December 2018

General Comment

Who would have thought? It turns out that many people actually predicted the financial markets drama that we witnessed in December. To me it’s all BS, or at least 80% is BS. Reading blogs and news over the past 6 months there was not a single writer who did not mentioned an impending financial catastrophe, crisis, meltdown, whatever you wanna call it.

After so many years of slower or faster growth it’s a no brainer that sooner or later the market will take a pause and enter a downwards phase.

Since September that’s what we witnessed, with a great Christmas peak that set the record for the “worst financial result ever over Christmas”, as if this actually mattered at all…

Reality tells us that there was a strong correction, all over the board, we are back at 2014 with some valuations, on some stocks even earlier than that. To our DGI prospective it’s good news, because we can buy at lower prices stocks that we feel strongly about, but I would be lying if I’d say that I am actually “happy” to see most of the portfolio turning red.

The difference as usual is the scope of the investment. Looking at a longer period of time, unless something major happens, buying today can actually prove to be an opportunity to reap gains and better dividends later.

What sprung the correction is not to be understood, there are several news that add onto worldwide uncertainty, this doesn’t help because investors love to feel that there is less danger for their investments, but either than that I could not single out any major event that could cause a further fall.

Yes, EU is stressing out about budgets and Brexit, Trump is coming to terms with a difficult political situation and keeps on with some of his crazy policies, Asia is slowing down. It’s the economy baby, ups and downs are normal, can’t grow forever. On the positive side there is not a certain catalyst for a major recession (war, major economic sector meltdown, natural catastrophic events), so maybe we will enter a lateral phase in 2019.

It seems that all predictions are giving 2020 as the year of the world recession, we’ll see about that. Of course it’s equally stupid to think that nothing has changed, so the strategy in 2019 for LH Portfolio will change a little (more in a dedicated post), but I’ll still keep focusing on dividends and great companies to buy!

LH FUND

Explanation of terminology and graphs is HERE.

Let’s see the numbers:

MonthTRYTERNYYoCForex
12.140.00%0.00%0.00%0.00%
12.15-3.33%1.22%-0.13%-1.00%
12.167.06%1.14%1.16%-4.35%
12.179.94%1.04%2.64%-5.94%
1.189.06%1.07%2.66%-7.40%
2.186.13%1.06%2.66%-7.95%
3.185.85%1.04%2.81%-7.21%
4.189.02%1.03%2.90%-6.07%
5.188.89%1.36%2.68%-4.42%
6.189.16%1.35%2.65%-4.91%
7.1810.60%1.34%2.67%-4.74%
8.1810.33%1.31%2.70%-4.50%
9.1810.53%1.29%2.80%-3.89%
10.189.24%1.26%2.73%-2.64%
11.1811.43%1.25%2.78%-2.41%
12.183.28%1.24%2.70%-3.53%

Net Yearly YoC is decreasing (vs. previous month) – Quite a big loss compared to November, more details later, but surely something that I was not so happy about…

TR is decreasing (vs. previous month) – LH Portfolio is not exempt from market related drama, so a collapse in world indexes translates in a collapse of Total Returns.

Forex is getting worse (vs. previous month) – After a good recovery made during the year exchange rates (especially the pound) turn to bad again.

YTER is decreasing (vs. previous month) – Costs, taxes and so on are lower this year (thanks to less trades made).

Dividends and Options

December was a very hard month for the LH Portfolio. I knew that the 3% Net Yield on Cost target was impossible to achieve, and I knew that I had to close off some very bad trades on my options, so the results were expected. To see them for real though, it’s a different story, but I have to put up a stiff upper lip and move on. Records will show that December is so far the second worst month EVER recorded by the LH portfolio, since inception.

December closed with aย -202 Euro result, the second worst loss in the history of the portfolio (first one was November 2016).

Dividends accounted for 823 Euro (+16.% vs.2017) and Options ended up with a -1025 Euro (-260% vs 2017).

Let’s see what got us to these results…

The catalyst for the worst result since the start of this portfolio is an option on DBK that I sold more than 2 years ago. Since then I have been starting rolling the position adding legs to stay in credit. Unfortunately the legs that I was adding went on the losing side too increasing the loss. In December I pulled the plug on this derivative disaster and took a loss not shy of 1800 euro. I still have a couple of bad trades in the portfolio, but I hope to manage my way out of them…

Dividends did well, still rising. They managed to counterbalance part of the options losses, but did not manage to save the day posting a result above 0%. It’s a shame but they did their job.

List of Options closed in December

DCA/Increased Positions

Bought 30 FRA:BAS @61.40 EUR

BASF is a world leader in chemical prime materials, lubricants and other chemical related products. Down on its luck for a series of earning revisions, factories reducing production because of natural causes, quotation went 10% under my starting average price. I decided to buy another position, the company is solid and so it’s the dividend.

New Positions โ€“ Sold Positions

Bought 100 WY @ 24.80 USD

Weyerhauser is one of the biggest (if not THE biggest) forest owner in the world. A REIT that trades in timber and timber related products, suffering recently from terrible prices on timber futures. It’s one of those companies that you can’t easily find a competitor for, so it fits in a specific niche of the Portfolio and increases differentiation adding a sector that I feel it was missing.

Bought 250 LON:EDIN @ 6.18 GBP

Edinburgh Investment Trust has been on my radar for quite some time, I like the target that they have (increase dividends yearly at least above UK inflation), they focus on the UK market primarily. I am not going to drop stock picking for Trusts and Funds, but I will consider adding to CTY and EDIN if I sell positions on UK-FTSE. They pay dividends quarterly, which is great, and they offer a good degree of differentiation on a market where I have more trouble finding good sources of information.

Conclusions

With December gone, also the fourth year of the LH portfolio draws to a close. This month was a rough one, and brought back to my attention the issue of deploying capital as soon as I get it from dividends. This is how I have operated so far, but I guess that I need to be more patient in the future, if I had half of the money made this year available in the account I could have bought better companies at much lower valuations.

As forecasts are not for another bull run in 2019 I will try to pace myself a bit more on the buying side,

Either than that, the biggest news of all is that I become a father! Leonardo was born on the 17th, changing my life completely. One week ago I wasn’t even dreaming to be able to write this blog update, now I have the time, which means that we are getting adjusted to the new “rhythm” that a newborn (but generally babies) force on you. We’ll see where that road takes me!

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5 thoughts on “December 2018

    1. Ciao DIY, thanks!! ๐Ÿ™‚ Actually I was writing in Italian here above that I will experience the thrill of trading with an average of 3 hours of sleep per night from now on!! ๐Ÿ˜€ (well actually due to lack of liquidity I am forced not to do a “lot” these days)… .:)

      Like

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