Helical Portfolio Update – The Burden of Cash
The Helical Portfolio is now 20 months old, and seemingly on the brink of maturity. It has grown through its late teen (months), to be a conservative, shy, and perhaps fearful portfolio. [Aside: I have been trained to write scientifically and to never personify – one lesson that has never taken]. There was no activity in the portfolio in August, other than the collection of a couple of dividends, and the cash position is still high. The portfolio has been selling positions this year since February (other than a short lived dip into the insurers). It started the year with 9.8% cash, and ended August with 44.5% in cash. I wrote some months back that “ It is nice to be ahead of goals as it does not induce pressure to try to ‘make up’ and enables comfort in holding a high % of cash, which will erode return metrics in the short term.” While this is true, I have to admit to feeling the pressure these last couple of months, as the market has risen along with my cash position leaving me mostly behind. Since I tend to label myself as a behavioral investor, I try to be attuned to my impulses, and they have been to be a buyer of late. Patience is a virtue, but it isn't often one of mine (so far so good though).
The Helical Portfolio was pretty flat in August, ending the month at $66,660.86, up just over $100 for the month. It is today pretty near that amount today as well. Cash on 8/31 was $29,697.26 at 44.5% of the portfolio. Since I measure my return metrics from the portfolio inception (and year to date), flat periods do tend to erode them due to the passage of time, especially in young immature portfolios like this one. At the end of August, the Helical Portfolio has risen with a CAGR from its introduction in 12/31/2010 of 18.6% and the IRR has been 12.9%. These are satisfying numbers, but reduced from last month’s respective 19.5% and 13.6%, due mainly to just the passage of time. I do feel the impulse to try to maintain past higher return numbers, even though I know I’d be better served being patient. Year to date the portfolio is up 18.4% counting the added cash, and 9.5% not counting it. As previously noted, I added $5,000 4/10/2012 though it has not been deployed to date. Nothing helps an investor reach their goals like adding cash to a portfolio, especially a young one (helps the CAGR anyway, not so much the IRR when it does not get invested).
I’ll update the portfolio profile at the end of next month (on the quarter). With so much cash, I clearly have an abundance of ‘low risk’ allocation, inconsistent with the intended portfolio framework to be monolithic (1/3 low, medium, and higher risk). I continue to be concerned of a correction, but perhaps not so soon (doubt it will be pre-election, but that is just an impression, and Europe has been on the brink for years now). There are some securities that I want to buy. I’ve long lusted for West Pharmaceuticals (WST), but never felt it was priced for addition to the port. It may be nearer now. I don’t have options permission or I would consider selling puts to ‘make use of the cash position’ (not sure I could do this in the Roth, certainly they would have to be cash secured at least). I’d also like to modestly add to my position in Mindray (currently ~5% of port), as the company looks to be returning to impressive growth, and I continue to love how it is positioned as a low cost instrument supplier with its fingers in both emerging and developed markets. Since I consider Mindray to be high risk, I won’t want to exceed 8% of the port. I might also note that I have taken a bearish position in former Helical Portfolio holding Athenahealth via buying puts, but in another portfolio (an experimental one). It looks to me to be a stock that has gotten ahead of itself. I continue to think this company has the right product mix and strategy, but delays in the requirements for electronic health record implementation have taken the pressure off the company customers in the short term. I expect to own this outright again in coming years, but suspect that will be after the stock price crashes.