As every diligent investor should do (whether or not you’re a novice or a pro), you should be looking at your portfolio on a regular basis (at least once a year) to see how its been doing and any adjustments that need to be made.
I’m at fault for not having done this in the past – so let’s call it a New Year’s resolution to review our holdings on an annual basis. Some standard disclaimers:
- No tax / margin / interest /commission costs incorporated in the stats below
- Calculations were based on book and market value from my broker – unfortunately, it’s a little skewed when owning US securities in a Canadian account (i.e. RRSP, TFSA, etc. as those values are in the base currency of the account – CAD)
- Top % gains are based on book value (which may have been purchased in previous years instead of 2013) and does not include any dividends paid. Unfortunately, I haven’t started tracking transactional data yet – but soon to come.
- Stats are based on holdings as of today (Dec. 30) – again, without the transaction data, it’s difficult to represent anything that was entirely sold in the year (i.e. AGNC, KRE.UN, MAKO, etc.)
Some key portfolio tidbits:
Top 10 Holdings (by Market Value):
- AIG (AIG)
- MasterCard (MA)
- Tesla (TSLA)
- Broadridge Financial Solutions (BR)
- Berkshire Hathaway B (BRK.B)
- Markel Corp Holdings (MKL)
- Altria Group Inc (MO)
- Google (GOOG)
- The Buckle (BKE)
Commentary: These 10 (really 9) companies represent over 50% of our (me + wife) portfolio. With Cash being the number 1 holding, I obviously have not been diligent in making the best use of our money – even having that invested in the US broad market this year would have returned a handsome 30% and even 10% in the Canadian market. Overall, we’re looking for opportunities to up the weighting of the other 9 companies (or finding another company to join this core) and will use the cash to add to existing positions on any dips in price.
Some points of worry for 2014 and beyond:
- AIG (our largest position) actually consists of no shares – it is 100% based on long term options (2015, 2016) and warrants (2021). Any significant drop in price (whether AIG created, natural disaster, or via another financial crisis) could wipe out our entire investment. However, the company continues to rebound and with deep-in-the-money options ($25, $30, $35), our holdings are behaving much like owning the actual stock.
- Tesla (TSLA) is the Cinderella story and stock market darling of 2013 – the little EV car company that took on big bad Detroit. Volatility is high with this one and could just as easily fall off this list as move up.
- Berkshire (BRK.B) is a new additional late this year – picking stable long term companies. Founder and investor extrodinaire Warren Buffett, has suffered from health issues over the past years, and any major news *knock on wood* could bring this holding down. Second in command Charlie Munger does not fair much better being even older than Buffett. However, I trust that the day-to-day decisions are being made by others in the company and succession planning is well underway.
While these do pose some worries, I follow at least one diversification rule – not to have more than 10% of your wealth in any one company. If an investment went belly up, losing 10% would hurt, but would be recoverable. Note, this rule may not apply if you are young (i.e. <25) and are just starting out investing – like our friend Patrick Hop where time to make back any losses is plentiful.
Top Gainers & Losers (think they use the term laggards):
|Top % Gainers||Top % Losers|
|3D Systems (DDD)||Hovanian Enterprises (HOV)|
|Facebook (FB)||Dundee International REIT (DI.UN)|
|Tesla (TSLA)||Universal Display (OLED)|
|Yahoo! (YHOO)||WisdomTree Emerging Markets (DGS)|
|Bank of America (BAC)||Chart Industries (GTLS)|
|Baidu (BIDU)||AFSI Preferred Share A (AFSI.PR.A)|
|Xinyuan Real Estate (XIN)||Michael Kors (KORS)|
|BofI Holdings (BOFI)||TransAlta Corp (TA)|
|Pacer International (PACR)||Canadian Oil Sands (COS)|
Note: Not all investments were initially purchased in 2013. Gain/loss was determined against book value – which was the only readily available data to come up with this list.
Commentary: First the losers – the good news is the last five losers, have all been bought in the tail end of 2013. The bad news is they’re already down the most 😛 Hovanian (HOV) was a (luckily small) bet that the US housing market would recover meaning home builders would benefit. I was right about the recovery – but an investment in real estate associated industries would have been much better. Home Depot (HD), Lowe’s (LOW), or even Zillow (Z) all proved to provide same-as-market or better returns in 2013. Dundee Intl REIT (DI.UN) suffered like most REITs with the fear of rising rates – but now provides a 8.3% dividend. I continue to play catch-up on Universal Display (OLED), an investment in the next generation OLED displays,to be written about shortly and WillowTree Emerging Markets (DGS) in an attempt to diversify has suffered along with all the Emerging Markets.
Biggest winner of 2013 is probably anything to do with 3D printing – which unfortunately, I thought too little of and gradually reduced my holdings throughout the past couple of years – else 3D Systems (DDD) might very well have taken top spot on the Holdings list. Facebook (FB) and Baidu (BIDU) proved that they could in fact make money on mobile platforms and will be worth continuing to watch the trend. Our Facebook options expire in January so we’ll be making a decision shortly on whether to roll, buy shares outright, or leave the company alone. Yahoo! (YHOO) brought in new CEO Marissa Mayer (actually in mid-2012) and the stock has gone up 150+% since her arrival. Questionable as to if the rise can be attributed to Mayer’s arrival or Yahoo!’s stake in Chinese online marketplace, and potential-2014-IPO-candidate, Alibaba. Top holder AIG deserves honourable mention as it would’ve made the list if this author hadn’t already rolled the 2014 options into 2015, 2016, and purchased more warrants.
Holdings by Sector:
Some explanations first – the sectors are defined by basically looking at the company profile on Google Finance and picking the sector and industry that Google has slotted them in. As we’ll describe later on, some don’t make sense. Some of our holdings in the US index obviously don’t have a sector, so we’ve dumped it into a sector called “Index”. My wife has some mutual fund holdings from a previous life that we haven’t bothered to touch and put on our holdings list but they are a mix of stable dividend paying based funds. At some point, we’ll look to revisit if those investments are worth moving elsewhere but right now, not worth the administrative hassle.
At first glance, it looks like I have overweighted the financial sector quite a bit between our holdings. Even the S&P 500 only has 14% weighting in financials vs. the 30+% in our portfolio:
Considering that we are quite bullish on AIG, which is also our largest holding, that would explain some of the overweight percentage. A further breakdown within financials:
Breaking down the financial sector, we see that REITs were considered part of financials (debatable – we’re investing in our REITs treating them like fixed income – which would up the FI slice to 10%). The REIT category surprisingly also includes a 2% overall allocation to wireless infrastructure and tower operator, American Tower (AMT). Officially the company claimed REIT status recently – with its US operations being treated like a REIT while its international operations are not – allowing it to grow and reinvest the money. With most of AMT’s expansion plans being outside of America, I would’ve probably liked to move this to the Telecommunications sector. Three of our largest holdings (AIG, BRK.B, MKL) are all classified in the Property & Casualty Insurance industry which is some concern (didn’t really see that until I did the review). Berkshire arguably while known for its ownership of GEICO and other insurance companies, probably belongs more in the Holding Company section of the pie. It’s latest quarterly report show that the breakdown of revenue and earnings across the three lines:
|Insurance and Other||39.25%||8.59%|
|Railroad, Utilities, & Energy||9.88%||4.09%|
|Finance and Financial Products||50.86%||87.32%|
Is it really fair to put BRK.B in the Insurance sector? Maybe yes and maybe no. However, what I will definitely be doing is not allocating any future investments to the insurance industry (or maybe even the financial sector at that). If our investment in AIG pans out sooner rather than later, and goes over our 10% concentration rule, we might take some profit and reinvest it in banks and other financials that pay good dividends or even the other sectors (to reduce our financial sector exposure).
I’d like to find more companies within Healthcare (currently only lonesome Intuitive Surgical resides there) and will likely add more Canadian energy and telecommunication companies once their dividend yields move up a bit. Always have an interest in technology and surprised that the weighting was not higher in that sector – although it is currently dominated by the big internet companies Facebook, Google, Baidu, and Yahoo!.
Investment by Region:
No fancy graph here by region to 58% US, 27% Canada, 3% International, (12% cash to add up to 100) – caveat that some of the US companies obviously have international business. Being in Canada, our stock market primarily consists of banks and resource/energy companies. I’m a big believer in investing in what you know and unfortunately I don’t know a lot about resources or energy which probably takes away what seems like half of the companies on the TSX. Also find more innovative companies in the States and generally more information readily available when researching US securities. Unfortunately, sometimes this has not worked in my favour (i.e. when Canadian resource stocks were hitting new highs as the US market was dropping). In 2013, US stocks outpaced their Canadian counterparts and I predict that will continue in 2014 – we’re also going to say that the USD should rise against the CAD as US rates look likely to go higher before Canadian rates do which should help bolster the currency (which also benefits the portfolio).
So, the year-end review showed some surprising results – a little nervous about the % allocated to insurance but that will only go down over time. I’m sure the financial planners who preach diversification might be screaming at the screen and will be a hopefully-soon-to-be-blogged post on why I debate about being “diversified”. Will also use that post to look at what percentage of my portfolio I want to classify as growth, dividend, stable, etc. For now, that’s enough analysis in this long post, and a tired blogger figuring out how to create fancy Excel pie charts.
In a year where the US market went up 30%, it was pretty difficult to make a bad investment – we’ll hope for an equally well 2014 and come back again same time next year.