Investors & Friends:
Last time I wrote was January 2015. I was hoping to write before now but once again work interfered. This past year I assumed responsibility for helping our Advertising & Media unit build out its brand and improve its operations. Now that I've got a handle on my new responsibilities, I can get back to building Investrio.
Last time I wrote was January 2015. I was hoping to write before now but once again work interfered. This past year I assumed responsibility for helping our Advertising & Media unit build out its brand and improve its operations. Now that I've got a handle on my new responsibilities, I can get back to building Investrio.
Investrio Stock Selector Fund (ISF) - Portfolio
Let me update you on our portfolio. As of December 2015, our portfolio holdings are:
What did we buy?
We added 12 new holdings to our portfolio in 2015, indicated above by an asterisk. PayPal was the result of eBay spinning it out. Our simple strategy was to pick up shares of wide moat companies (companies able to maintain a competitive advantage) when they went on sale as a result of market overreaction to minor earnings misses, slightly lowered forecasts, or other temporary circumstances. Here are a few examples. We purchased China Mobile during the summer when the Chinese stock market was imploding, taking down indiscriminately good and bad companies. We purchased Conoco Phillips and Nucor as commodity prices sunk to new lows not seen since the Great Recession. We purchased MBIA when the threat of a Puerto Rico bond default reached a boiling point. We purchased Wal-Mart when its stock price was slashed as a result of slightly increased employee wages.
What did we sell?
We sold 11 holdings from our portfolio in 2015: Game Stop (GME), Amazon (AMZN), Yum! Brands (YUM), Microsoft (MSFT), Visa (V), General Electric (GE), Intel (INTC), Ebay (EBAY), Linked In (LNKD), iPath S&P 500 VIX Short-Term Futures (VXX), and ProShares Ultrashort FTSE China 50 (XPP) (* short position *). The best trade among these was our short position of XPP, which we shorted on 4/21/2015 at $103.68 and closed on 7/7/2015 at $67.17. We are watching the Chinese exchanges for repeat opportunities. We don't think the fun in China is over yet!
Investing Strategy
Our investing strategy remains what's known as a Long-Short Fund, which seeks to profit through a combination of long and short equity positions. It seeks to generate income through dividends and options, and to grow capital modestly through share price appreciation. We diversify our option positions across industries and expiring across different calendar months. This reduces risk in the event we're assigned. We write put options against companies that have a wide moat, i.e., a durable competitive advantage relative to its industry peers and a near-zero chance of bankruptcy. If we’re assigned, we're happy to own a piece of a wide moat company.
Our short positions include: FXP, which is a negative bet on China growth; TBT, which is a negative bet on lower U.S. interest rates; VXZ, which is a negative bet on lower stock market volatility; and SPY, which is a negative bet on the U.S stock market and the largest among our short positions. Having these short positions is like having an insurance policy. On the one hand, it limits our portfolio's return. But on the other hand, it protects us when this "bull" market deflates. If the market deteriorates, our short positions profit, and we plow the profits into purchasing more shares of our favorite wide moat companies at lower prices.
Final Thoughts
There are many excellent historical indicators that are flashing warning signs about the current stock market. For example, corporate earnings and revenues fell in 2015 and are expected to continue to fall in 2016. In the 4th quarter, revenues are expected to decrease by 3.1%. If the estimate holds, and the 4th quarter is negative for corporate revenues, it will be the 1st time revenues have declined for 4 consecutive quarters since the 4th quarter of 2008 through to the 3rd quarter of 2009.
Falling earnings and revenues will be exacerbated by the pressure of rising interest rates. Rising interest rates have never been good for the stock market as corporations experience higher interest costs, and this time we are emerging from unknown territory. Interest rates have never been this low for this long.
The price-to-earnings ratio of the S&P 500 tells us how much investors are willing to pay for every $1 of earnings. Currently investors are willing to pay close to $22 for every $1 of earnings on the S&P 500. This is the highest amount paid by investors since late 2010. The stock market has been able to achieve new all-time highs because of very low interest rates. Low interest rates have enabled a record amount of share buybacks. The amount of buybacks in 2015 was the highest since the Great Recession. This not only made the per-share earnings look better but it also boosted stock prices and the stock market. Low interest rates have also financed a record amount of M&A deals. The amount of M&A deals in 2015 was the highest ever on record, surpassing the height of the bubble in 2007 before the Great Recession. On that happy note...
We want to wish you and yours a very happy, healthy, and prosperous New Year filled with fun new adventures!
If you're interested in joining our team at Investrio, drop us an email at MKJindustries@hotmail.com.
Ted Mertyris
Let me update you on our portfolio. As of December 2015, our portfolio holdings are:
| Companies Symbol | Description |
| AAPL | Apple* |
| CHL | China Mobile* |
| HLT | Hilton Worldwide* |
| COP | Conoco Phillips* |
| KORS | Michael Kors* |
| MBI | MBIA* |
| NUE | Nucor* |
| PG | Proctor & Gamble* |
| PYPL | PayPal* |
| TWTR | Twitter* |
| WM | Waste Management* |
| WMT | Wal-Mart Stores* |
| IBM | International Business Machines |
| BRK/B | Berkshire Hathaway |
| COH | Coach |
| MAT | Mattel |
| O | Realty Income |
| CVX | Chevron |
| PFE | Pfizer |
| VZ | Verizon |
| FAST | Fastenal |
| XOM | Exxon Mobil |
| MA | Mastercard |
| QCOM | Qualcomm |
| GM | General Motors |
| CMCSA | Comcast |
| SYMC | Symantec |
| DOW | Dow Chemical |
| KO | Coca Cola |
| UL | Unilever |
| SYY | Sysco |
| BX | Blackstone Group |
| T | AT&T |
| EMC | EMC Corp. |
| CSCO | Cisco Systems |
| BAC | Bank of America |
| TM | Toyota Motor |
| Exchange Traded Funds (ETF) Symbol | Description |
| VWO | Vanguard Emerging Markets |
| IWM | iShares Russell 2000 |
| SPY | SPDR S&P 500 ETF (*short position*) |
| FXP | ProShares Ultrashort FTSE China 50 |
| TBT | ProShares Ultrashort 20+ Year Treasury |
| PBP | PowerShares S&P 500 BuyWrite Portfolio |
| DBC | PowerShares DB Commodity Index Tracking Fund |
| GDX | Market Vectors Gold Miners |
| XLU | Utilities Select Sector SPDR Fund* |
| VXZ | iPath S&P 500 VIX Mid-Term Futures |
What did we buy?
We added 12 new holdings to our portfolio in 2015, indicated above by an asterisk. PayPal was the result of eBay spinning it out. Our simple strategy was to pick up shares of wide moat companies (companies able to maintain a competitive advantage) when they went on sale as a result of market overreaction to minor earnings misses, slightly lowered forecasts, or other temporary circumstances. Here are a few examples. We purchased China Mobile during the summer when the Chinese stock market was imploding, taking down indiscriminately good and bad companies. We purchased Conoco Phillips and Nucor as commodity prices sunk to new lows not seen since the Great Recession. We purchased MBIA when the threat of a Puerto Rico bond default reached a boiling point. We purchased Wal-Mart when its stock price was slashed as a result of slightly increased employee wages.
What did we sell?
We sold 11 holdings from our portfolio in 2015: Game Stop (GME), Amazon (AMZN), Yum! Brands (YUM), Microsoft (MSFT), Visa (V), General Electric (GE), Intel (INTC), Ebay (EBAY), Linked In (LNKD), iPath S&P 500 VIX Short-Term Futures (VXX), and ProShares Ultrashort FTSE China 50 (XPP) (* short position *). The best trade among these was our short position of XPP, which we shorted on 4/21/2015 at $103.68 and closed on 7/7/2015 at $67.17. We are watching the Chinese exchanges for repeat opportunities. We don't think the fun in China is over yet!
Investing Strategy
Our investing strategy remains what's known as a Long-Short Fund, which seeks to profit through a combination of long and short equity positions. It seeks to generate income through dividends and options, and to grow capital modestly through share price appreciation. We diversify our option positions across industries and expiring across different calendar months. This reduces risk in the event we're assigned. We write put options against companies that have a wide moat, i.e., a durable competitive advantage relative to its industry peers and a near-zero chance of bankruptcy. If we’re assigned, we're happy to own a piece of a wide moat company.
Our short positions include: FXP, which is a negative bet on China growth; TBT, which is a negative bet on lower U.S. interest rates; VXZ, which is a negative bet on lower stock market volatility; and SPY, which is a negative bet on the U.S stock market and the largest among our short positions. Having these short positions is like having an insurance policy. On the one hand, it limits our portfolio's return. But on the other hand, it protects us when this "bull" market deflates. If the market deteriorates, our short positions profit, and we plow the profits into purchasing more shares of our favorite wide moat companies at lower prices.
Final Thoughts
There are many excellent historical indicators that are flashing warning signs about the current stock market. For example, corporate earnings and revenues fell in 2015 and are expected to continue to fall in 2016. In the 4th quarter, revenues are expected to decrease by 3.1%. If the estimate holds, and the 4th quarter is negative for corporate revenues, it will be the 1st time revenues have declined for 4 consecutive quarters since the 4th quarter of 2008 through to the 3rd quarter of 2009.
Falling earnings and revenues will be exacerbated by the pressure of rising interest rates. Rising interest rates have never been good for the stock market as corporations experience higher interest costs, and this time we are emerging from unknown territory. Interest rates have never been this low for this long.
The price-to-earnings ratio of the S&P 500 tells us how much investors are willing to pay for every $1 of earnings. Currently investors are willing to pay close to $22 for every $1 of earnings on the S&P 500. This is the highest amount paid by investors since late 2010. The stock market has been able to achieve new all-time highs because of very low interest rates. Low interest rates have enabled a record amount of share buybacks. The amount of buybacks in 2015 was the highest since the Great Recession. This not only made the per-share earnings look better but it also boosted stock prices and the stock market. Low interest rates have also financed a record amount of M&A deals. The amount of M&A deals in 2015 was the highest ever on record, surpassing the height of the bubble in 2007 before the Great Recession. On that happy note...
We want to wish you and yours a very happy, healthy, and prosperous New Year filled with fun new adventures!
Lead Fund Manager
Investrio
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