It Should Come Natural...

So the with the market "flash crash" that we saw over the past couple of days there has been some very nice opportunities to buy. With that one has to take a look at his/her portfolio and see if there are any adjustments to be made. This must be done rationally, as I noted in my latest Monday Musings article, and honestly it should come natural.

SOURCE: https://cdn.mmos.com/wp-content/gallery/hearthstone-overview/Hearthstone-Divine-shield.jpg

Things happening naturally to your portfolio reminds me of a little game that I am quite fond of, Hearthstone. For those of you that do not partake in any online video games, Hearthstone was the 2nd most played PC game in December, ranking behind the powerhouse League of Legends. If you want some investing advice about gaming, Hearthstone is made by the same company that brought you World of Warcraft, Activision Blizzard, Inc. (ATVI). 

In Hearthstone you build a deck then battle against another player that is trying to best you. There are combos, counters, offensive positions, and defensive positions. It is a massive hit with the community and is a very strategic game. It is said that you know you have created a great deck combination when the game flows naturally to you, always reacting to the opponents cards quickly and swiftly without having to think.

This is just what I believe should happen inside your portfolio. 

When opportunities arise you should be able to look at your portfolio and decide immediately what positions you can sell in order to create a better mix of assets. This all is determined by the goals of your portfolio, the opportunities in the market, and the length of time you have to wait.

This being said I wanted to go through a few changes that I made in my current portfolio.

 

THE GOALS

If you remember from my 2017 wrap up I had three goals for end of year 2018:

  1. Total Portfolio Value of 30k
  2. 2018 gain of 10%
  3. Total Estimated Yearly Dividend Income of $1350

If you do the math then you can see that a $1350 dividend from 30k is a 4.5% yield. Now I am adding monthly to my portfolio which means that this will most likely come in a yield on cost (YOC) of around 5%. This meant that at my current YOC (4.8%) I would need to continue to add to my high yield dividend stock category.

Also my 2018 gain of 10% is simply a matter of continuing to choose stocks that offered not only value but a good dividend payment. Currently the portfolio is hurting a bit for the year, down ~6%, but I believe that I will set myself up to be in a great place as long as I continue to be patient and wait for opportunities.

 

OPPORTUNITIES

And then there was a dump...The market lost a sizable piece of value over the past few days and that was just what I was waiting for. Luckily I had some cash waiting at the side for a time like this and also I had a natural selling point for a couple of my positions.

 

What did I sell:

I sold out of 4 of my positions:

  1. CSS Industries, Inc. (CSS)
  2. Sturm, Ruger, & Company, Inc. (RGR)
  3. 8point3 Energy Partners, LP (CAFD)
  4. V.F. Corporation (VFC)

Why did I sell out of these? Again, every single one came pretty naturally. In CSS and RGR I really don't see much EPS gain in the near future and with fairly low dividend yields that haven't increased year-over-year (RGR decreased) I thought that it was time to eliminate these from my portfolio. I actually like RGR but do not like to own a company that adjusts its dividend based on earnings without having large potentials in growth on the horizon.

CAFD is another story altogether. CAFD recently has agreed to be acquired by Capital Dynamics for $12.35 a share, a full dollar under where it was currently trading. Now some would be mad about that buyout, but honestly it was a fair price on a stock that really wasn't super safe in terms of debt. Since I purchased it originally at $12.43 per share, recieved $1.12 in dividends per share over the past year, and sold at $12.25 I actually had a decent return. Still another natural sell, although it was forced.

VFC was another story altogether. On the year I was in the green to the tune of 50% and also VFC only held about a 2.3% weight in the portfolio. Now I could do a couple things at this point, all but one would probably lose me money. So I sold out of my small position and moved the funds elsewhere. Still love VFC but will wait until a dip, then re-enter.

So what did I buy after selling these positions and depositing another 1k?

  1. STOR
  2. STAG
  3. Added to my MPW
  4. Added to my PFE
  5. Added to my OMI

In terms of STOR & STAG I really like the REIT sector right now as a great value add to dividend funds. Yes I know that REITs are a bit scary right now with rates rising, but these two companies have great management and stable dividends. I wrote extensively about STOR in my February newsletter (if you want the password subscribe here)and really like their diversification. Also you can't go too wrong adding a Buffet pick... STAG on the other hand is a great play in the warehouse game that I believe will continue to grow with an expanding economy.

My other three were very simple increases to positions that I already believe are undervalued. The market has been giving a discount on MPW (REIT discount? Yes please!) and PFE is a company that continues to be a stable source of dividend income that I am now increasing my YOC. OMI is a deeper value play for me that has a great dividend growth history and is paying a premium currently. There are some risks but I believe that they have been overblown.

 

timeline

My timeline is pretty long considering that I just turned 30 and retiring is a long way away. I am looking at a long road ahead of me, 30-35 years, so I am primarily interested in buying companies for the long term that will pay out great dividends.

 

conclusion

Everyone is different, but knowing your goals, opportunities, and timeline should not be. Remember that the market is a volatile place at times, with wild swings up and down like we are seeing now. Don't bet, like those using 3x ETFs, but instead do your research and find great companies that you can bet on in the long run. If they go down, buy, if they go up, look elsewhere for value. Don't panic on a down market, instead realize the opportunity you are being given and sieze it.

 

As always feel free to comment below.