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The ‘Retire Young’ Portfolio Performance Update June 12, 2013

Posted by Ishmael Chibvuri in Latest Articles!!!.

When I started the ‘Retire Young’ portfolio on April 18, the goal was to beat the market by a large enough margin to allow the investors to retire at young ages. Of course, looking at a portfolio’s weekly or monthly performance may be misleading because it takes years before we can be sure of its actual performance against the market. Just because we beat the market at any given day, week or month doesn’t necessarily mean that we will beat it in a decade. This is why it’s important to watch a portfolio’s performance over a long period of time.

First, I’ll cover some recent news about the portfolio.

Statoil (STO): The company continues to have a wild ride. Statoil is under investigation for price-fixing allegations, which may subject it to a huge fine in the future. Meanwhile, the company agreed to pay its shareholders $1.15 in annual dividends, which resulted in a yield of 5.1%. Furthermore, there may be some changes in Norway’s tax system regarding oil drilling and Statoil is deeply worried about these changes. Statoil’s profitability in Norway may come in question if tax rates increase; however, I am sure that the Norwegian government will not want to hurt the country’s biggest tax payer. In addition, some of the company’s projects are getting costlier than originally planned. For example, in oil field Johan Carstberg the company’s projected break-even price is as large as $85 per barrel. The last month has been very challenging for the company but we will still keep the company in our portfolio because most of the challenges are already reflected in the price of the company (which is very close to its 52-week low). We will continue to monitor this company closely though.

First Solar (FSLR): The company continues to deliver the results; however, it gets punished along with other solar companies. It looks like the market looks at all solar companies the same way. Some days, we see all solar companies going up, other days we see all solar companies going down, regardless of how each company happens to perform. Recently, Goldman Sachs upgraded First Solar to "buy" with a price target of $64. First Solar has one of the strongest cash flows in the entire industry. Lately, First Solar’s share price has been pretty volatile but the volatility can’t go on forever.

Smith & Wesson Holding Corporation (SWHC): Not much have changed in this company since my last report on it. Some retirement funds are selling their stakes in the company mostly for political reasons and the company continues to offer strong fundamentals for long-term investors.

Wells Fargo (WFC): As the housing market has been improving, this company’s performance has been following the trend. Reportedly, the company is keeping a lot of money on the sidelines hoping that the interest rates will rise and it will gain from such a rise. While this caused Wells Fargo to miss out on some opportunities, the company is well-positioned for a possible interest rate increase.

The Cheesecake Factory (CAKE): The company’s share price has been rallying since we added it to our portfolio. There aren’t a lot of developments since the last time; however, this will continue to be a high performer for a long time.

Hewlett-Packard Company (HPQ): We are looking at another company that’s been rallying relentlessly since we added it to our portfolio (in fact it was rallying even before that). A couple weeks ago, HP announced its quarterly earnings, which were less than impressive; however, the CEO Meg Whitman gives a lot of hope to investors as the company continues its turnaround efforts. It looks like everything is going according to the plan, which gives investors enough reason to keep holding this company.

American Express (AXP): This is one of the two financial companies in our portfolio and it continues to perform well. This is one of those companies you’d want to keep in your portfolio for a long time because it has low risk and high returns due to its business model. Recently some competition for AXP emerged; however, it has a high retention rate. The company’s partnership with Costco (COST) has been particularly profitable.

The Walt Disney Company (DIS): The company recently raised admission prices at its theme parks but this is not likely to hurt the demand too much. In the last few years, demand has been very strong for Disney’s parks and cruise ships. The company also expects to make more investments in China as it gains attention of the country. Disney has a rather conservative approach to investing and the company loves to take its time and make things happen at a slow but sure way.

Monster Beverage Company (MNST): This is one of the companies for which I received the most criticism when adding it to the portfolio. Many people thought that Monster Beverages would be a bad bet. Eventually they were correct because the company’s share price took a plunge soon after I added it to our portfolio. Yet, things have recovered quickly and the company is currently on a rally. This is the first time since last July that the company is trading for a price above $60.00.

Hertz Global Holdings (HTZ): Despite a great performance in the last year, the company had been under the radar for such a long time. Even in Seeking Alpha, very few people actually followed this company and very few articles were actually written. After my article, I noticed that the attention for the company started to increase sharply.

Santarus (SNTS): There aren’t a lot of updates on this company. Soon after we added this stock to our portfolio, it had a sharp correction but it’s been recovering in the last couple days. The story for this company is still intact.

Now it’s time to track the performance of the portfolio. Since April 18, the S&P 500 index is up by 5.85% and Dow Jones Industrial index is up by 4.31%. How about the `Retire Young` portfolio? Let’s look at it.

The table below shows the stocks in our portfolio, their ticker codes, buy date, buy price and buy amounts.

Stock Name Ticker Buy Date Buy Price Amount
Monster Beverages MNST 4/16/2013 $56.49 200
Statoil STO 4/19/2013 $23.00 400
American Express AXP 4/26/2013 $67.75 100
Wells Fargo WFC 4/26/2013 $37.88 300
Disney DIS 4/30/2013 $62.75 200
Hewlett Packard HPQ 5/3/2013 $20.63 500
Smith & Wesson SWHC 5/13/2013 $8.77 1100
The Cheesecake Factory CAKE 5/16/2013 $40.74 200
Hertz HTZ 5/23/2013 $25.30 400
First Solar FSLR 5/24/2013 $51.55 200
Santarus SNTS 5/21/2013 $22.20 400

The second table shows each stock’s buy price and the current price along with the current return (excluding dividends):

Stock Name Buy Price Amount Current Price Return
Monster Beverages $56.49 200 $61.62 9.08%
Statoil $23.00 400 $22.38 -2.70%
American Express $67.75 100 $78.04 15.19%
Wells Fargo $37.88 300 $41.25 8.90%
Disney $62.75 200 $64.85 3.35%
Hewlett Packard $20.63 500 $24.81 20.26%
Smith & Wesson $8.77 1100 $9.21 5.02%
The Cheesecake Factory $40.74 200 $41.46 1.77%
Hertz $25.30 400 $25.58 1.11%
First Solar $51.55 200 $53.09 2.99%
Santarus $22.20 400 $21.24 -4.32%

If you just bought and held these stocks, your cost basis would be $108,607 and your current market value would be $114,599. Adding the dividends, we are getting another $550. Basically, including dividends, our return so far is 6.02%, which means we are beating the market slightly.

Then again, there is one more calculation to make. Those who followed my articles know that I always advised selling covered calls for every stock we own. While selling covered calls will cap the maximum returns, it will add some stability and safety in the portfolio. Here is a list of covered options we sold, with their premiums and strike prices.

Stock Name Buy Price Amount Premiums Strike Price Breakeven Sell Price Current Price
Monster Beverages $56.49 200 $4.05 57.5 52.44 $61.62
Statoil $23.00 400 21.85 $22.38
American Express $67.75 100 $1.18 70 66.57 $78.04
Wells Fargo $37.88 300 $0.56 39 37.32 $41.25
Disney $62.75 200 $1.42 65 61.33 $64.85
Hewlett Packard $20.63 500 $0.82 22 19.81 $24.81
Smith & Wesson $8.77 1100 $0.50 10 8.27 $9.21
The Cheesecake Factory $40.74 200 $0.90 42 39.84 $41.46
Hertz $25.30 400 $1.40 27 23.9 $25.58
First Solar $51.55 200 $4.80 55 46.75 $53.09
Santarus $22.20 400 $0.90 25 21.3 $21.24

What happens if we cap prices at strike price and count the premiums as cash we have?

Stock Name Buy Price Current Price or Strike Price Amount Premiums Cash Market Value
Monster Beverages $56.49 $57.5 200 $4.05 $810.00 $11,500.00
Statoil $23.00 $22.38 400 $0.00 $8,952.00
American Express $67.75 $67.75 100 $1.18 $118.00 $6,775.00
Wells Fargo $37.88 $39 300 $0.56 $168.00 $11,700.00
Disney $62.75 $64.85 200 $1.42 $284.00 $12,970.00
Hewlett Packard $20.63 $22 500 $0.82 $410.00 $11,000.00
Smith & Wesson $8.77 $9.21 1100 $0.50 $550.00 $10,131.00
The Cheesecake Factory $40.74 $41.46 200 $0.90 $180.00 $8,292.00
Hertz $25.30 $25.58 400 $1.40 $560.00 $10,232.00
First Solar $51.55 $53.09 200 $4.80 $960.00 $10,618.00
Santarus $22.20 $21.24 400 $0.90 $360.00 $8,496.00

Now our holdings are worth $110,666 in stocks and $4,400 in premiums (plus $550 in dividends). Now total worth is $115,616. Our cost basis was $108,607; therefore, our current return is 6.45%. Again, we are beating the market slightly. Keep in mind that short-term returns are usually meaningless and we need more data points to tell whether we are beating the market or not and by how much. For the time being, things are looking good for the ‘Retire Young’ portfolio

Source: http://seekingalpha.com/article/1490872-the-retire-young-portfolio-performance-update?source=email_investing_ideas&ifp=0



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