Hello people! It has been a minute. If you missed my mediocre content, I’m sorry. I’ve been buried with work (and 2020). But I’m back baby (just like value stonks and Bitcoin)! Let’s go ahead and crack the seal, on the monthly update to my personal finance and investing journal.
Stocks have been up nicely since my last update…did you notice? Value has finally been performing! I think I saw a headline that November was the best month ever for bank stonks (as far as price increase).
THIS MONTH
As a reminder, I ended September at about $274,000. I made basically zero progress in October (which was a reason I skipped that update). I continued saving, but my portfolio was down a bit offsetting my efforts. It was sort of a bummer to be honest.
I stepped up the savings a bit in November, saving about $5,000. I’ve written about this before, but I try to automate as much of my savings as I can. I basically just try to “pay myself first.”
With the savings and market gains I ended up November with around $308,000 in the relevant investment accounts.
CURRENT PORTFOLIO
I am still the owner of a good chunk of foreign stocks. See Media Pin of the Week – More GMO, Weekly Media Pin – Grantham on Graham, Best Foreign Value Factor ETFs, Resource Roundup: More CAPE, and Foreign Value Factor ETFs Update. This weighting is nothing crazy; about a 30% overall allocation to foreign stocks (about half of my equity allocation).
I do have most of this exposure via EAFE stock index funds. I am trying to limit exposure to China (and some other emerging markets).
As you can see from the chart, the SPY was up 9.65% and the QQQ was up 10.98%. Foreign developed stocks (EFA) were up even more (gasp) 12.80%. Value stocks did better still (represented above by RPV and QVAL).
TREND + VALUE ALLOCATION
I also manage some of my portfolio based on a very simplistic, systematic trend and value strategy. In essence, I apply one of the simple moving average signals (thanks to covid-19, everyone is very familiar with moving averages and how they are used to “smooth” lumpy data to try and discern the underlying trend) and combine that with a valuation trigger/overlay/condition precedent.
The idea is to have some risk management in place when stocks are expensive by selling when they also have negative time-series momentum/trend (for example, when stocks are down over the last 12 months). When stonks aren’t “expensive” I want to be long and strong.
The account is divided equally: 33% each to the S&P 500 ($SPY), the Dow Jones Completion Index ($VXF), and foreign stocks (basically, $VXUS).
I have about 15% of my investments in this account/strategy. I am prioritizing contributions into this account. So, it should become a larger allocation over time (unless the relative performance stinks). The account is tax-deferred and there are no per transaction costs. I only allow changes once a month in an effort to limit the number of “whipsaws”(when I sell and am forced to buy back into the equity exposure at a higher price).
I made a change back in June to go back “full long,” after moving to t-bills with the U.S. allocations back in March. I took a whipsaw on that move out and back. The account, however, has roared back over the last couple of months and now up 14.01% YTD (as of writing).
This account/strategy has now pulled in front YTD versus my benchmark: a globally version of a 60-40 portfolio: 20% in foreign stocks, 40% in total U.S. market index and 40% in t-bills. That benchmark is up 13.78% YTD. SPY is now up 16.56% YTD.
ACTIVE INVESTING JOURNAL
I only actively manage (we’re talking “stock picking” here) about 10% of my overall portfolio, but I really enjoy following the markets and companies. The goal with this section of my journal is to informally track my thinking about these investments for future reference/analysis. I will also pull together info I want to refer back to in this section.
In my HSA, I sold some of the office REITs that I was buying a few months back. I booked about a 40% gain in $VNO. I’m holding my $JGBS and $SLG (but not adding or reinvesting dividends). I wanted to cash in a little after such a huge run.
I also sort of just don’t really love VNO management or their retail exposure. They keep making these dumb arguments about the threat from remote working that don’t seem to really acknowledge any risk of change/problem and sometimes get like aggressive about it when they are questioned (“nasty question”). I also didn’t like that they often complain about the alleged discount in their stock and but when asked if they are going to do anything about it (like sell buildings or borrow money and buy back stock in the fashion of $SLG) mgmt said they are “dirt guys.” Anyways, they have great assets, but are just not my favorite people.
I am still fading the take that cities are going to be structurally impaired by new/better communications technology and habits. To me, cities are the original example of network effects. The more talented (and whatever) people who move there the more likely you can find a good date/business partner, or a good poke bowl, some good jazz, or a person to seed your fund, or an SEC school football watching group, or whatever you want.
I have still been buying a little $AIV. To me, this apartment home REIT is maybe ~33% undervalued and there are a lot of “options” out there.
Management is trying to “simplify the story” by spinning off a hold-co for stable apartment properties and using the remain co to handle redevelopments and lumpy/appreciation play transactions.
This is going to be a taxable distribution (according to mgmt, I’m not rendering an opinion) and I could really see all the phantom gains and confusing transactions annoying/shaking out a lot of shareholders (which may or may not be the actual intent). Here’s a link to the presentation where management pitched the spin-off transaction. Management makes their argument for why they think $AIV should be worth ~$56 after separation.
I believe very detailed research carries more risks of bias than benefits (for me), so I don’t get deep into the weeds. The $AIV portfolio of apartments, however, seems kind of good, not great (versus like an EQR or something). I didn’t get any heartburn about geographic concentration or anything. Looks like they have a fairly high exposure to lower quality properties in the D.C. metro (~15%).
If consensus AFFO in 2021 of $2.50 per share was capitalized at a 5% cap rate, you would be looking at $50 per share (impressive math, eh?). There are some non-earning assets as well, so in my opinion is seems like management is not obviously out to lunch on their valuation guesstimate (and they are motivated enough to do something about the discount).
There is also an activist involved. Johnathon Litt (@jonlitt on Twitter) of Land and Buildings has solicited proxies for a special meeting regarding the proposed split-up. Management acknowledged he had received enough votes to call the meeting, but is saying they are going ahead with the transaction this month before a meeting can be called.
I agree with my friend @thepupil (good follow) that it seems management may win the battle, but lose the war following this course. This week, there was a report of an all cash offer to acquire $AIV made by a smaller, private real estate operator. It was reportedly not financed and no price has been leaked. Not sure how legit the offer is, but it just highlights that there seem to be a number of potential ways to win and stuff is happening with a fairly cheap, pretty good multifamily portfolio.
Anyways, I’m not making some huge call. I’m just buying a little in my HSA. I don’t think it’s hugely undervalued but, probably worst case scenario is that I end up stuck with shares in a decent portfolio of multifamily assets (and there’s a long drag from a period of new house formation/urban flight). I would probably put an expected return on the downside of around the starting dividend yield with maybe a little growth (I think this has historically described the performance of REITs as an asset class). So maybe like 5% IRR, but I could also get a quick + ~33%. It could get worse before it gets better.
Other than that, I’ve not done much. Just sitting back and watching my bank stonks rip. hah. I did sell some $FCNCA after it popped when the merger with $CIT was announced. I really just wanted to move that from the fun fund to another account (where I’m still contributing and could kind of DCA and hold it over time). Of course, the stock ran off and left me. I haven’t yet been able to get back in. I do like management and their track record. I will discuss further if and when I buy back into the name. I just can’t see paying material premiums to tangible book when I can get Wells for a discount and Wells’ tech scale is probably a big advantage over a smaller bank like this.
GOALS!
With the new year/decade, I established some goals for 2020. I have been tracking them in my monthly journal posts to try and prod myself along.
I am still on pace with my $50K in annual savings/contributions to investments. I may need to just table my fitness goals until after covid. I’m a more of a gym guy than a runner or cross-fitter and this has not been a great time for my fitness levels.
As for the goal of reading 12 books, YTD I have finished:
When Genius Failed, Concentrated Investing, Factfulness, the Rebel Allocator, Walden, Towers of Debt, and Sapiens.
Since the last update, I finished Thinking in Bets. Annie Duke is a pro poker player and psychology and decision science academic. I’ve read a fair amount of the behavioral psychology and finance (Kahneman and all those people) literature. Duke uses the book to frame all those ideas on the lattice work of decision making under uncertainty in the context of poker (and eventually in life more generally). I would describe it as a great introduction/overview and arrangement of the materials concerning rational decision making and trying to manage the challenges presented by human psychology. I enjoyed it despite my prior familiarity. I think I would describe it as a great gift book to share as an introduction to those ideas.
eBay: The Perfect Store?
I also finished The Perfect Store. It was worth reading. I have bought a fair amount of $eBay stock, but I still got bored about halfway through (and struggled to finish). It was maybe three of five stars. Seemed like one of those books that did not really have enough material to be a book, so they beefed it up with a bunch of random eBay related anecdotes about users and the like. Worth skimming if you’re interested in eBay or some more hot takes about dominant online bidness models.
It’s clear to me that eBay had been a fabulous business since it was founded in the late 90’s. It has global scale and if durable network effects do exist, it is hard to see how eBay doesn’t have them. Go on eBay and search for wooden toy trains (or sneakers, if that’s your bag) and then try on one of the other sub-scale market places like Facebook. Try out the App too…it doesn’t suck. On some other marketplaces there’s a dearth of sellers and a dearth of buyers and the scale of one makes the marketplace more attractive for the other. Also if you want to also randomly buy a hand-crafted 2020 dumpster fire xmas ornament you can find that as well (and it should be about 7% cheaper than etsy for the same stuff, because of the superior model with lower, scaled-up, bigger TAM, take rates that eBay operates with).
At worst, I think it is like the dominant global flea market. Super profitable and super anti-fragile (back March you could still go on the “perfect market” and buy some kn-95 masks, toilet paper, and hand sanitizer, although you had to pay the true market price). I somewhat prefer their model to the combo first and third-party marketplaces too. It is confusing and dilutive of the brand equity for Walmart and Amazon to have the third parties on their sites in my opinion/experience. Like 80% of the stuff on Amazon now is sketchy.
It also probably factors against getting the best third-party sellers when you (allegedly) rip off their products and go beyond the pale in competing with them (not to mention the constant tension that is there). That’s probably why Hasbro can have an eBay store to liquidate inventory (get some cheap avengers Titan series on there…like $8). That would be a non-starter (or at least doesn’t seem sustainable) where Amazon and Walmart are competing for that business. Nike could hop on eBay with a factory outlet/liquidation store no problem.
Anyway, I’m moderately bulled up on eBay (or, I was in the $30’s). They are under assault right now from lots of potentially dumb (certainly aggressive) capital funding money-losing sub-scale market places, so that is showing up in their numbers. If and when returns on capital are required by investors, eBay may be able to roll up some the losers and put that volume through their network. If nothing else it seems likely they will pick some market share back up once the subsidies from dumb capital are exhausted (if ever).
That phenomenon, plus the state tax roll out, likely explains a lot of the dip down in their long-term trend of growth (@ less than e-commerce, but higher than retail). I don’t really need to be right about that, however, since I’m paying like 9x ebitda, they are returning cash (which has gushed forth since 1995), and mining their existing GMV more efficiently by bringing payments in house and allowing some ads, etc…I will note that I don’t like their stock based comp and I really don’t like that they try to push BS adjusted earnings that ex-out the stock based comp. If you look at it on a GAAP EPS basis, they are trading about 14x EPS.
You also have an option on their ticket marketplace business (stub-hub) which they sold and got cash and a big chunk of equity in the buyer (still under some foreign anti-trust reviews but they aren’t big enough markets to kill the deal to the best of my knowledge).
Finally, what other stock is owned in size both by Baupost and by (compounder bro/moat guru) Pat Dorsey? I own this in the fun fund and another account. I think I’ve mentioned it before, but not in this much detail.
ONWARD
So anyways, that’s that. On the personal finance front, I saved a little and the market chipped in the rest for a pretty nice increase.
Here’s hoping $WFC continues to rip. I told myself if it got some momentum, I would add some options as a kicker, so we will see if I blow my accounts up. That should be entertaining for you. haha.
Until then, thanks for reading!