Portfolio Update for April 2019

None of us has a crystal ball that lets us look in the future. This is true for life in general, and triple true for investing. Although there are plenty of historical and future based methods that can help us to make an investment decision, the outcome will still remain uncertain. Besides all the research, analysis and calculations, there is one thing that I believe is equally important: the pure instinct. What does your gut say?

Trust your own instinct. Your mistakes might as well be your own, instead of someone else’s.
Billy Wilder

Of course, your instinct should not replace the required research. Much more it should complement it. Do the research as best as you can and then trust your inner voice. In fact, the more experience you accumulate in a certain topic the better your gut feeling will become.

Disposals

I’m a very reluctant seller. The reason for that lies in my overall goal: building a portfolio that ensures a reliable and growing cash flow. Selling simply does not support this goal. Nonetheless, sometimes I do it anyway. Most notably, I’m willing to sell when my confidence in a stock has changed and I don’t feel comfortable anymore in building it up in size. I came to the conclusion that this was the case for two of my holdings. Consequently, I decided to sell these positions and reallocate the funds:

On April 12, I have sold my position in Altria Group (MO) valued at €3,181 ($3,562).

First of all, Altria has been a good investment for me. It has a decent yield and a respectable track record of dividend growth. I am still convinced that MO’s dividend is safe. Going forward, however, I became more skeptical about the tobacco industry in general. The cigarette volumes keep on declining and while MO & others managed to offset the dropping volumes using their price power, I believe this instrument has a limit. Obviously, MO’s management is aware of that and that is why they are trying to diversify the business with the recent investments in Juul and Cronos. It might turn out to be a good decision. But there are also many uncertainties and regulatory issues that will take time to get solved. Others might have a different opinion about it and that is fine. I act upon the motto: “When in doubt, then get out”.

On April 17, I have sold my position in IBM (IBM) valued at €999 ($1,118).

IBM was on my selling-list for a long time. I went through a long history of poor earnings reports before finally deciding to liquidate my big blue position. IBM’s Q1/2019 report was the straw that broke the camel’s back. I simply had enough. In contrast to the MO liquidation, which was in the green, I realized a minor capital loss (~4%) with this disposal. Luckily, IBM was one of the smallest positions in my portfolio.

Acquisitions

With the sell of MO and IBM, I’ve lost a significant amount of dividend income. I knew these two would be hard to compensate. That is why I couldn’t just sit still and watch my cash flow going down. I took the proceeds, added some new cash and went all-in, investing everything immediately. This is what I’ve bought in April:

On April 8, I have purchased 28 shares of Verizon Communications Inc (VZ) for a total investment of €1,465.52 ($1,651.65). Verizon is a new position in my DGI portfolio. You can read more about this purchase here.

On April 15, I have purchased 10 shares of JPMorgan Chase (JPM) for a total investment of €993.44 ($1,120.55). This purchase adds 10 shares to my existing position. You can read more about this purchase here.

On April 16, following a good earnings report, I have also added to my Johnson & Johnson (JNJ) stake by buying 8 shares for a total investment of €984.19 ($1,112.13). You can read more about this purchase here.

On April 17, I have purchased 6 shares of Becton, Dickinson (BDX) for a total investment of €1,193.99 ($1,349.20). BDX is a new position in my DGI portfolio. You can read more about this purchase here.

On April 22, I have purchased 9 shares of The Clorox Company (CLX) for a total investment of €1,246.47 ($1,398.91). CLX is a new position in my DGI portfolio.

On April 25, I have purchased 7 shares of 3M (MMM) for a total investment of €1,192.69 ($1,331.40). MMM is a new position in my DGI portfolio.

Now that was an eventful month! First, I have collected €4,180 by selling MO and IBM. Then, I pumped the proceeds (plus some additional capital) back into the market by purchasing VZ, JPM, JNJ, BDX, CLX, and MMM. The total sum of investments: €7,076. Although the invested amount was higher, my forward dividend income stayed almost flat. This is not surprising, considering the high yield of MO and IBM compared to the relatively low yield (except VZ) of their substitutes. Since I’m still in an early stage of the accumulation phase, I’m willing to accept a lower yield for the benefit of long-term prospects.

SF Portfolio Snapshot

As of April 26, 2019, I’m invested in 31 companies.
The SF Portfolio has a total value of €56,654 ($63,452) and is expected to generate €1,835 ($2,055) in pre-tax forward annual income.

(Equity Allocation: April 2019)

TOP 10 Holdings

(Top 10 Holdings: April 2019)

Despite all the activity in April, there is only one new company showing up in the TOP 10 list. JPMorgan Chase (JPM) replaced Altria Group (MO) and became my third largest holding. Considering the additional purchase of Johnson & Johnson (JNJ), the healthcare giant is representing more than a double-weight position in this portfolio now. A full position is €1,835 ($2,045) or 3.2%. For the moment, I have no plans to extend the stake of the TOP 10 positions. Instead, I will focus on buying new companies or building the underweight holdings up in size.

Sector weightings

(Sector weightings: April 2019)

The defensive-sensitive-cyclical breakdown stands at 35%-30%-35% today. As mentioned in the previous portfolio update, I aim for a more conservative allocation of 50%-25%-25%. At least this is a rough guideline how the portfolio should look like in the end. Due to the sell of MO, the defensive sector share decreased from 38% to 34% compared to the previous month. Although I’ve purchased JNJ, BDX and CLX recently, there is definitely more place for consumer staples, healthcare and utilities in this portfolio.

Summary

I made some major changes to my portfolio during April 2019. The biggest one was definitely the disposal of MO. It was not an easy decision and I’ve lost a heavy income producer by selling MO. Nevertheless, this transaction helps to shape the portfolio into the direction that I feel more comfortable with. There is no right or wrong. It does also depend on the personal situation. When you don’t feel confident about owning a stock and building it up in size, then why cling to it? It’s maybe better to make a clean break and look for something else.

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