So 2018 has gone, the Long Haul Portfolio turned 4, nothing short than a toddler!
Let’s start dishing out some numbers and facts:
I started off in January with a prospected change in the way I was going to trade Options. Instead of insisting with very aggressive PUT trades, I switched to a long Call approach.
I have tried to sell at a strike at least +20% higher than my average price, the longest Call that I could find within the year. Target premium was at least 1 quarterly dividend.
The rationale behind this is that if I am successful I get to increase dividends by 25% (adding an extra one in form of premium), and if the trade goes majorly against me I can always let the stock go for a good capital gain.
The switch of course comes at a cost, I knew that I could not replicate the result that I had in 2017, but that’s ok because I view this as a more defensive approach.
All in all the strategy switch did exactly what it had to do, final result was hindered by bad trades that I had to close or manage prior to the change, so it could have been much better than the actual figure.
Dividends grew compared to 2017, this is the first great piece of news that I am happy to report. In an environment that it’s highly influenced by exchange rates (75% of the LH portfolio is not in Euro), growth in dividends not always translates in growth in revenue.
The UK is the perfect example to explain this. In 2015 a stock like HSBA paid a dividend of 100 pounds in April. In 2018 it did the same. The huge difference was that in 2016 this meant 127 Euro, while today it’s worth 115 Euro. Power of exchange rates…
I do not bring back dividends into Euro automatically, but for reporting gains I need to exchange virtually at the exchange rate of the day, so growing in the fourth year of the portfolio is a good piece of news, because rate of growth of the dividends is now considerably slower, as all capital has been deployed.
I was curious to see how the portfolio performed in 2018, comparing two years of almost similar quantities invested (2017 and 2018), and I am quite pleased with the results!
For statistical purposes I have made 1166 Euro per month in 2018 (GROSS), 38.40 Euro per day, just with dividends.
I can only grow on the exchange rate and increasing dividends, that’s why I’ll sign any time to get a +8% at the end of the year!
I have been toying with the calculation of how the LH Portfolio performed during these years, in terms of Total Returns. I have produced two different sets of statistics.
A linear growth YoY, taking into account the LH Portfolio NAV and a more standard CAGR calculation.
|2015 vs. 2014||-3.45%|
|2016 vs. 2015||9.62%|
|2017 vs. 2016||2.63%|
|2018 vs. 2017||-6.46%|
It’s evident that stock prices play a major role in affecting the PF performace, but it’s pretty good for me to see that even though we have had a “bad year” CAGR is still positive after 4 years.
If you gave me 10000 euro at the end of 2014 I would be returning a whopping 10235 Euro today… Not thrilling I’d have to say.
Before you start flaming me for being such a poor investor, please remember that Total Returns are NOT the point of this Portfolio. Technically (but only very technically) this fund should never sell it’s stocks, it’s all about the cash that we generate every year.
LH FUND YIELD
The cash that the fund generates every year is the real point of the investment.
I had a target of reaching a 3% YEARY NET YIELD (by net I mean what is left over after taxes, commission, expenses and so on), using dividends and options to reach this target.
Well 2018 wasn’t my year, I’ve got excruciatingly close on the third week of May with a 2.99% Net Yield, to see it collapse to 2.68% the week after. What happened? Taxes happened… 🙂
The fund started the growth again, reaching a 2.80% mark in October, only to fall to 2.70% level at the end of the year. Why the fall? More taxes?
No, options went bad had to be closed and that killed the dividend/option flow. There are positives about playing with derivatives and negatives, this time I closed with a negative note, but I’ll keep trading options, I consider them a really useful and valuable tool.
2019 could be my year, as I expect less costs of trading and I have (for the moment) less dangerous positions on the options that I have opened.
2019 will see some changes in the strategies that I’ll deploy.
- I will not add cash to the fund. I didn’t add a lot since 2016 but from now on the fund should stay “closed”, unless I will have windfalls from other sources that I cannot foresee right now.
- I’ll try to boost the Euro side of the fund, with major focus on Italy. This is a twofold objective. The first objective is that yield on Italian companies is high as I don’t have double tax issues. The second is that I get to decrease USD and GBP weight in the fund. Ideally I’d love to see a 30% on the Euro by the end of 2019.
- Options are going to be sold as in 2018, with a difference on the stocks that I do not “die” to keep in the portfolio. Those are the stocks that yield less than 2% net, and some companies in trouble. For all these stocks, assuming that I can sell calls, I will consider selling calls at my average price level, to have high premiums.
- I will not enter on new stocks or old ones with “full positions”. A Full position to me it’s the minimum that I can trade in options. As we all expect a bumpy ride in 2019 entering in small instalments might prevent me from putting the money all today and see the stock at -15% in 1 week time after…
- Will try not to reinvest immediately all the money I make from options and dividends. Will try to go at a slower pace if I can…
in conclusion 2018 was a positive year, the boat is moving towards the objectives that I started focusing 4 years ago. There is still much ground to be covered, but so far so good.
Targets next year?
- Try to reach and maintain by the 31st of December 2019 a 3% or above NET YIELD
- Reach 20K earnings from options and dividends
- Try to knock off 10 stocks from the portfolio concentrating resources on the other companies.
They are all quite difficult targets to achieve, but with some luck (you always need it) and less dangerous plays I am sure I can get them, or at least fall close to them!