It is time for my monthly personal finance and investing journal update. Let us examine the State of my Stash…
Stash Status
As a reminder, I ended January 2021 at about $330,000.
In February, I automatically saved about $4,000. I continued my strategy of managing my behavior (and limiting the willpower required to stay on plan) by basically saving first and then dealing with the consequences in the rest of my budget.
With the savings and investment gains in February, I ended up with around $347,000 in my investment accounts.
CURRENT PORTFOLIO Allocation
As I’ve mentioned before, most of my stock exposure is through index funds. I continue to hold 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 is nothing crazy; about 30% of my total invested accounts is allocated to foreign stocks.
Most of this exposure is via EAFE stock index funds. I am trying to limit exposure to China (and some other emerging markets).
EFA was up 2.24% in February. The S&P 500 was p 2.78% in February. The completion index (basically everything not in the SPY) was up 5.21%. I am allocated to all of these, and I have about 15% each in SPY and VXF versus 30% in EFA. (this includes the investments via my value + trend account).
Value stocks mostly crushed the broader indexes in February. RPV was up 10.56%! VBR was up like 8% Value funds that have thrown out book value (and financials) as part of their process seem to have sucked a bit of wind last month. We won’t mention names. I don’t actually have much $$$ allocated to “value funds”, but they tend to correlate closely with my active stock picks.
Minor Adventures in Capitalism
Speaking of my allocation to active accounts, I allow myself to “pick stocks” with about 10% of my overall portfolio.
My “fun fund” should serve as a decent proxy for how I’m doing in this bucket (and it’s easier, since I track that more closely than the other accounts in this category). As I previously shared (through tears and convulsive sobs), my Fun Fund was down (11.72%) in 2020.
I sold half of my $VIAC position because it ran up to being my biggest position. I like it fine, but I kind of bought it before I started thinking about applying rules on holding periods and position sizing in this account. I didn’t quadruple down at $10 or anything but I made a nice gain. I am also buying another “legacy” media stock that I’m going to post about at some point in the near future. I started a draft and everything!
I also bought a little $BK a few weeks back. It’s just under 5% (of this tiny, tiny account). I wanted moar high quality banks in the portfolio and I felt like $USB was a little rich. I’m basically at my self-imposed 10% of cost cap on $BAC and $WFC.
$BK is a custody and asset management bank. Basically, they serve other institutions and rich people by holding onto their stuff and accounting for it.
They also have one of the big 3 RIA custodian businesses in Pershing. Schwab and Fidelity are the other two. I like that business. I like the RIA model, where the person managing your money has at least some duty to act in your interest. I also like that is sort of a call on the businesses of all these RIA entrepreneurs.
I think almost all humans need that service and they are going to continue to gut the wire houses/other more salesy models over time. I would probably like Schwab better at the same price, but that’s not the game and it’s a lot pricier (maybe 2x depending on how you come at it).
I would be interested to hear some comments from some of you RIA readers about experiences with these different options (Schwab, Fidelity, and Pershing).
$BK is cheap (as far as I can tell) primarily because the legacy asset management business is under huge pressure from Vanguard and Robo advisors etc…(I mean they offer BONY mutual funds and stuff for pete’s sake). They also are getting hit with the “rates will never rise bro” and “fintechs are going to gut you” narrative applied across the banks from what I can tell.
Asset management is tough to grow but that is actually a good/great business as far the returns and margins (and you know actually spitting out cash) if you’ve got scale. Might not be growing but those assets are also sticky AF.
They also might have some challenges from the blockchain and adapting to new technology, but all these stories about millions lost on drives with forgotten passwords and whatnot might show why you want to outsource oversight of that stuff to someone with deep pockets and scale so you can rely on them (or sue/file complaints against them if needed). Shortly after I bought the stock, they launched virtual asset custody services. It could actually end of being a tailwind for them.
I mean at 10x earnings with historical ROTCEs near the top of the industry over like a 250 year history, I don’t need them to launch the new “Hamilton” stable coin, or beat AWS, or reinvent layaway or anything.
Finally, I’ve totally given up evaluating management as even being a factor to consider. I’m fairly convinced management analysis is just a lot of BS at this point. I just try to look to make sure they haven’t actively ripped off over investors in the past and look for some alignment of interest/skin in the game with either management (free options don’t count) and/or a controlling/influential shareholder. Buffett is the biggest hodlr of the stock, so I’m pretty good on that score with $BK.
Value + Trend
I also manage some of my portfolio based on a very simplistic, systematic trend and value strategy. The account is divided equally: 33% each to the S&P 500 ($SPY), the Dow Jones Completion Index ($VXF), and foreign stocks (basically, $VXUS).
If the valuation of one of these indices/funds is rich (as determined by me based on a somewhat discretionary “process”), then I apply a simple moving average trend-following rule.
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 stocks aren’t “expensive” I just want to be long and strong. 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).
If you’re interested in learning more about trend-following, I would recommend you start by searching for info on Alpha Architect and Meb Faber’s site.
I have about 20% 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).
I have been “full long,” in this account since June 2020. In February, this account was up 1.9% beating the primary benchmark I’m using: AOR, a Blackrock ETF tracking a globally diversified version of a 60-40 portfolio. AOR was up 1.17%.
That’s a Wrap
So anyways, that’s the state of my stash as of 02/27/2020. Market returns exceeded my own contributions, that’s always cool. Value continued to rip in February. Let us hope it is just the beginning of the “decade of dunking” for value. We are due.