November 2016 Update

General Comments

November saw the election of Trump, the consequent rally and lots of opportunities for the Long Haul PF. Defensive stocks and Utilities were heavily under pressure, this allowed me to enter in a few new positions, consolidate some other and do a bit of wash sales to lower entry points of some core holdings. On the latter I have gotten lucky to do it before Trump took power and the PF enjoyed a very strong ride from TROW and WFC both of which were averaged down consistently before the election. I still have to understand what is going on on a macroeconomic scale, as the selloff seemed a bit strange, but if yields of bonds are on the rise I guess that investors are moving from bond proxies to real bond, and this can be interesting as some dividend investors darlings might be heading for lower entry points. I have made several trades (compared to standstill months like the summer) so the cash available to trade options will decrease, after all is a dividend portfolio, so buy and hold should be there to stay.

Having said that, November brought some new ideas and I am more resolute to start trading options in a more “aggressive” way, i.e. trading closer to the money and not making a tragedy if stocks are called or assigned. I’ll make some tests as usual, and then if they work I might consider escalating the experiment. I am still looking at reducing the number of holdings, without compromising too much the asset allocation, this should allow me to manage things in a more efficient way, although it’s easier said than done.

LH Fund 

TR stands for Total Return (what selling everything, paying taxes and commissions and converting to euro would mean in terms of return), YoC is Yield on Cost (what my investments have returned to me via dividends/options), TER is Total Expense Ratio (commissions + taxes).

Total Return is not something I am particularly concerned about at this stage (plus it’s an estimate as I have calculated potential taxes and commissions in it), it’s highly affected by the way the market behaves especially in a young portfolio such as this one. But it’s a metric that it’s worth keeping an eye on. YoC is on the other hand more interesting to me, as that is what the PF has produced over time, my target is to reach the 2% x year net mark (by net I mean YoC-TER).

TR (vs Previous Month/Record High November 2016): 4.21% (3.2% – 4.21%)

YoC (vs Previous Month): 5.23% (5.05%)

TER (vs Previous Month): 2.07% (2.16%)

November was a good month all in all, mostly driven by Trump rally at the beginning, with some heavy losses on the Utilities/Defensive side of the portfolio.

But if we compare this results to October we can see that the PF established a new record high for TR, YoC is growing at a great pace and TER is even DECREASING! How comes that TER is decreasing? Well, that has to do with two cash payments that I made into the fund in November, the first effect is a decrease in YoC and TER as the percentage is calculated against the total amount invested. TR takes into consideration the price of the fund when cash payments are made, but these other two metrics don’t.

Here some graphs to describe some of the movements of the Fund since I have started working on it.

Dividends and Options

Another 1K month, cannot complain at how things are going. There was an hefty help from Options here too, with 894 Euro vs 660 Euro coming from dividend income.

I expect following months to be less interesting mostly because this month I have had several stock operations so I am decreasing the capital that I have to trade Options. As usual though I cannot complain about the result!

On the option front I have had a very nasty wake up call with a Call option being called away on GME, this resulted in a flat loss of 800 dollars, mitigated by all the dividends and option trades that I did before. Net loss is around 300 USD. This incident taught me to be much more careful when selling calls, especially close to the dividend date.

Options-wise the

T	USD	38.40
VZ	USD	25.99
LON:CLLN	GBP	36.25
BME:ABE	EUR	37.80
LON:WPP	GBP	14.66
OKE	USD	18.45
PG	USD	43.52
BIT:REC	EUR	31.50
BIT:ATL	EUR	92.40
BIT:TRN	EUR	72.10

DCA/Increased Positions

Bought 47 KO @ 40.90 USD

Increased position to 100 pieces so that I can trade covered call, bought at the same average price that I had before.

Bought 37 WMT @ 70.09 USD

Got 100 pieces to trade calls, the real aim here is actually to get the stock called away at 70 (my average price is 68), to that I can collect the last dividend and see the stock go. I think that I can employ the money in better ways than staying in WMT (no growth in 2 years for me).

New Positions – Sold Positions

Bought 400 LON:CTY @ 4.00 GBP

This is my first investment in a fundlike stock. CTY pays quarterly dividends and is invested in some of the stocks that I already own in the UK, so technically is just a bit of a copy of what I have got already. But it’s well managed, it’s managing to create value and it doesn’t invest in stocks that have risky dividends (so they say).

Bought 40 LON:WTB @ 36.30 GPB

Whitbread has been under pressure recently, thanks to Brexit and pounds woes. But it’s a very nice company, manages lot of hospitality related brands among which the most famous one is Costa Coffee. This acquisition is part of my “bet” on the weak pound as I believe that it will attract a lot more tourists to the UK driving revenues up for companies like WTB and GNK (pubs). Costa is also an international brand, not present only in the UK.

Bought 60 LON:IMB @ 34 GPB

Imperial Brands suffered the Trump crash for defensive stocks, they make cigarettes and tobacco related products, so nothing ethically great, but it’s a solid company that is sporting a nice dividend. Price is too high to own the minimum trading requirements to sell calls, so I started with a smaller position, technically a buy and hold stock.

Tax Optimisation

This is a strategy that is aimed at optimising taxes and losses/gains. In Italy we can compensate gains with losses, therefore, as I am not interested in Total Returns “now” but I am more interested in keeping average prices down in order to have an higher dividend yield, I sell at a loss (take the losses) in order to compensate these losses with the gains that I am having from my option trades and other gains. By reinvesting the original amount invested in the first place I increase stocks and yield at the same time. Clearly this only makes sense in a tax system such as the Italian one, in other regimes it might not be very convenient or even discouraged (like it is in the US for example). Moreover it is a strategy that I am going to put in play only with stocks that I really want to keep for the “long run”. In November the stocks were:

BIT:TRN

BIT:ATL

WFC

TROW

Please ask questions if anything is unclear, I have started only recently to report my trades and development like that, so maybe something is not really understandable and I do not realize!