TMFDeej (99.47)

CAPS vs. the Real World

July 22, 2011 – Comments (5) | RELATED TICKERS: VOD , ITT , PWE

While there are certain aspects about my broker (which I initially named but after writing about the hacking incident that you will see a little further down this post I have decided to redact) that I don't particularly like, such as its limited access to non-investment grade bonds (the whole grading system for bonds as determined by Moody's & S&P is a complete joke anyhow...but that's a topic for another day) and its limited access to IPOs (darn you for costing me 10% or so on UAN by making me purchase it on the open market), there is a lot to like about it as well.

For one, all of my bank accounts were hacked into a while ago and the fine folks at my broker handled the situation a lot better than the people at my regular bank.  The money never left my investment account when the fiends attempted to do a wire transfer, while poof it was instantly gone from my regular bank account and I had to jump through hoops to get it back.

Perhaps more interestingly as I sit here trying to procrastinate on a Friday afternoon before I go away on vacation, my broker provides account holders with some interesting portfolio analysis.  It takes all of my separate accounts, IRAs, college savings, regular savings, etc and looks at them as a whole.  Here's some interesting (perhaps only for me ;)) metrics from my current portfolio:

Asset Allocation

Large Cap Equity: 14.4%

Small Cap Equity: 26.4%

International Equity: 14.0%

Fixed Income: 29.5%

Cash Invest: 13.8%

Other: 1.9%

Interestingly, this is probably the highest cash percentage that I have had in my account...ever.  I'm not particularly bearish on the markets, but as a stock picker I buy what I find attractive, sell what's less so, and then wait for a new opportunities. 

I have added smaller positions in Williams Companies (WMB) and ConocoPhillips (COP) and a larger position in ITT (ITT) over the past several weeks, but I have also sold a bunch of things as well, including my previously mentioned stake in the recently acquired Southern Union (SUG), my stake in Pebblebrook Hotel Trust (PEB) after it made an acquisition that I didn't like, and a few other odds and ends that did not have attractive catalysts or pay decent dividends. 

So here I sit with my 14% cash waiting for something to scream "Buy Me."  I'm not sure how up-to-date that cash percentage is because I also recently bought a couple of preferred stocks that I mentioned in my last post, Evolution Petroleum 8.5% Cumulative Preferred Series A, Pebblebrook Hotel Trust 7.875% PFD-A, and ATP Oil & Gas 8% Convertible Preferred.  I might be a little lower on cash if these buys weren't taken into account yet.

Now onto my top five holdings.  While I suppose that one could say I run a reasonably concentrated portfolio, I tend not to overweight positions in any one stock for some reason.  My five largest positions are as follows:

Retail Opportunity Investments Corp. (ROIC): 5.5%

Vodafone Group (VOD): 5.3%

Penn West Petroleum (PWE): 5.1%

Enterprise Products Partners (EPD): 4.8%

ITT (ITT): 4.1%

Now let's take a look at my investments by sector, compared to the overall market:

Consumer Discretionary: 0.0% vs. 11.7% for the overall market as measured by the The Wilshire 5000 Index.  HA, can you tell that I'm not all that optimistic about the consumer?

Consumer Staples: 16.4% vs. 9.0%

Energy: 20.2% vs. 12.8%

Financial: 23.4% vs. 16.9%.  This is an odd one, because I don't believe that I currently own common stock in a single bank.  I suppose that my broker must be looking at my bond holdings.  Yes, there's some bank bonds in there, like American Express, BofA, Golden Sack (GS), Morgan Stanley but, individually these positions are not that large.  I guess that they all add up.  There's also a decent position in the double digit yield-to-maturity Montpelier Re bonds that I picked up during the financial crisis.  I haven't touched bonds in many many months because the yields on them are an absolute joke right now.

Health Care: 7.4% vs. 10.4%

Industrial: 9.0% vs. 11.1%

IT: 0.0% vs. 18.0%.  This is an interesting one.  I suppose that this has to do my tilt towards value investing and dividends.  One could argue that some of the Big Cap tech companies, like Microsoft, Intel, etc... are starting to fall into this category.  Perhaps I should have some exposure here, but I'm not going to force anything just for the sake of owning one sector or another.  I look for value-priced stocks with special situations or catalysts that I believe will cause their stock prices to appreciate significantly in the future or attractive companies that pay solid dividends.

Materials: 6.0% vs. 4.5%

Telecom: 0.0% vs. 2.5%.  This is obviously wrong because Vodafone is one of my largest positions.  Perhaps the fact that it is an international company keeps it from being recognized as a telecom...hmmmmmm.

Utilities: 17.7% vs. 3.1%

Since inception (I'm still trying to find out exactly what time period this represents because it's obviously not since I started my accounts.  It's likely since this feature became available, some time during 2009) I have managed to outperform the S&P 500 by a whopping 1%, 19% vs. 18%, which probably isn't anything to write home about.  I'm also outperforming the MSCI EAFE which returned a little over 15% during the same period.

I've definitely managed to do better than this here in CAPS.  I think that the main reason for the difference in performance is the fact that I'm a combined 43.3% in cash and bonds in real-life right now.  That obviously acts as a significant drag during raging bull market like the one that we have experienced over the past several years.  I suspect that this mix will shift more towards equities as my individual bonds mature unless interest rates become significantly more attractive some time soon, which I definitely don't expect.  Also, as you can tell, I tend to be a lot more conservative with real money than I do with funny CAPS money.  I hop onto good investments here in CAPS earlier than I tend to in real-life and I never, ever short stocks in the real world any more.  Even here in CAPS really awesome days for the overall market tend to be big negative days for me in terms of my CAPS score.  I'm definitely reasonably well positioned for any potential downturn and if I give up a few points of return by being conservative so be it.

Deej