TomB16 investing blog

Here is a quick view of my strategy. I doubt it will be helpful to anyone but it may spur some ideas.

I look at companies in four ways.

Core - Must be stable. Must be strong distributors of cash (6% or more). Must be low risk. Does not need much equity growth potential. I hold a high ratio of a few core companies.

Dream global was one of my core companies. It was ideal until it joined the Canadian index and shot to the Moon before being purchased by Whitestone. Now it has created a nice problem to have but big shoes to fill.

Growth - a company that requires equity growth to be interesting to an investor. Any company that pays less than 3% distribution is a growth company to me. I keep these holdings to a bare minimum. For me to hold it, they need to have a VERY compelling growth case. Tesla is my only growth holding, at the moment, but I have an eye on two new companies in this category.

Oversold Shrinkers - I've only been interested in this category lately and am only dabbling in it. These are companies that are shrinking or dieing but will still return more than they cost. Crown point energy is an example of this category.

Interesting Core Candidates - we hold a few companies that pay more than 6% and I am considering them for core service but have not yet built a relationship of trust with these companies. Our entry into these is an amount I have established as what we can risk and it's a ratio of our portfolio value so it grows with time.

Diversification Holdings - I would like to hold, at least, one utility and something representing each major sector of the economy. We have held some of these types of companies but not now. I just sold our last utility a couple of weeks ago. The market cap simply got too high for the valuation. When a power company expands it's business 15% through a merger, shows a reduction in net profit, and doubles it's market cap, it's time to sell. It is a good company. I would own it again but at a better valuation. For now, this category is essentially dead to me. At its peak, it wasn't a big category by ratio of our holdings. I will not make bad investments just to diversify.


These four investment types are like chess pieces to me.

Using capital from distributions (and other sources), I was able to buy a lot of the best value stock in view at the time.... Tesla.

Without the leverage of this capital, I would have made out very well on Tesla. I would have more than tripled our money in 3.25 years. Using the spare capital, we did a bit better than that.

I don't suggest this strategy to anyone. It is just one approach of value investing. Overall gains have been strong but not world beating. Mostly, this approach fits into our lives.

One of the artifacts of this configuration is that a day of big market gains is rarely a big gain for us. These an are usually small gain days but I've seen our portfolio shrink on days of big market gains. The converse is that we usually gain on days the market shrinks. To an extent, we are swimming up stream but it has worked out quite well.

 

Continued....

The obvious question about my strategy is: Do the extra growth gains make up for the lower returns of the core stocks?

I did make more than the S&P 500 this year and I made way more than the S&P 500 last year. Still, I don't attribute those gains to the strategy.

I attribute our 2019 gains to some ridiculous returns on a small number of companies I was experimenting with and also Tesla. Our core stocks under performed the S&P a tiny bit (one better, two worse)


Next question:. Why go to the work if returns are similar to the S&P, most years?

I believe my approach will be more stable than the S&P, long term. If the market implodes, I still have a ton of cash flow to live on. It really comes down to an attempt to create stable retirement cash flow while defending against having to sell down during a down market.

Of course, I will pick up a good chunk of VOO, if the WBI ever recedes to non-frothy numbers. For now, we are using my system.

 

Lastly,

I don't think my acuity will remain good enough to run my system until I die.

The intention is to switch to a GIC ladder around age 65-70.

My dad was pretty sharp into his late 70s so perhaps I will be ok until then but I doubt I will be considering what hypergolics fuels Virgin Galactic will be using on the next generation trans-global flyer. Lol.

 

I have a strong bunch i will have index funds when I die. I may also have a couple of core holdings.

The GIC ladder, or similar, will be to prevent having to sell volatile holdings during a down year.

We are already at the point the portfolio management effort wouldn't be worth it if I didn't enjoy it. We don't spend a lot and our needs are fairly straight forward.

Having said that, I've been at a resort out of the country for three weeks. We will return in about two weeks. One position sold while I'm here. It was a long term limit sell order. I won't bother managing the portfolio until I return. If the market crashes, I will buy a couple of Staples.

I didn't expect to post on this trip but I have a ton of time for stockaholics while my wife either shops or goes to the bathroom.

 

Speaking of GIC ladders, I've looked at them from a lot of angles and it's tough to dream up a scenario sufficiently appocolyptic as to perform better than a well distributing company, like a reit. It's a pretty extreme corner case.

 

I'm not normally a big fan of pandemics but cheers to the coronavirus. I need the market to pull back. Lol.

 

I've been following several Chinese WeChat groups and things are really bad in China. A lot of businesses are not going to open on Monday. Quite a few people are predicting an Asian market crash on Monday.

Few seem to understand how bad this is. People are worried about their lives. They will sell stock to fund time away from work, quit their jobs, etc. It's life and death.

The mortality rate of the coronavirus is about 2% and the best part is, it is contagious before there are any visible symptoms or the host even knows they have it.

Travel is largely cut off to/from China. Schools and employers are using infrared cameras to look for people running high temperatures, although this won't help all that much.
If this happens, there will undoubtedly be global consequences.

I'm not predicting anything but I will be watching closely.

 

China is adding 174B usd of liquidity into their stock market. Despite this, the Chinese market is pulling back.

I don't believe China can stop the inevitable market shrink but they can mitigate the damage a bit.

 

Chinese markets have stabilized after a decent sized initial hit. Global markets have ignored the coronavirus impact.

Perhaps people don't understand how little we make in North America.

Hyundai has shut down some of their production due to component shortages.

Products assembled in North America need Chinese parts. If China has a 30 day production halt, that will ripple around the world.

I'm keeping my powder dry. For now.

 

Every epidemiological model I've seen indicates a near certainty of well beyond 100K+ coronavirus infections in China. This is currently an epidemic.

Infections outside of china remain extreme few. The next highest country is Singapore with 22 cases. It seems likely Singapore statistics are reasonably close to accurate.

Experts indicate it is inevitable this will turn into a pandemic (an epidemic on 2+ continents). So far, it is contained to China.

If China substantially cuts production for more than a few days, it will affect the planet. Extreme few products are made without Chinese content. Most consist of all or mostly Chinese content.

If you take away the signals, lights, taillights, computers, interior fabrics, and steel from an F-150, Ford isn't going to be able to sell many trucks.

Still watching.

 

I'm probably the only one here who cares about market fundamentals but the WBI is currently at 158%.

I've never considered a large-scale sell-down, before. I'm an investor. I want to own companies.

Current conditions are forcing me to consider this position. Is it time to sell most of our position and move into something that seems safe, like a government bond ladder, or similar? Maybe.

The idea of pulling even more money out of the market for 0 to 5 years isn't appetiZing. That is strong medicine. The numbers call for strong medicine but it's an extreme position. Our position is already tremendously cash heavy.

 

ARK Invest now has $11B under management.

This is, undoubtedly, due to their very large stake in Tesla.

 

The coronavirus kill ratio is edging up to 2.1%. The recovery to death rate currently stands at 3.4:1.

Here is a real time dashboard.

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6


While I don't think the world is going to end, I think the earthquake isn't done and the aftershocks will rip through North American industry for quite some time. Q1 earnings are going to be hit in most sectors.

We won't keep our powder dry forever. At some point, we will break out the razor and run a couple of rails. For now, we are partly on the sidelines.

I won't sell any more of our Tesla or any of our core holdings for this scare. The companies I've been playing with are all divested, though.

WBI is currently at 158.6. This is uncharted territory. Even at this level, I see a bit of value in a couple of companies. I wasn't such a value hound in 2008 so this is new to me. The approach is to continue buying value but staying away from most of the market.

 

Further analysis of coronavirus deaths and recoveries shows there have been a lot more deaths and a lot less recoveries in Hubei province than anywhere else.

Subtracting Hubei statistics from global statistics, it the death rate is 2.3%. In Hubei, the death rate is 34%.

If the correct death rate is 2.4%, Hubei must be under-reporting more than 32000 cases. I think it is under-reported a lot more than that. There are many anecdotal stories of people dying at home with no treatment of any kind due to an overwhelmed healthcare system.

In Shanghai, where Tesla is located, the death rate is 2% and the case count is a few dozen. It looks prudent to re-start Tesla's Giga Shanghai facility.

Shenzhen appears to be in similarly good shape. With Shenzhen and Shanghai back online, China and the world will be OK financially.

It appears the response of the government has been effective. The virus is surprisingly contained.

This will be a pivotal week.

 

The official coronavirus death toll now at 910 with 40K cases. Actual numbers are expected to be far, far higher; I have estimated 33x higher.

China's response to coronavirus has set the gold standard for controlling an epidemic.

New cases are sharply declining, where they were growing exponentially a week ago. These numbers are based on official statistics but I fully expect they are representative of the trends.



The parabolic case count is now starting to look sinusodal. Notice the recoveries now counting in the several thousand. The number of new cases outside of Hubei is way down.

Now they can focus their resources on treating people in Hubei. Without this containment, there would be no end in sight.

Kudos to China.

 

I apologize for the length of this answer.

I've owned quite a bit of Tesla since 2016. It has never been one of my core stocks, though. It has been our only growth company in a long time.

Last year, Tesla was subject to the most ruthless smear campaign I've ever witnessed in the corporate world.

I recall an analyst for Canaccord Genuity changing from relentless bear to bull when he drove a Model 3. Until then, he had never been in an electric car. It's tough to respect analysts when this sort of thing is taking place. Ignorance is the norm, not the exception. Why anyone follows analyst recommendations behoves me.

The relentless ignorance, coupled with Jim Chanos launching media smears coordinated with his short positions, Tesla was hit pretty bad.

I notice CNBC hasn't had Bob Lutz on to explain to everyone that Tesla is dead, they just don't know it yet, in a while. lol!

Last summer, I bought the Hell out of Tesla. I was holding more than I wanted for a non-core stock but was comfortable enough with it, overall.

Some of the 2019 tranche (about 30% of our Tesla holding) was sold in mid January, before the $980 run. I got out below $500. Still, it was a doubling of money in less than 6 months.

I'm going to keep the rest. I have no plans to sell any more. I believe Tesla will help with our retirement. I see them paying a dividend in 2023 or 2024.

Money from the stock I sold last month is still sitting in an HISA, earning 1.6%. Not only did I miss out on the big money run but I'm not doing anything with the proceeds of that sale.

At this point, we are awash with cash. It's not ideal but with the Buffett Indicator up in the 160% range, I plan to hold all positions steady until the market corrects.

I wish to point out we still have almost 70% of our capital in the markets with no thoughts of pulling out, should a crash occur. Those investments will remain in place, regardless of what happens in the markets.

 

At this point, if you don't register your interest in a good quality bond issue within 90 minutes, you are unlikely to get it. There is a huge, pent up, demand for decent bonds.

It's been months since I've seen a decent bond. This morning, a good looking issue came out. The rate was a little below what I would have liked but I immediately tried to register my interest. I missed it. Too late, 70 minutes after the notice went public.

For those interested in bonds, be ready to analyze the company and register interest on a moment's notice.

 

I just watched an interview with a caucasian woman in Oragon who tested positive for novel coronavirus. This is the first caucasian I've heard of with the virus.

She didn't even know she had it. She said she had a bit of a dry throat a couple of weeks ago but that was the only symptom.

She was tested because she was on a cruise ship with someone else who tested positive. Her husband tested negative and she tested positive.

This reminds me a bit of the West Nile virus. I have a couple of friends who had it. I may have had it but have never been tested. It was a minor cold.

Perhaps Asians are more susceptible to the impact of coronavirus. The current death count is over 1000, all in Asia.