I will occasionally publish with comments, our core portfolio and our “fun” portfolio holdings and the activity which took place on Monday. Following holiday Mondays, we will publish this information on Tuesdays.
CORE PORTFOLIO (tax-advantaged)
Following Paul Samuelson’s advice that investing should be more like watching paint dry or watching grass grow, yesterday, Monday, 02/04/2019, as usual, we did nothing with this portfolio. (in April 2014, Paul Samuelson became the first American to win the Nobel Prize in Economic Sciences.)
49.2% (five years’ worth of our usual annual income) of this portfolio is in a US Money Market Fund (TDB166). A Money Market Fund is a near-money security, that is, a non-cash asset which does not fluctuate in value and can be quickly converted into cash. TDB166 is currently yielding 2.27% annually, the highest in a long time. A year or so ago, it paid in less than 0.5%.
The rest of the portfolio is in an exchange-traded fund which parallels the S&P 500 (SPY) which itself is an excellent proxy for the entire US economy.
CORE PORTFOLIO PERFORMANCE
Because we took advantage of the four buying opportunities in 2018 (a market drop of 10% or more), our core portfolio is up 1% over the last 12 months. The market is down 4% and because of my age, we were required by law to withdraw 4.5% from this tax-advantaged portfolio. In other words, we outperformed the market by 9.5%.
“FUN” PORTFOLIO. This is a corporate, margin account which allows us to trade puts and calls. It represents about 5% of the overall value of our portfolios.
Except for a small amount of cash, nearly 100% of this portfolio is invested in ABBVIE INC. (ABBV) at this time.
The derivatives on this stock pay a very high premium. Yesterday, we sold just-out-the money, covered calls, (ABBVl C 08FEB19 80.50) and got $US680.00 per contract. (Over the last six months, the premiums ranged from $US570.00 to $US3,276.00 per contract.)
Last week, we sold cash-secured, uncovered calls on this portfolio, by mistake. As luck would have it, ABBV price rose and we got to keep the cash. Better to be born lucky than smart!
Please note again that our “fun” portfolio represents only 5% of our invested money. Whether this portfolio goes up, down or sideways, it will have a small overall effect. We could, however, stumble across an exceptional opportunity which we can then apply to our core portfolio.
“FUN” PORTFOLIO PERFORMANCE
The only way to beat the market is to break one or more of the habits of highly effective investors. (1. Save, 2. Do it yourself, 3. Buy the US economy as a whole, 4. Buy and hold, 5. Rebalance to a sensible asset allocation, say 50/50 and 6. Avoid complexity). We departed from Habit 3 by picking a stock and from Habit 5 by being nearly fully invested in the market.
ABBV tanked and our “fun” portfolio is down for the year by a wide margin. Our “fun” portfolio has not been fun this past 12 months.