis regarding companies in some countries) for the sake of better understanding of business economics and industry dynamics.
In my view, the underlying growth rate of my portfolio is healthy, especially on the revenue side.
March is the busy season for dividend payers in my portfolio. There are also quite a few dividend raises happening during the period. Please note that it is not uncommon for foreign companies to have more fluctuation in terms of dividend payouts. Hence, a dividend decrease (or "dividend cut" in US companies' terms) is not necessarily bad news (certainly not good news either) as it is for US companies.
In the long term, I am anticipating the total dividend payout to grow at around 10-12% annually. In my opinion, long-term investors should pay more attention to the dividend growth prospect than the current dividend yield.
It has been a great month and quarter for my investment strategy to perform. However, although this is a monthly/quarterly review, I would like to again emphasize the significance of buying stocks for the long run with regards to investment success. The immediate task for me is to solve the issue in terms of too many stock holdings at current and build a more concentrated portfolio in hopes to outperform by a wider margin. I will provide updates on this subject in the next couple of monthly reviews.
It's official now -- SpaceX is a contender.
With this month's successful Crew Dragon "pad abort" test, Elon Musk's SpaceX took another step toward space launch supremacy. Source: SpaceX.
Last week, the National Aeronautics and Space Administration officially "certified" SpaceX as one of its preferred contractors, allowing the upstart space launch company to bid against the United Launch Alliance (ULA) of Boeing and Lockheed Martin on almost every kind of space mission in NASA's inventory. As reported on SpaceflightNow.com, SpaceX will from here on out be able to bid on "medium-risk" missions, including the launching of "most" Earth observation satellites and "many" interplanetary probes aboard SpaceX Falcon 9 lift vehicles.
SpaceX's new "Category 2" certification does not, however, allow the company to bid on any "multibillion-dollar interplanetary flagship missions." (Yet.) For the time being, only ULA, with its Atlas V and Delta II rockets, and Orbital ATK , which flies the Pegasus XL rocket, are allowed to bid on such "Category 3" projects.
What's next for SpaceX?You might expect the answer to this question to be "Category 3, of course!" But in fact, SpaceX has one more trophy to collect before seeking Cat-3 certificationfrom NASA. This one will come from the U.S. Air Force -- and it could be worth even more than NASA's Cat-3 stamp of approval.
As confirmed by the Air Force Times earlier this month, SpaceX is entering the final lap in its race to win Air Force certification to launch some of America's most sensitive spy satellites into orbit. Testifying before Congress last month, Air Force Secretary Deborah Lee James confirmed she is confidentthat SpaceX's Falcon 9 will win certification by June -- in time to compete against ULA for at least two Air Force space launches this year, and more in years to come.
Currently monopolized by ULA, such Air Force "national security" launches are budgeted to cost taxpayers about $7.1 billion this year. That's a multibillion-dollar opportunity for the privately owned space exploration company.
What does it mean for investors?By the same token, though, it's a multibillion-dollar risk for publicly traded Boeing and Lockheed Martin, the owners of ULA. At present, ULA is under contract to build and launch some 78 rocket cores carrying national security payloads for the Air Force -- $17.6 billion worth of work. The problem is, while ULA has these revenues "in the bag," its ability to compete for future Air Force work is anything but certain.
ULA has landed billions of dollars worth of business from the U.S. Air Force. But soon, SpaceX may begin undercutting ULA on price. Source:SpaceX.
As we discussed earlier this year, issues with ULA's reliance on Russian RD-180 rocket engines to get its big Atlas V rocket into orbit -- and issues with the cost of the company's Delta rockets -- pose real problems for ULA. On one hand, SpaceX's Falcon 9 rockets are cheaper to operate than anything ULA can offer the Air Force, making it hard for ULA to compete on price. On the other hand, if Congressional rules against using Russian rocket engines for national security launches are implemented, ULA may soon be unable to bid on such launches at all.
The upshot for investors: Up until now, ULA has managed to sidestep this risk for the simple reason that it was the only space launch company certified to run national security launches for the Air Force. Next month, that all changes when ULA begins facing competition from SpaceX.
For the time being, ULA CEO Tory Brunosays he's "not the least bit afraid of competition," according to Reuters.
What we'll really want to see, though, is how ULA reacts -- and what effect its reaction has on Boeing's and Lockheed's profits -- after ULA loses its first Air Force contract to SpaceX.
That's when things will really get interesting. That's when SpaceX's "certification" will finally feel real.
SpaceX's Falcon 9 rocket, now NASA-certified, can go up, up, and away -- for cheap. Source:SpaceX.
The article U.S. Air Force Prepares to Send SpaceX Stock Into Orbit originally appeared on Fool.com.
Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 359 out of more than 75,000 rated members.The Motley Fool recommends Orbital ATK. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
KERN COUNTY, Calif. As investors tire of Wall Street’s roller coaster, more of them are plowing their money into land farmland.
Few people understand this shift better than farm manager Carl Evers.
On a recent morning, Evers steered his pickup truck through a Central California almond grove, his drawling sales pitch at the ready. Evers is co-founder of Farmland Management Services, which runs about 30,000 acres of nut groves, fruit orchards and wine grape vines for a Boston investment firm. Sunburned and stocky, tugging down his wide-brimmed hat, he talked about how farmland and the food it produces is the safer bet these troubled days.
It’s the fourth time this year Evers has wandered through these trees and given his spiel to pension fund managers, hedge-fund operators and hungry investors on behalf of Hancock Agricultural Investment Group. He’s reeled it off many more times over the phone.
Farmland has become hot. Average U.S. farm real estate prices including the value of land and buildings have nearly doubled in the last decade to $2,140 an acre, according to the U.S. Department of Agriculture’s National Agricultural Statistics Service. Wells Fargo, the nation’s top agricultural business lender in total dollar volume, said demand prompted it to increase farm lending 12 percent from 2008 to 2009.
Since the recession began in December 2007, financial analysts say, agricultural investments have easily outperformed the Standard & Poor’s 500 index.
Wealthy Americans and private funds alike are gobbling up Washington apple orchards, Illinois cornfields and Louisiana sugar plantations. So are foreigners. In California, investors from countries including Spain, Switzerland, China, Egypt and Iran collectively boosted their holdings 2.5 percent from February 2007 to February 2009 to 1.08 million acres about 5 percent of the state’s total farmland. Overseas, U.S. and other investors are snapping up tens of millions of hectares of farmland in Africa, Central America and Eastern Europe.
Such investments generally involve a group of people who come together in a company or group of firms, pool their money and purchase parcels of land through a corporate structure. (Minimum investments can start around $25,000 and often require a commitment of at least six years.) After purchasing the land whose value historically appreciates it is usually then turned over to a farmer or a management firm, which handles day-to-day operations. If all goes well, investors can receive rent, proceeds from crop or livestock sales, or some combination of both.
For some, there is a sense of romanticism and relief at the idea of putting money into something as tangible as dirt.
Investors also understand that land is a finite commodity. The amount of arable land worldwide is dwindling, while the world’s population is forecast to jump to more than 9 billion by 2050 from 6.9 billion today. That has water-strapped countries eager to establish secure food supplies and bolster biofuel production. Fast-growing economies such as China are stepping up food imports to feed a burgeoning middle class.
As a result, U.S. exports of meat, grains, nuts and other farm products are surging. Overall, federal officials estimate that U.S. farmers will ship $107.5 billion in agricultural products overseas in fiscal 2010 the second-highest amount ever, according to the USDA.
Frustration with the stock market persuaded Dr. Stephen Rivard to bet on farms. The physician who lives in the Chicago area invested heavily in stocks, only to cringe as the value of his portfolio shrank 42 percent over the past decade. When a friend launched Midwest Organic Farm Management and asked him to bet on a farm, Rivard reached for his wallet.
As the country’s economy suffered the worst decline since the Great Depression, he bought into more farms: So far, he’s put $300,000 into three Illinois organic operations, including one called Two Roads Farms.
“My only regret so far is that I didn’t invest more sooner,” said Rivard, 57.
In an interview with ET, Raju reveals that the government has cleared the new Light Combat Helicopter for export and talks are on with at least two nations.
Do you think the recent US offer for the production of F 16 and F/A 18 fighters in India are viable?
Neither aircraft could win the (air force’s) medium multirole combat aircraft (MMRCA) competition. So I really don’t know. It is not very attractive and I sincerely don’t know how serious they are. The F 16 production has stopped and I am sure a parallel line for the F/A 18 won’t be worth it. There are reports that the fighters are being considered as we may have a gap of 200 aircraft of the LCA class by 2021. If this is true, the gap can be filled up by increasing production rate of LCA. In the new defence procurement policy, an Indian designed and manufactured system has top priority which the LCA fits into and the others don’t.
How involved will the private sector be in the production of the LCA aircraft in India?
The first 20 aircraft will be completed by 2018, by when we have to make a Mk 1A version of the aircraft. We are ramping up production to 16 aircraft a year. We have recently issued request for quotations to the private players to supply modules like fuselage parts and wings. If we can get this from the private sector, we can increase production to 25 aircraft a year. So, we are looking for capacity augmentation with these private players. We are looking at a concept in which HAL is an integrator that has some 20% (of total) work in the hangers. The remaining 80% of work can be off loaded to the industry. If a private company for example is setting up a shop for composites manufacturing, it will be assured for business for many years.
Has there been progress on the Light Combat Helicopter?
As a platform, the LCH has passed all requirements. It is now a viable platform and depending on the weapons requirement by the Army, the Air Force or another country, we will integrate them. Two countries have expressed keenness in the product and we would approach them shortly. We have got clearance from the government to export the choppers a few months ago.
What about reports of a possible IPO for HAL?
I don’t know where the reports have come from, as only this year we have done a share buyback from the government and Rs 6,000 crore (including tax) has been received by the government. In my opinion, there would no IPO in the coming days, it could of course happen at a later stage.
What is the progress in setting up a new helicopter facility for engines?
We are looking at a joint venture company to be formed with Turbomeca and are trying to locate a place to build a facility in Goa. This will be for work on the Shakti and 2B2 engines. We are looking to close this in not more than 60 days by choosing a place that suits us.
President Donald Trump is expected to sign a national security memorandum on Tuesday establishing a “National Vetting Center” aimed at improving vetting of those looking to enter the US, two administration officials told CNN.
It’s unclear how this effort will change the way travelers and immigrants to the US are vetted.
While the center’s efforts are largely expected to focus on visa applicants, immigrants and others looking to enter the US, the center will also look to streamline vetting of certain individuals who are already in the US, including those subject to deportation proceedings, according to the National Security Council official.
Anticipating concerns from civil liberties groups, the memorandum will also establish a standing privacy and civil liberties panel, which will have some oversight over the National Vetting Center’s activities. The membership of that panel will also be determined during the six-month period.
The National Vetting Center is part of the Trump administration’s broader efforts to tighten immigration screenings, following Trump’s calls for “extreme vetting” during his presidential campaign.
Trump has repeatedly pointed to the need for tighter immigration controls, amplifying his calls in the wake of terrorist attacks — even when the terrorist in question was born in the US or was radicalized after entering the United States.
You can't blame 'em for having a weak quarter: they are called Home Depot after all, and it doesn't get much worse than homes. But apparently if you factor out a big one-time charge (conveniently) they beat earnings estimates by $.04. The charge was related to the closure of 15 stores (over or under 7, the number of those closures in Arizona, SoCal and Florida?), as well as eliminating 50 stores from the pipeline (ok). Also good: revenue of $17.9 billion, beat estimates of $17.6 billion. Thank you analysts for not setting the bar too high.
You know. We bought groceries last night and they did seem pretty expensive. Normally, we don't notice that stuff. Everyone else moans about how food prices, but if you don't have five mouths to feed, then you don't pay such close attention. But in reality, yeah, things are started to tick up a bit in grocery receipts. Another major food issue: where are the peaches!? Is anyone else in the city noticing that their local grocery chains are pitifully peach free? What's the deal? Is it something to do with bees?
This is becoming an exercise in game theory. Seriously, just try to take a step back and parse everyone's motivation. Yahoo threatened to get into bed with Google to avoid the wrath of Microsoft. Icahn bought into Yahoo to push it closer together with Microsoft. Now Yahoo might be talking with Microsoft again to avoid Icahn. On the other hand, Microsoft's newest proposal wouldn't necessarily satisfy Icahn, as it would involve breaking up Yahoo, and only a targeted investment -- the main point it seems is... preventing Yahoo-Google from happening, an idea that only came about after Microsoft proposed Microsoft-Yahoo. Maybe everyone should just take a week off. We'd certainly like that.
It's been awhile since we've checked in on the National Association of Realtors, the famous cheerleaders of the housing economy. A couple year sago (boy, we've been doing this too long) when the NAR started to change their tune -- just slightly -- we wondered if the housing market had bottomed. Ha! But really, they haven't changed their tune that much as our friend Jonathan Miller points out. Instead, they still stick to their core competency: taking whatever facts they like and making whatever argument they like out of 'em.
As we frequently like to say: it's all about the meat and veggies. You can pretty much skip everything else. And realistically, we probably talk about the meat side a little bit too much: raving about Texas BBQ or linking to beef price analysis at Beef Magazine too much for your liking. So, to the veggie side of things, this link is for you.
Just in case you're one of those Buffett adherents and want to follow his every move as he tours Europe looking for family business, Barry points to an hour-long video (yep, carve out a chunk of your morning... maybe take the laptop to the park with some headphones and watch it there) of the Oracle talking European deals.
We're not going to lie here: Malcolm Gladwell has bigger fans those whoe write the Opening Bell. That's not to say we don't have respect for the guy. Certainly he has a very fertile imagination, and his conception of the world is probably more interesting than it is. And we mean those things as total compliments. Seriously. On the other hand: People seem to take his ideas pretty seriously, and one gets the impression that he, oh, likes to extrapolate a bit. Anyway, his latest book is summarized here, and it's apparently about people who excel extraordinarily and what's behind that. again: expect some big-time over massaging of the data/ignorance of counterpoints/over-reliance on a few anecdotes.
Germany is apparently backsliding, or at least weakening. Which means, perhaps, that Warren Buffett is coming to town at just the right moment. If the economy and confidence are sliding, it should be easy for him to find nervous family business owners looking for a Berkshire-endorsed exit, no?
OVERHAUL of United States banking law, which has been stumbling through Congress this year, will pass its first major milestone later this month. The outcome will be critical to the economy. Huge losses have damaged hundreds of banks - including many of the largest. If the financial center suffers, the economic structure will be weakened. The House Banking Committee has tentatively scheduled a series of crucial votes that will shape the nascent banking act of 1991.
While the full House of Representatives and later the Senate are certain to modify portions of the resulting bill, the Committee's decisions will likely set the boundaries of the debate.
Unfortunately, it is still a tossup whether members of Congress will address the underlying ills that triggered the crisis. They could decide simply to prop up the federal Bank Insurance Fund, which guarantees bank deposits. The BIF is now nearing insolvency.
Bankers are in business to make money, not lose it. Though some bankers are not competent, professional, and scrupulous, the overwhelming majority are. Why, then, did so many of them get in trouble all at once?
Obviously, many factors contributed to the crisis. Unstable monetary policy first flooded the economy with lendable funds and then cut off almost all new supply. The loss of profitable markets lured bankers into new and unfamiliar lines of business to compensate.
The real estate recession proved deeper and longer than most bankers expected. Lax regulation may have encouraged incautious lenders to jump into deep water.
Thomas Johnson, president of Manufacturers Hanover Corporation, says "one way out of the banking problem is a massive consolidation of banks. The cost efficiencies that can be realized are huge.... With fewer players, lower costs, and lower risks, [banks] will make more money."
He noted that in California only four banks dominate the market. Consumer deposit rates in that state are lower and loan rates higher than in New York, which has a dozen important competitors. The combined difference is almost two percentage points.
While Mr. Johnson's analysis was doubtless correct, the fatal flaw is elsewhere: in the system of federal deposit insurance, which protects depositors against almost all loss. At large banks, the idea of "too big to fail" evolved into a system of 100 percent deposit guarantees.
Robert Black, the erudite president of the Richmond Federal Reserve Bank, says that "risk may be systematically underpriced in the US economy because deposit insurance reduces the risk premium that depository institutions have to pay when they compete for deposits. Loan rates may therefore not reflect adequately the risk associated with particular loans."
"Too many economic resources," Mr. Black says, "are being drawn to relatively high-risk ventures and away from lower-yielding but economically more defensible projects. The apparent excess supply of office buildings and condominiums in many parts of the country currently suggests that there may have been a significant misallocation of capital in the United States over the last decade. Deposit insurance may have contributed to this misallocation."