Tuesday, January 1, 2013

Ah, Investments! No Politics.

We are at the end of the calendar year, when many people review their portfolios and investment strategy, so I thought I’d take a bit more formal than usual look at the stocks I owned this year.   It was a good year for the stock market.  It was a great year for yours truly because a couple of long shots paid off.  Listed below are stocks I owned at one time or another in calendar year 2012, along with the percent gain in stock price for the year.   Following the list is a commentary on each holding that, hopefully, will help the reader think about his or her own investment decisions. 

And help me please, I’m running out of fresh ideas.  That may be because there aren’t a lot of fresh opportunities in this slow growth, status quo economy.  Or it could be I’m getting old and am not so much in tune with young consumers, new technologies and emerging markets.  Whatever (except for this reference) isn’t it nice to read something about financial markets that doesn’t reference the Fiscal Cliff? 

One piece of indisputable advice,  Buy low and don't be afraid to sell on the upswing.  If you wait for the top you will miss it and you will lose.

Name of Stock
Pct. Gain/Loss
Capital Senior Living
Ryland Homes
Sunrise Senior Living
Alpine International Real Estate
Glacier Bancorp
Fidelity International Small Cap
Investors Real Estate Trust
China ETF
Dow Jones US Real Estate ETF
Health Care REIT
John Deere
Dow Jones Select Dividend ETF
West Bancorp
Ultra Oil ETF
Coca Cola
Ultra Short Long Term Treasuries

Capital Senior Living. (CSU, 135.4%)  CSU is a small player in the assisted living space.   Six or seven years ago I thoroughly researched publicly traded assisted living and nursing home corporations, figuring that with the aging baby boom population this would be a high growth sector.   CSU seemed like it could grow into a big player.   Although it never became high growth, the stock popped big time along with other assisted living stocks this year in wake of the Sunrise (see below) buyout.  I sold CSU in August.

Ryland Homes. (RYL, 131.6%)  RYL builds mid-priced homes in a variety of markets.   Before buying RYL I checked out its strategies, examined the nature of its losses in the wake of the 2008 meltdown and studied its balance sheet.  Like most of the major homebuilders, RYL emerged from the meltdown with a remarkably strong balance sheet.  The company had built few houses on spec; so losses primarily involved writing off early stage development costs and writing down undeveloped land.   I expected that homebuilders would bounce back because housing starts nationwide had dropped below a 500 million annual rate, which is way less than the building required to keep pace with population growth (a million to a million five).   After 4 or 5 years at extremely low building rates, I guesstimated first in one locality, then another and another, the excess inventory built up during the housing bubble would be burned off (actually sold or plowed under) and home building would reinvigorate.  Everyone has to live somewhere.   A few people told me I was whacko or too early when I bought RYL in 2011.  Well, in investing at least, the only way to get to a party on time is to arrive early.   My critics were wrong.  I was right.  I’ve sold about half of my RYL.

Sunrise Senior Living. (SRZ, 121.9%)  If we have a kid who goes to an Ivy League university someday it will be thank you SRZ.  I loaded up with SRZ when it was flirting with bankruptcy and its stock price had one and two handles; so my total return since purchase is something like a thousand percent.  Health Care REIT is buying out SRZ at $14.50 a share.   Sunrise’s business model targets high-income households in affluent ZIP Codes.  It’s a strong operator. But accounting shenanigans and overly leveraged and aggressive international expansion plans just about brought the company down in 2009.  While SRZ’s balance sheet was thus horrible, it became apparent (to me by inference) that, despite bankruptcy warnings, the company was able to secure incremental financing (it wasn’t just turning over existing financing).   I read all the regulatory filings.  I listened and re-listened to the quarterly conference calls.   I decided that the big lenders, who were crawling over every inch of the enterprise and its books, had decided they were best served if the company survived intact and believed it could do so.   I knew I could make a bundle if they were right.  I’ve sold most of my SRZ (mostly reinvested) and will sell remaining shares when the sale to HCN is finalized this spring.

Alpine International Real Estate. (EGLRX, 34.4%)  I had invested in this mutual fund in 2005 and sold it in late 2007, prior to the financial meltdown.  I jumped back in during 2009 and have ridden it ever since, largely in the name of international diversification and in anticipation of easy money policies. 

Glacier Bancorp. (GBCI, 22.3%)  GBCI is a Montana-based bank holding company that owns community banks located in Montana, Idaho, Wyoming, Colorado, Utah and Washington, including Big Sky Western Bank, where we maintain accounts here in Bozeman.  GBCI is notable for being among the small minority of banks that turned up their noses at TARP funds during the financial meltdown.   It’s a bank operated like a real bank that has maintained its dividend payout throughout.   It currently yields 3.9 percent, which is pretty darn good in an era where 10-year treasury bonds are yielding 1.7 percent.   I am proud to have a significant (for me) ownership interest in GBCI.

Fidelity International Small Cap Opportunity Fund. (FSCOX, 21.2%)  Like Alpine, I had invested in this mutual fund in 2005 and sold it in late 2007 prior to the financial meltdown.  I’ve ridden after buying back in 2009 in the name of international and size (small cap) diversification.   I’ve not returned full bore to my pre-2008 strategy of overweight investment in international stocks (largely because of the turmoil in Europe), but am wondering if I should.

Investors Real Estate Trust. (IRET, 19.1%)  This was as about as close to a publicly-traded local REIT as I could find.  It owns commercial, multi-family and retail properties located primarily in the northern Great Plains (Minnesota and North Dakota) and pays a handsome dividend (6.1 percent yield).  Its management is still dominated by the family that found the firm; IRET’s strategies reflect a conservatism that’s common for family business.  When I bought this stock a couple years back, the company had yet to fully restructure following its post-2008 setbacks, but I reflected on the potential of the oil patch boom in North Dakota to drive positive results.  After falling back the stock is doing well.

China ETF. (FXI, 16.0%)  In the name of international diversification I bought some of the FXI when it was beaten down this summer and have gotten a nice 22 percent pop since July.  Looks like China is bouncing back a bit from an economic slowdown.

Dow Jones US Real Estate ETF. (IYR, 13.9%)   IYR is a no commission, no fee trade in my brokerage account.   I’ve been dumping dividend payments and/or sales proceeds into the IYR instead of letting sums build up in a money market account.   It's a loose monetary policy play.  The yield is currently 3.5 percent.   I need to pare this holding down – too much invested in real estate.

Health Care REIT. (HCN, 12.4%)  HCN is buying out Sunrise.  I used a portion of SRZ sale proceeds to buy HCN when HCN was driven down by the buyout news.  This is another loose monetary policy play.  HCN yields 4.9 percent and is in a sector that should experience solid and consistent growth.

John Deere. (DE, 11.7%)   John Deere produces impressive, high quality, distinctively painted lawn, home garden and agricultural equipment, so I’ve noticed since moving to Bozeman.   US and John Deere exports are up and Ben Bernanke is intent on devaluing the US dollar, which will drive down the value of your assets but help exports.   I bought DE on a dip in August following a worse than expected quarter, have gotten a hefty bounce since and am happy to earn the 2.2 percent yield.

Dow Jones Select Dividend ETF. (DVY, 6.5%)  DVY was my base investment in 2009 moving out of the financial meltdown.  I still hold maybe half of what I initially invested in DVY.   This ETF includes primarily mid-cap stocks that have produced strong, consistent dividend yields over the years.  It’s loaded with equities in utility, industrial and consumer sectors.   It currently yields 3.5 percent and is true to its promise of gradually increasing dividends. 

Coca Cola. (KO, -0.5%)  KO has perhaps the strongest worldwide brand and has grown consistently, like forever.   It has a nice little 2.8 percent yield.  I finally bought some KO this year and expect to be modestly rewarded over the long run.

Microsoft. (MSFT, 2.9%)  Unlike Coke, Microsoft has essentially zero brand loyalty.   It’s supported by incumbency and market power.   A couple years back I sensed some positive changes in MSFT’s business strategy.  More recently I’ve come to understand the enterprise is managed for its employees and much less so for its customers and owners.  Microsoft employees, beware.  I have two words for you – Eastman Kodak.  I divested my MSFT holdings.

West Bancorp. (WTBA, 5.7%)  WTBA is a small bank holding company located in Iowa.  I bought shares as a spec stock in late 2009 when it looked like the bank might never repay its TARP injection and fold.  I’ve kept my shares since recovery (stock price up more than 100 percent) because I like small banks that serve real Americans doing real things, and it yields 3.9 percent.

Ultra Oil ETF. (DIG, 4.1%)  You need commodities; you always need commodities in your portfolio.   It was not a very good year for commodity stocks.

Enerplus. (ERF, -48.8%)  It was a horrible year for firms that produce energy primarily in the form of natural gas, which suffered from plummeting prices of the same.  One of the starters back at Algonkian Golf Course told me before I moved that it was time to buy natural gas stocks.  He may have been right.

Mosaic. (MOS, 1.1%)   MOS produces potash, as in fertilizer.  It’s in a highly concentrated industry so firms should have pricing power despite the absence of product differentiation, or so I thought.   MOS has been buffeted by takeover and buyout rumors and has suffered from the general commodity malaise.  MOS is a stock you want to own for the apocalypse.  I should have known we would live to 12/22, but I’m not selling.

McDonalds. (MCD, -12.1%)  Mother had a friend in the late 1950’s proud of her son, who graduated from college with a business degree and went to work for one of the Big 8 accounting firms.   The friend became upset when her son moved on to work for a “hamburger joint” paid largely in stock.  This wasn’t, she thought, the secure and lucrative future she had envisioned for her offspring.    It turns out the son was employed by McDonalds.   He made millions when millions were really worth something.  For decades, McDonalds has been an incredibly well managed, consistently successful enterprise, which had a bad year in 2012 in terms of expectations.  It’s an extraordinary brand with a great record of increasing dividends.  MCD’s stock price had a big run after I bought in 2009.  With plenty of international growth to come, I expect good financial performance to follow.

Ultra Short Long Term Treasuries. (TBT, -12.1%)  Late summer I had a brain freeze where I thought interest rates might pop back up so I purchased some TBT for my portfolio, for a time.  Mea culpa.

Iridium. (IRDM, -12.8%)  I bought some IRDM because I met its CEO who is a fellow Evans Scholar, despite the fact that it is in the satellite phone business, which doesn’t  seem to have a great future in a world that’s being plastered with cell phone towers.  Sorry Matt Desch, I sold my stake in your company.  Identity investing is like identity politics.   While there may be comfort therein, it really doesn't get you very far.  Don't be afraid to dump a dog.

Facebook. (FB, -29.9%)  FB was a lousy trade – if you bought it in the IPO.   I waited until FB dropped below a twenty spot.  It has bounced back 37.1 percent since.  Yippee!

Apple. (AAPL)  I remember buying Apple when it was around $90 a share; then selling it when it was around $105.   I just recently bought some Apple on the dip to $550, thinking even if its AAPL's growth decelerates, its PE ratio is so low it will bounce back.  I'm down a few percent.  We will see how it goes.

I will write another piece on the 2012 performance of my timing fund.   Until then, good luck and happy investing!


No comments:

Post a Comment