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XMFHelical (< 20)

My (non CAPS) 2007 In review - Part1



January 01, 2008 – Comments (3)

We take a break from the sporadic biotech / health care commentary since it is time for the portfolio oriented annual naval gazing that occurs at the turn of the year.  This year more than most, the Jan 1st time point for this exercise seems especially arbitrary.  Putting this in writing is mostly for me, but I don't mind throwing it out to the blog.  The commentary is mostly about my IRA - which is ~ 60% of our invested assets, which are held in two Roths, two traditional IRAs, two taxable brokerage, and two 529's (no current 401ks sadly).  My wife manages her own accounts and we rarely overlap.  It is the IRA account I focus the most on (for obvious reasons) but is also more conservatively invested than other accounts, I'll mention others later.

I have 20+ years to retirement (if I do) and am in good enough position that I can accept relatively attainable gains (the goal is 9-12% annual on average).  The account is built to outperform the S&P when the S&P is down or has a low return (< 8% - like this year), but not necessarily chase the S&P when it has its 15+% years.  Using SPY as proxy, the S&P ended 2006 at $141.62 paid $2.70  in dividends in 2007 and ended at $146.21 for a return of (146.21-141.62+2.7)/141.62 = 5.15%.  Pretty modest.  My IRA failed in its goal to beat the S&P, returning 4.73%.  Oh well, there is always next year.  I traded too much, which may have hurt my performance, but much of that activity was related to changes in the portfolio.  I altered some of the asset allocation in 2007 as follows:

Asset Class                  2006            2007
Income Securities         30%            30%

Overseas                     25%            25%

Small Cap                    20%            25%

Value Funds                 15%            NA

REIT                            10%            10%

Alternate Yield              NA            10%

Allocations are rough and I try to keep them to +/- ~2%.  They are pretty near assigned amounts right now (closer than normally).  Dividend paying securities are collected in 'Income Securities' but really dominate the portfolio.  Of the 32 holdings, 25 pay a dividend, 26 if you count the PRAA one-time 2007 payout.  There are no bonds as of yet (waiting until I'm 50).  Note that these are somewhat restrictive allocations.  If I wanted to buy Starbux or Dell for instance (I don't), they wouldn't fit in any category.  This is intentional, as stocks of that type (large cap non dividend payers) don't belong in my IRA in my opinion.  I would be content to hold them in other accounts (Roth or taxable).  I collect dividends as cash and forward rebalance into underperforming allocations.

Income Securities is composed of stocks paying a decent dividend.  This segment saw a bunch of turnover.

End 2006                                 2007
AJ Gallager - AJG                    AJ Gallager - AJG (added more in 2007) -

Bank of America - BAC            Bank of America - BAC (added more in 2007)

J&J - JNJ                                J&J - JNJ (added more in 2007)

Lee Enterprises - LEE              Lee Enterprises - LEE (sold 3/07, recently rebought)

General Electric - GE              General Electric - GE (lightened)

RPM - RPM                            RPM - RPM

Cedar Fair - FUN                     Southern - SO                                                 

Wrigley - WWY                       Zenith National - ZNT

National City - NCC                 Cohen and Steers - CNS

Mercury General - MCY

Heinz - HNZ

MCY, NCC, WWY, and FUN were all sold at prices higher than they are today; HNZ in March and some GE in February were sold at a prices just a bit lower than today.  Good sales but of the buys, SO was very good.  Rebuying LEE has worked out so far (puff that cigar butt).   ZNT is up only due to dividends.  Additions to BAC, AJG, and even JNJ in January are all down, as is new holding CNS.  RPM was flat on the year.  2007 also saw a brief flirtation into Washington Mutual, but I bailed quickly before much damage was done (whew).

Here too a lot of change, mostly due to late year breaking up of DODFX which anchored this allocation.

End 2006                                 2007

Sadia - SDA                            Sadia - SDA

Ctrip - CTRP                           Ctrip - CTRP

EEM - emerging market ETF    DEM - Emerging market ETF

Mathew's India Fund                Gigamedia - GIGM

Dodge and Cox Foreign            Allied Irish Banks - AIB

Banco Popular - BPOP            Brookfield Asset Management - BAM

Glaxo - GSK                            Pretoleo Brazil - PBR

France Telecom - FTE

Invesco - IVZ

Positions in this allocation as with many others got larger and more concentrated.  I sold GSK, which I was very bullish on at years open.  They have had their issues this year and I'm not bullish on big pharma going into the election year, especially with the FDA being so hesitant to approve anything.  I sold FTE, IVZ, and MINDX at good gains, but all too soon.  Picked up AIB, which did poorly so far, BAM, no complaints, and PBR, which is already a double.  Gigamedia was a great pickup as well (bought in January and again in August, all below $11).  BPOP was a good sell, but I'd like to be back in it one day (summer08?).  The exchange of EEM for DEM was based on impression of a nice year end dividend (wrong) and more infrastructure less financials in the holdings.  Still, this wasn't worth the commission.  I expect to dissolve DEM for a few additional single company holdings next year (IGC?).  Sadly strong 2007 performer SDA was never a large holding (<2%), but CTRP is more substantial (~3.4%).

Small Cap

A somewhat arbitrary category as many of the companies in the above-described allocations are small caps.  I wasn't too active in this area, but it was the most volatile.

End 2006                                 2007
Montpelier Re - MRH                Montpelier Re - MRH (added in 07)

First Marblehead - FMD            First Marblehead - FMD (added in 07 - oops!)

Portfolio Recovery - PRAA        Portfolio Recovery - PRAA (added and lightened)

Otter Tail - OTTR                     Otter Tail - OTTR

InVentive Health - VTIV             InVentive Health - VTIV (added in 07)

Nuance Comm - NUAN            International Bancshares - IBOC

Select Comfort - SCSS            Interactive Brokers - IBKR

                                              Volcom - VLCM

                                              Buffalo Wild Wings - BWLD

A good chunk of the money from breaking up the mutual funds went to HG type recs (my holdings aren't all newsletter recs).  I sold NUAN too early, but for very nice gains, and SCSS in June at an overall profit (another bullet dodged).  I went overweight (>5%) into PRAA at one point when it seemed silly cheap (end of Feb) and sold that 'trading postion' and them some (but not all) at the end of June (that worked out well), I recently added again in Nov.  IBOC has so far not done too well, and IBKR was a nice buy.  VLCM and BWLD are small initial position (~1%).   The added % of this allocation in my portfolio called for some added diversity of holdings in my opinion.

Value Funds

As 2007 opened I owned Muhlenkamp (MUHLX) and Ariel Fund (ARGFX).  I don't have either now.  Neither fund did great on 2006 or 7, but I really like the philosophies of both and will miss them.  I would recommend each.  .  I still get Ron Muhlenkamp's newsletters.  Selling them did not have much to do with performance, but more to do with my comfort level at holding single companies, and in larger portions.  Overall, my port is more concentrated going into 2008.

REIT / Alternate Yield

REIT holdings at 2007's open were Health Care Reit - HCN, Annaly Mort. - NLY, American Financial Realty - AFR, and ETV - a covered call writing closed end fund.  Neither NLY nor ETV is what I wanted to consider REITs.  NLY is a REIT, but I wanted to think more in traditional real estate owning companies.  So the 'alternate yield' category was formed.  This category holds high yield, often-speculative companies.

So in 2007, I increased my HCN holding when it dipped down to yield over 7% (worked well), and added to my AFR as it dropped through 2007, which was ugly.  The eventual buyout of AFR salvaged this a bit, but it was still sold at a goodly loss.  I replaced it with HRPT Properties Trust - HRP.  So far that has just dropped.  It yields over 10% so it’s a hold IMO, but I won't be adding.

NLY went to the 'alternate yield' category with ETV and initially FUN (which I soured on and sold).  I let ETV go for other high yield opportunities, and because I don't like holding CEFs when the market and investor sentiment are dropping.  NAVs fall and sentiment tends to widen the price discount as well.  I added small positions in American Capital Strategies - ACAS, which went down, Capital Source - CSE, which went down then came back to par, and a flyer on Countrywide B preferred shares - CFC-PB, also went down.  Altogether this allocation yields well over 10%, and has great potential capital appreciation upside as well (also implosion potential).

Altogether my portfolio yields ~3.7%. Sweet.

That's enough for now, and describes how 2006 played out.  Lets see if I can comment on the other accounts, alternate portfolio strategy, and impressions on each holding going into 2008.


3 Comments – Post Your Own

#1) On January 01, 2008 at 7:49 PM, collegeeducated (65.25) wrote:

a lot of detail and good post.  let's all hope for a better 2008 for the market.

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#2) On January 02, 2008 at 12:29 AM, dwot (29.28) wrote:

20 years to retirement, we sound like about the same age.

I've gone for locking mine up for a year at 4.5%, government guaranteed term deposits.

I traded a lot as well, but in my case it didn't hurt at all.  

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#3) On January 24, 2008 at 9:27 AM, XMFWhatsmyoption (< 20) wrote:

Great stuff Zz.

I've just noticed I can get Zz on RSS. 


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