All:
It's been almost a year since I wrote. There seems to always be something that prevents me from writing more often. This past year it was the Amdocs Shapers program that I was selected for and participated in. It's an Amdocs internal leadership program that was created in order to tackle Amdocs’ burning challenges and influence Amdocs’ business environment by bringing fresh perspectives and implementing new ideas. I visited Israel twice this year and will return later in November. Now back to Investrio!!
This year we're happy to report has been our best year since inception of the fund. YTD the portfolio return is ~13%.
It's been almost a year since I wrote. There seems to always be something that prevents me from writing more often. This past year it was the Amdocs Shapers program that I was selected for and participated in. It's an Amdocs internal leadership program that was created in order to tackle Amdocs’ burning challenges and influence Amdocs’ business environment by bringing fresh perspectives and implementing new ideas. I visited Israel twice this year and will return later in November. Now back to Investrio!!
This year we're happy to report has been our best year since inception of the fund. YTD the portfolio return is ~13%.
Investrio Stock Selector Fund (ISF) - Portfolio
Here's an update on the portfolio. As of November 2016, the portfolio holdings are:
What did we buy?
We added 3 new holdings to our portfolio in 2016, indicated above by an asterisk: Bristol-Myers Squibb (BMY), Southwest Airlines (LUV), and Daimler (DDAIF), which we bought on the day of the Brexit vote. This compares with 12 additions in 2015. Our buying slowed in 2015 primarily because of rising equity valuations. Our simple strategy continues to be picking up shares of wide moat companies (companies able to maintain a competitive advantage) when they go on sale as a result of some market overreaction, e.g., to a minor earnings miss, slightly lowered forecast, or other temporary circumstance.
What did we sell?
We sold 32 holdings from our portfolio in 2016: Bank of America (BAC), BHP Billiton (BHP), Comcast (CMCSA), Coach (COH), Cisco (CSCO), Chevron (CVX), EMC (EMC), Fastenal (FAST), Facebook (FB), Market Vectors Gold Miners (GDX), IBM (IBM), iShares Russell 2000 (IWM), Michael Kors (KORS), Linked In (LNKD), MasterCard (MA), Mattel (MAT), MBIA (MBI), Nucor (NUE), Realty Income (O), Pfizer (PFE), Qualcomm (QCOM), Seagate Technology (STX), Symantec (SYM), Sysco (SYS), AT&T (T), Toyota Motor (TM), Western Digital (WDC), Waste Management (WM), Utilities Select Sector SPDR Fund (XLU), Exxon Mobil (XOM), iPath S&P 500 VIX Short-Term Futures (VXX), and ProShares Ultrashort FTSE China 50 (XPP). We also sold part of our Twitter (TWTR) position. This compares with 11 sells in 2015. Our selling accelerated in 2015, locking in profits, again primarily because of lofty equity valuations.
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 continue to flash warning signs about the current stock market. For example, corporate earnings and revenues continue to fall. 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 $26.32 for every $1 of earnings on the S&P 500. This is the highest amount paid by investors since before the Great Recession. 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.
I haven't even mentioned the Presidential election. I don't need to say much about the candidates here. We've never had two candidates in history we know more about. The beauty of a properly built long-short strategy is we can benefit either way - from a continued rise in equities, which is likely with a Clinton presidency (it's more or less a continuation of Obama policies), or from a nosedive (probably a temporary condition), which is a possibility with a Trump presidency (not because Trump is bad for the markets but because Trump means uncertainty, at least for some initial period of time.)
Let's finish up the year strong and embark on a new adventure in 2017! If you're interested in joining our team at Investrio, drop us an email at MKJindustries@hotmail.com.
Ted Mertyris
| Companies Symbol | Description |
| AAPL | Apple |
| BMY | Bristol-Myers Squibb* |
| CHL | China Mobile |
| DDAIF | Daimler* |
| LUV | Southwest Airlines* |
| HLT | Hilton |
| COP | Conoco Phillips |
| PG | Proctor & Gamble |
| PYPL | PayPal |
| TWTR | |
| WMT | Wal-Mart |
| BRK/B | Berkshire Hathaway |
| VZ | Verizon |
| GM | General Motors |
| DOW | Dow Chemical |
| KO | Coca Cola |
| UL | Unilever |
| BX | Blackstone |
| Exchange Traded Funds (ETF) Symbol | Description |
| VWO | Vanguard Emerging Markets |
| 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 |
| VXZ | iPath S&P 500 VIX Mid-Term Futures |
What did we buy?
We added 3 new holdings to our portfolio in 2016, indicated above by an asterisk: Bristol-Myers Squibb (BMY), Southwest Airlines (LUV), and Daimler (DDAIF), which we bought on the day of the Brexit vote. This compares with 12 additions in 2015. Our buying slowed in 2015 primarily because of rising equity valuations. Our simple strategy continues to be picking up shares of wide moat companies (companies able to maintain a competitive advantage) when they go on sale as a result of some market overreaction, e.g., to a minor earnings miss, slightly lowered forecast, or other temporary circumstance.
What did we sell?
We sold 32 holdings from our portfolio in 2016: Bank of America (BAC), BHP Billiton (BHP), Comcast (CMCSA), Coach (COH), Cisco (CSCO), Chevron (CVX), EMC (EMC), Fastenal (FAST), Facebook (FB), Market Vectors Gold Miners (GDX), IBM (IBM), iShares Russell 2000 (IWM), Michael Kors (KORS), Linked In (LNKD), MasterCard (MA), Mattel (MAT), MBIA (MBI), Nucor (NUE), Realty Income (O), Pfizer (PFE), Qualcomm (QCOM), Seagate Technology (STX), Symantec (SYM), Sysco (SYS), AT&T (T), Toyota Motor (TM), Western Digital (WDC), Waste Management (WM), Utilities Select Sector SPDR Fund (XLU), Exxon Mobil (XOM), iPath S&P 500 VIX Short-Term Futures (VXX), and ProShares Ultrashort FTSE China 50 (XPP). We also sold part of our Twitter (TWTR) position. This compares with 11 sells in 2015. Our selling accelerated in 2015, locking in profits, again primarily because of lofty equity valuations.
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 continue to flash warning signs about the current stock market. For example, corporate earnings and revenues continue to fall. 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 $26.32 for every $1 of earnings on the S&P 500. This is the highest amount paid by investors since before the Great Recession. 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.
I haven't even mentioned the Presidential election. I don't need to say much about the candidates here. We've never had two candidates in history we know more about. The beauty of a properly built long-short strategy is we can benefit either way - from a continued rise in equities, which is likely with a Clinton presidency (it's more or less a continuation of Obama policies), or from a nosedive (probably a temporary condition), which is a possibility with a Trump presidency (not because Trump is bad for the markets but because Trump means uncertainty, at least for some initial period of time.)
Let's finish up the year strong and embark on a new adventure in 2017! If you're interested in joining our team at Investrio, drop us an email at MKJindustries@hotmail.com.
Lead Fund Manager
Investrio
