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MyMoneyTrainer Investment “Group” Update – November 2017 (Month 1)

Sold: SCHZ – Schwab US Aggregate Bond ETF
Bought: FL – Footlocker

Thinking: My older son got interested in the stock market and asked some questions.  I had done a decent amount of work in the past developing some tools to value companies using the value approach (Buffett, Graham & Dodd, Etc.).  I had never really polished off a toolset or process that I liked. I was too busy with work and life to commit the time to it. I told my son if you want to invest in individual stocks (rather than just buy indexes) that 1) it would be a ton of work, 2) it would likely not wind up beating the indexes (most don’t).  So hard…and harder! But the subject interests me, and I was interested in seeing some of my prior efforts through (plus my life is in a different place now) so I decided I’d do it. I built some tools and developed a process that I felt comfortable with. One night about 3AM (after many, many late nights) I beat the final roadblock on my previous tools and got my deep dive spreadsheet calculating the numbers I hadn’t been able to get solved before.  I was ready! I ran everything and it kicked out a list of a few stocks to look at out of input of several thousand. The last day of October I pulled the trigger on my first investment! Footlocker!

FL (Specialty Retail) – It was in the beaten down speciality retail space.  Several of their competitors had already closed up shop.  Direct to consumer and the death of the malls have everyone convinced this company will go away.  I think there will always be room for brick and mortar retail…especially in shoes. Footlocker not only sells shoes (which wear out often) but they put a large focus on ‘premium’ sneakers (which is an interesting market itself).  Maybe they go away but I don’t think so. They have no debt (which should help them as they figure out the changing landscape). So after a ton of work…I pulled the trigger on my first investment @ $31.21 with an 80% certainty rating.

Sold: SCHB – Schwab US Broad Market / SCHZ – Schwab US Aggregate Bond ETF / RJI – Rogers International Commodity Index / VGSLX – Vanguard REIT Index / VT – Vanguard Total World Stock / FSIVX – Fidelity International Index / SCHF – Schwab International Equity / VTSMX – Vanguard Total Stock Market / FXSIX – Fidelity S&P 500 Index / SWPPX – Schwab S&P 500 Index
Bought: VIAB – Viacom Class B
Bought: TPRE – Third Point Reinsurance
Bought: MEET – Meet Group
Bought: HA – Hawaiian Holdings
Bought: GILD – Gilead Sciences
Bought: ESRX – Express Scripts
Bought: PCMI – PCM

Thinking: Busy month!  I began transitioning my portfolio away from some great, low costs, low turnover index funds which have served me well for quite some time into some individual positions.  I am not extremely comfortable buying individual positions honestly because what if I pick the wrong stocks because I’m a dumbo who knows nothing. It is a huge…and likely risk to be honest.  Ha. But I’m not at all happy with the state of the ‘buy and hold the index’ strategy with the state of the world today (with S&P Shiller PE pegging near all time highs). So in the opposite vein of if you can’t beat them join them…I’ll try to beat them!  Strangely I am less stressed than more stressed about this. For me owning highly valued assets is way more stressful than buying/owning assets during times of crisis. The indexes I owned had me at about 40% US Stock, 15% REITs/Real Estate, 30% International Stock, 15% Bonds.  By the end of the month I had transitioned to several individual stocks (with the rest in a broad stock ETF). A little over 40% of my holdings were in these individual stocks that I’d selected through my process.

VIAB (Media) – If I can own Spongebob I will!  Ha. I looked at several media companies when looking at this one and really struggled with which one was best. Everyone is worried with cord-cutting and the decline of traditional media delivery methods.  Viacom is literally almost no where outside of the traditional places so they will have to figure that out. I’d imagine they will and when they do it will be huge. They have a knack for owning certain hard to get populations and have great assets that are on the rebound (MTV, Nickelodeon, BET, and Paramount Pictures).  My take is that the content they own will be valuable regardless of how it is delivered. There is also all kind of weird stuff going on with the Redstone/National Amusement ownership structure that are likely to continue. Family infighting and ownership infighting is never good for stocks short term. Again, long term I think this all works out.  I would normally not invest in a company with so much debt. But they are hyper focused on it and have been decreasing it rapidly (while also buying back a ton of shares). The debt level is really my only concern with this company and it is a huge concern and the reason for my 60% certainty rating (but not enough to keep me from buying it @ $24.47).

TPRE (Insurance) – I don’t know too terribly much about the reinsurance industry but I like the concept and company here.  Tons of industry veterans from large insurance companies started this company (so what I don’t know I’m guessing the industry veterans do know).  Started in 2011 and has grown to $1 billion in revenue from a standing start. That is impressive. Their investment portfolio is managed by Dan Loeb an activist investor.  Debt is negligible. There are some secondary offerings going on right now where early investors are selling their shares (no increase in shares outstanding). I imagine the results for this company will be choppy with the way the reinsurance operations work + with the way the investment portfolio will potentially swing earnings quarter to quarter.  That said I want to own it because it seems very Berkshire-esque with the insurance business feeding the investment portfolio. Then the investment portfolio being managed by an activist value manager. I think over time it will be a winning formula (or at least be a little different risk profile for my portfolio). So I don’t know a ton about the industry and their history is short which is why I’m buying @ $16.11 with a 70% certainty rating.

MEET (Internet Software & Services) – I mainly bought this because I actually had this idea recently to make an app where lonely people can find friends who have their interests.  Not like Facebook where you socialize with people you already know. I’m too lazy to do that so…I’ll buy this one instead. Their target market is everyone on earth who might sometimes be lonely and look for a friend.  They have been doing acquisitions which have been done without adding any debt at all (but are adding stock options). They are a stock option heavy company (like most software companies) meaning they give stock out to employees like candy (while also paying them salaries).  I’ve worked in software companies like this and if it works it can create a pretty focused workforce. Many of the original founders are still in place. In a highly competitive industry to even remain a viable company competing against the likes of Facebook and Match says something.  My gut says if they’ve made it this far they can keep grinding for some kind of long term value creation. There is some insider buying earlier in the year at prices higher than today. The CFO is leaving at the end of this year and is their second largest insider shareholder (who knows why he is leaving).  What they do is not rocket science and they could easily be targeted by larger players who could copy/recreate what they do. They are growing mainly right now through acquisition and the organic growth seems to have stalled out a bit (which is not good long term). Buying @ $2.48 with an 80% certainty rating.

HA (Airlines) – There are plenty of airlines that are showing up in my hit list.  I looked at several before settling on this one. Hawaiian Airlines has had a good run already.  They are a great company and are well run under current management (which hasn’t always been the case).  Their current CEO just retired. At the moment they basically have a little monopoly on air traffic to and around Hawaii.  They have 80-90% market share on interisland travel (which is 25% of their revenue) and their major competitor just went out of business.  They’ve diversified out of this business to US to HA flights which is now 50% of their revenue and intercontinental flights to HA which is now 25% of their revenue.  Basically if you want to go to HA you will fly with them. Their debt to equity is higher than I’d like (airlines often are) but it is lower than similar airlines and has been dropping (but has slowed with cap ex and share buybacks).  The biggest risk many people think is the risk of larger players adding routes to compete with them (like Southwest who has already said they will and United/Continental). Buying @ $37.89 with a 75% certainty rating.

GILD (Biotechnology) – They target life-threatening and life-long illnesses (the kind that once people get they have for life, like HIV and HCV).  They have huge market share in the markets they serve (like 80% in HIV). They also have ‘single dose’ technology to make the treatment routines easier on the patient. So lifelong illnesses that are terminal if untreated, combined with huge market share, combined with good technology, combined with high margins should be a great investment. Morningstar gives them a wide moat and I agree.  They also have high gross margins…which can make up for many, many sins. They are goosing ROE by doing debt fueled buybacks. So their debt to equity is higher (116%) than I want but with current and quick ratios above 3 it can be effective if managed properly. Half their revenue comes from HIV and the other half comes from HCV. The HCV drug is going according to plan but revenue will decline because the drug isn’t needed once administered.  Their HIV drugs will come off patent as well. So they will need to manage their pipeline to replace the lost revenue. This is why their shares are priced the way they are now. I’m betting they will navigate all this effectively. Buying @ $73.83 with an 80% certainty rating.

ESRX (Health Care Providers & Services) – They bought Medco (their largest competitor) which was having a bad year so they scooped them up.  The combined companies have 40% market share. This gives them greater supplier leverage (which is what their business is all about) and more importantly, I think, scale to decrease their already low cost structure.  They are losing their largest client Anthem in 2019 (17% of revenue). Each year they have to recontract with 1/3 of their customers. Things like this will happen (they’ll win some and lose others). In my opinion demographics and industry trends will more than make up for losses like players like Anthem moving around.  The infrastructure these guys have built is valuable (at least to somebody). They currently don’t service the Medicaid market at all and have not chased that business. Their debt to equity is higher than I’d like at 88% but it has been stable and they have been buying back shares (down 30% since the Medco deal). So the higher debt and losing a key client cause me to buy this one @ $60.61 with a 75% certainty rating.

PCMI (Electronic Equipment, Instruments & Components) – This is a pretty small player and the stock is teetering between being in the Russell 3000 and not.  They missed on revenues but explained the miss completely. The business is in no way falling off a cliff as the recent stock price moves would suggest.  Their operating profits are down but explained completely. They are actively working to transform the business to a service based model (currently less than 10% of revenue).  They are doing acquisitions and buybacks and all with no debt. I think the recent move down is a huge overreaction and that if they just keep the wheels on the cart and execute their current plan they will be easily back in the Russell 3000 (ha).  I don’t love their business but evidently no one else does either and this stock is absurdly cheap (I think just because it is so small and underfollowed and is getting whipsawed buy some big money moving in/out). Buying this @ $9.89 with a 100% certainty rating.

Bought & Sold: TX – Ternium
Bought & Sold: OGZPY – Gazprom

Thinking: I opened positions in two international companies (TX – Ternium & OGZPY – Gazprom) that I thought were undervalued and was looking at a third (KEP – Korea Electric Power Corporation (ADR)). Immediately following these two investments I wanted to better understand the currency risks associated with owning international stocks (and why the Korean currency didn’t fluctuate…which I later found out was due to the USD peg).  I did several days of research on this and came to the conclusion that I was not in the business of managing currency risks (and didn’t want to be). To me it is like owning options (you have to be right on too many things). I not only need to find a good undervalued company to own but I also have to know how the currencies will impact my returns (which no one can know). So even if I’m right and pick a good company I could have my entire gain wiped out by a currency move (and vice versa).  I’m no where near smart enough for all this. I decided that I don’t need to be playing in this sandbox at all. I immediately closed out the two positions I had opened. There are plenty of companies for me to look at inside my own currency so I will focus my efforts there (unless something really compelling comes along).

#investments #investing $FL $VIAB $TPRE $MEET $HA $GILD $ESRX $PCMI

MyMoneyTrainer Investment Group Scorecard_2017_11 (Month 1)

MyMoneyTrainer Investment “Group”

My older son got interested in the stock market and asked some questions.  I had done a decent amount of work in the past developing some tools to value companies using the value approach (Buffett, Graham & Dodd, Etc.).  I had never really polished off a toolset or process that I liked. I was too busy with work and life to commit the time to it. I told my son if you want to invest in individual stocks (rather than just buy indexes) that 1) it would be a ton of work, 2) it would likely not wind up beating the indexes (most don’t).  So hard…and harder! But the subject interests me, and I was interested in seeing some of my prior efforts through (plus my life is in a different place now) so I decided I’d do it. I built some tools and developed a process that I felt comfortable with. One night about 3AM (after many, many late nights) I beat the final roadblock on my previous tools and got my deep dive spreadsheet calculating the numbers I hadn’t been able to get solved before.  I was ready! I ran everthing and it kicked out a list of a few stocks to look at out of input of several thousand. The last day of October I pulled the trigger on my first investment! I’m excited to see where this goes!

Objective:

FYI…MyMoneyTrainer Investment “Group” is no group at all…it is just me.  My goal is to take what I know about investing and macroeconomics and beat a target market (stocks).  Stocks, in general, are the best performing asset class over long periods of time (they hedge against many of the world’s evils fairly effectively imho).  I will strive to beat the stock market. Many try, many fail, but I will try nonetheless. I will track my performance against the S&P 500 (SPX5) and a world stock market ETF (VT).  Over a 5-10 year window I hope to outperform one or both. If I can’t beat at least one then I should stop wasting my time and just buy VT (to own the world’s stock markets). I intend to be pretty much fully invested in stocks at all times unless extremes emerge that I believe require a different allocation of capital.  That said, I have no rule that says I must stay fully allocated to stocks at all times (and won’t at times). These investments are my personal portfolio and no one knows what life brings so there may be times that life forces me to make an investment decision that I do not really care to make. That said I will add/remove money from this portfolio at times (for whatever reason).  Such is life!

Methodology:

  • Value Investing Approach – I will generally follow a value investing approach.  I look for low multiples and good margin of safety. I value using NPV, 5 Yr. DCF, and 10 Yr. CF NPV using extremely conservative assumptions.  I expect that if the market is roaring higher I will not be able to keep pace with it.
  • Macro Agnostic – I don’t really take “macro stuff” into account with my investing.  I just try to stay fully invested in value stocks. But if something is bugging me and causing me to lose sleep at night (fun stuff like world wide debt bubbles, asset bubbles, financial crisis, etc.) I will take that into consideration.
  • Invest Mainly In Stocks At All Times – If I’m not fully invested in stocks I’m not particularly happy with where I’m at (or maybe with where the world is at).  I’m not trying/wishing to time the market and would rather be fully invested in a portfolio of value stocks at all times.
  • Investing In Businesses – Goal is not to be a speculator.  Goal is not to trade. The goal is to be a long term buy and hold investor.  Looking to buy shares in businesses that are: 1) not going away, 2) higher quality, 3) lower valuation, and 4) that I would feel comfortable owning for a long, long time.
  • Low Valuation Company Selection – I believe that buying at low multiples should generally produce superior returns.  I force rank the equity universe against 19 valuation metrics to find investments trading at low multiples (even if relative to other investments).
  • High Quality Company Selection – I believe that buying higher quality companies should generally add a margin of safety and hopefully find more effective management teams.  I force rank the equity universe against 20 quality metrics to find higher quality investments (even if only relatively).
  • Generally US Based Asset Selection – I am not interested in managing currency risks (in addition to my stock selection risks).  My goal is to only invest in US companies (unless something specific arises). This is not designed to be home country bias it is anti-currency management bias.
  • Extreme Focus On Managing Investment Fees and Expenses – I aim for very limited trading and target keeping my trading expenses below what it would cost me to own VT etf.  I try to buy assets that have no commissions (at my brokerage) and low expense ratios (if I need those types of assets).
  • Extreme Focus On Managing Tax Efficiency – I believe taxes are the biggest and most important factor to consider (potentially more important than investment selection).  If I can buy a company and hold it for a very long time and have it produce good returns that is the goal. I try to make sure as much work as possible is done in tax efficient accounts.  That way if I must transact I don’t have to worry about taxes at all. If I have to transact in a taxable account I want to make sure I’m at least paying long-term capital gains rates on any gains.  But I’d rather not even pay that! EVER!
  • Use Of Proprietary Database For Screening Investments – I’ve built a snazzy (I think) database engine that I regularly feed fresh data through in order to screen the equity universe down to a manageable subset.  I generally rescreen monthly (or less often). Then I’ve built a super-snazzy deep dive spreadsheet to run very interesting ideas through. I run through a big checklist as I analyze each investment decision.
  • Rule Based Capital Allocation / Trading – I am trying to manage my costs against the VT etf and limit taxes (so I’m not interested in owning tons of investments nor churning them).  I also have designed my allocation methodology/rules to make sure I don’t do stupid things (at least too regularly). I allocate capital to individual positions based on my analysis and my ‘certainty’ rating.  I have a cap on the number of positions I will maintain within the portfolio. I expect to own between 14-25 positions. There are currently 67 industries in the dataset I track. I will not own more than one stock in each ‘industry’.  If I want to own something else in that industry I have to sell what I already have to own it. If I own 25 stocks and I want to add another I have to sell another that I already own. I will rarely add to any prior investment decision (no doubling down, etc.).  I will make investments and let my winners run and my losers will be chalked up as bad investments (and likely be replaced over time).

Updates:

I will post updates about this journey through my company (since it is a related topic…investing/financial planning).  The goal of providing these updates are to: 1) document my journey, 2) interact/learn with other people interested in the topic of investing.  Ultimately I want to 1) meet my objective, 2) use/hone my methodology, 3) learn/interact with others along the way. If someone finds it helpful and learns…that is great too…glad to help!

  • Monthly Updates – I will provide a monthly update at the end of each month that will include performance results, allocation results, and individual investment holdings.  This will be a PDF on our blog and I’ll also include an update each month on our YouTube site’s weekly video. Subscribe!
  • Individual Investment Decisions – I will post more day to day things (like individual investment holding trades, etc.) on Twitter.  Follow me and let’s talk!
  • Other Updates – I will post podcasts I’m listening to that are interesting, books I’m listening to that are interesting, articles that I’m reading that are interesting and related to investing on Twitter as well.

Website: Blog
https://mymoneytrainer.com/blog/

Twitter: @mymoneytrainer
https://twitter.com/mymoneytrainer

YouTube: MyMoneyTrainer
https://www.youtube.com/c/MyMoneyTrainer

Important Consideration:

These are my investments.  They work for me (hopefully) and may/may not for you.  Information here should not be construed as financial advice or an endorsement of any specific financial strategy or investment.  The information presented here are for illustrative/education purposes only and do not provide any investment advice, tax advice, legal advice, or make any recommendations regarding particular financial instruments, investments, or products.  MyMoneyTrainer personnel are not brokers, dealers, attorneys, tax advisors, or insurance agents.

#investments #investing

MyMoneyTrainer Investment Group Scorecard_2018_08

Roth or Conventional IRA?

What does “tax advantaged” mean?  It depends on the particular account type but it could mean contributions are tax deductible, investments grow tax deferred, withdrawal rates could be favorably taxed (or not taxed at all), and can include benefits to your estate/heirs!  These benefits can add up to thousands and thousands of dollars over the course of your investing life.

Taxes are your biggest investment consideration!  WE PROMISE! What do you think taxes will do in the future?

Decision Points For Roth vs. Conventional

  1. Current Rates Versus Future Tax Rates?
  2. Where Are Taxes Headed?

Long Term Rates are better than Short Term Rates…But No Taxes Is BEST!

There are differences between the Roth IRA and Conventional IRA options that need to be considered.  Watch our video to learn more about these.

MyMoneyTrainer’s Take?

  • If your current tax rates are high AND you expect them to be lower when you withdraw the money…it probably makes sense to use the Traditional option.  Might be only option since income phase out rules might be in play.
  • If you think taxes will be higher in the future…Roth might be the way to go.
  • If you like the idea of never ever paying any taxes on the money in your account…EVER…Roth is the way to go.
  • Every year you get to decide again!  YEAH…FUN!!!

FYI…We LOVE the ROTH Option!

  • We know that taxes are a huge expense that most people greatly underestimate.
  • If we can put money away and never pay taxes on it again ever…Good.
  • We think taxes will be higher in the future than they are today…huge debt and huge deficits
  • Every penny we can get into a Roth option (IRA, 401k) we try to do that!

Learn about all this in our video!

#ira #retirement

Should I Pay Extra On My Mortgage (And Other Debts) To Pay Them Off Faster?

Debt!  Don’t Do It!  Good Debt / Bad Debt, Debt Bubbles, Financial Crisis, Etc.  Our Best Advice Is Don’t Use Debt At All. If you do make sure you at least stick to ‘good debt’…whatever that is!?!

Extra Payments?  First Decision Is:  Make the decision to stop spending what you don’t have…EVER!  Hard…BUT…One of the best decisions you may ever make! Next Decision Is:  Decide if it is worth paying off the debt early or not. HINT: Most of the time…IT IS!  Other times it may not be!

Debts To Definitely Make Extra Payments

  • ALL Uncollateralized Debts
    • Pay Day Loans
    • Credit Cards
    • Student Loans

Uncollateralized Debts are things you owe money on where there is nothing backing up the loan (like a house or vehicle).  There is no reason to not pay these off. They are generally at higher interest rates and once paid off will help your cash flow situation more than other debts.  Pay off the non-term items first (since these will allow you to snowball). DON’T EVER GO BACK ONCE YOU’VE CONQUERED THESE BEASTS! EVER!!!

Debts To Probably Make Extra Payments

  • SMALL Collateralized Debts
    • Car (or Other Vehicle) Loans

Collateralized Debts are things you owe money on where there is something backing up the loan (like a house or vehicle).  These are term loans. Paying against them early doesn’t help you immediate cash flow (until you pay them off completely).  You will pay less in interest overall but your money will belong to the bank (decreases their risk and increases yours) until the loan is paid fully.
Probably doesn’t make sense to pay these early (until they can be fully paid off).  You also might consider selling the collateral to pay off the smaller loan quicker.

Debts To Probably NOT Make Extra Payments

  • LARGE Collateralized Debts
    • Mortgage/Property Loans

These are generally large, long term loans.  If you prepay the loan you will save in interest overall and pay off the loan faster…but…you are also tying up your money in an asset that you do not own.  The bank owns it until it is paid off. If you stop paying you could lose the asset (and your equity). Let the financial institution bear the risk of ‘owning’ the asset until you are prepared to own it fully yourself (and pay them as little possible in the process).
Probably doesn’t make sense to pay these early (until they can be fully paid off).  If you can pay it off completely…do it and never look back!

MyMoneyTrainer’s Take?

  • Debt = BAD!  If you can make it go away…do it!
  • Cash Flow…Cash Flow…Cash Flow!
  • Balance early payoff desire with:
    • Cash flow risks
    • Interest savings
    • Other opportunity costs
  • If you can payoff a collateralized loan…fully…this becomes a no brainer (and likely a good investment).

Learn about all this in our video!

#mortgage #debt

Should You Be Investing In Bonds (Fixed Income)?

What are bonds (fixed income)?  What are the different types of bonds (government bonds, corporate bonds, municipal bonds)?  What are important characteristics in bond investments (maturity / duration, interest rate / current yield, issuer quality)?  How are bonds different than stocks? Why invest in bonds? What are the biggest considerations for investing in bonds? How to invest in bonds?

MyMoneyTrainer’s Take?  Remember the quote. “In investing, what is comfortable is rarely profitable.”  I personally almost never invest much at all in bonds.  That said I am currently highly allocated to bonds (30%).  Why? The unprecedented everything bubble! Won’t last…Dry Powder!  For people nearing (or in) retirement who do not have the ability to weather a large drawdown in riskier asset classes bonds are the place to invest…BUT…remember inflation!

Learn about all this in our video!

#bonds #investing