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XMFHelical (< 20)

Portfolio Review Exercise - Did I add Value



January 01, 2011 – Comments (4) | RELATED TICKERS: JNJ , EPD , WELL

I like to do an end of year portfolio review, such as mentioned last year.  Focusing to start on the IRA, which is still my largest account, 2010 was a pretty good year.  I note that the S&P (with dividends added but not reinvested) was up 14.87% (SPY used).  Honestly, I had no such expectations that 2010 would show such good returns, and entered the year with an expectation of a double dip recession.  I also got comfortable holding a decent % of cash (often 10-25%), something that has been a struggle for me in the past (always something to invest in).  I have a bit over 14% cash now in the IRA.

The IRA increased in value 19.88%.  A nice bit of out performance over the S&P's 14.87%.  No money was added to this account.  The account was (to my mind) invested relatively conservatively with a heavy emphasis on income generating equity securities.  These holdings seemed to benefit a bit from a search for yield, as treasuries offered quite meager income yield throughout the year.  

It was an active year for me in terms of transactions.  So while the account did outperform, and more importantly drive to substantial positive returns,  I note that transaction costs were ~ 1% of the accounts starting 2010 value (I pay ~14.95 per trade).  That is a lot for a self managed account, and a line I try not to cross.  I would like to stay below the fee % charged by many mutual funds, and if I don't, then perhaps holding funds would be a better choice.  There has always been a fair amount of chatter in and around TMF on how much hindsight to apply to your portfolios.  The question, to my mind, is always 'did I add value?'.  While one can get overly obsessive revisiting stocks that have been sold, I find that performing one year look back is certainly a worthy exercise.

I did this by printing out (again) my account statement for the period ending 12/31/2009.  It lists all the holdings in the account at the start of 2010.  I had 28 holdings (including cash), 14 of which are no longer owned.  That is a fair amount of turnover, but I would note that the 'core' positions were essentially unchanged and in many cases added to.  These include JNJ, EPD, HCN, SO, BAM and a few others. Core positions are > 30% of the port.   At the end of 2010, the account had 31 positions (I'll revisit allocation in another post). I can't help but notice that a few of the companes I sold are trading at higher prices today than when I let them go (hey, it happens - LOL).

So, did I add value?  I took the positions I held at the end of 2009 and calculated what they would be worth today (including dividends as cash accumulated not reinvested).  There were  fortunately only a couple of odd transactions to account for (such as VTIV going private) that required just a little extra effort.  This would be the value of the port if I had done nothing.  I have that hurdle of the  ~1% transaction fees I incurred over the course of the year.  Turns out, if I had done nothing, my account would have still modestly beat the S&P.  Must be a history of superior stock picking - yes?. : )   If I had done nothing, the account (with dividends collected) would have increased 15.2%, slightly better than the S&P's 14.87%, but not as much as the 19.88% actually achieved.  So it appears, at least for 2010, that I did indeed add value via my activity in the account.  Not in every instance to be sure, but overall.

A worthwhile exercise in my opinion, and if you try it yourself, please do reply with the result (and lessons learned).  And yes, I owe a good degree of thanks to The Motley Fool for both suggestions and discussion, as well as providing this outlet (and others) for me to record my thought processes and considerations, as benefiting my ability to make overall positive decisions in my IRA account this year.


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4 Comments – Post Your Own

#1) On January 01, 2011 at 2:29 PM, Entrepreneur58 (37.59) wrote:

I'm not so sure I would agree with your concept of "adding value".  You compare how you ended up the year with how you would have ended up by just holding your positions.  Doing nothing is actually a decision just as much as buying and selling are decisions.  If I do nothing and my portfolio goes up by 40% for the year, according to your methodology I added no value for the year, but in fact I had a heck of a good year. 

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#2) On January 01, 2011 at 4:31 PM, MMTInvestor (89.33) wrote:


I agree that "doing nothing" is a decision, but TMFHelical's point is that the decisions he took added value relative to the possible decision to not change anything, which he did not take.


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#3) On January 01, 2011 at 4:40 PM, XMFHelical (< 20) wrote:

What Scott said.


And by the way, easy post to write in a year when I did in fact add value.  Not sure I want to revisit some of those prior years. 

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#4) On January 01, 2011 at 6:36 PM, rd80 (95.11) wrote:

This is relatively easy for my regular IRA since it was hermetically sealed last year.

Actual increase for 2010 was 14.0%

Do nothing would have returned 12.55%

Most of my action is reinvesting dividends, so the 'do nothing' option would have built up cash.

I started 2010 with 23 postions, including five mutual funds and cash.  I ended the year with 23 positions including cash and the same five mutual funds.  The mutual funds all reinvest distributions.  Other than investing cash and dividend payments, I did or had the following actions:

trimmed one fund position and invested the money in existing stock holdings,
had one company (RUBO) taken out in a buyout,
swapped one utility holding for a different one,
added a currency ETF (FXA),
quick in-and-out arbitrage trade with Allis-Chalmers

If I consider the FXA position as cash, the cash balance at end of 2010 is nearly the same as at the end of 2009.  My brokerage account has 100 free trades per year, so no commissions or management costs incurred.

This portfolio is pretty conservatively invested and I expect to underperform the S&P a little in good years, but would be unhappy with myself if it underperformed in a weak market.  Given that I didn't do a lot with this portfolio, I'm pretty happy with adding 1.5% to the return and with the overall performance.

A better value added comparison would be to assume the dividend stocks were in something like a DRIP and compare those results.  But, that's more work than I feel like tackling right now.

Best and worst 2010 among the holdings on a 'do nothing' basis:

Best - HWKN  +106.5%
Runner-up - CVGW  +38.8%
Worst - RIG  -16%.



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