I spend most of my free time teaching and mentoring people to become better investors. It is one thing to present and educate people on investment concepts. It is another to practice what you preach. For the past few years, in an attempt to demonstrate my willingness to walk the talk, I have tweeted every one of my buy and sell trades in real-time via my @sageinvestors Twitter feed.I have been pleasantly surprised to learn that there are people who actually follow my trades and have even printed out all my trades to look for patterns. The obvious limitation of using Twitter is you are restricted to 140 characters, so it is not a lot of space to explain rationale. To address this, one of my goals for the upcoming year is to post my trades for each month with a brief explanation of why I made the trade. The rationale could be company specific, portfolio specific, or macro-economically specific.
So let’s take a look at my trades for January. As you will hopefully see over the course of the year, I do not make a lot of trades, which is a key component of investing: minimizing trading fees/costs.
For January, I made three trades (2 sell and 1 buy).
SOLD Johnson and Johnson (Total gain: 30.2%)
I bought JNJ in 2010 and sold it for a 19.55 percent capital gain plus 10.7 percent in dividends accumulated. I originally bought it because I wanted to get some exposure to healthcare because one of my long term investment themes revolve around owning some healthcare businesses. I was attracted to JNJ because they have their hands all over the health care sector from drugs, to technology and they have been very successful at creating consistent Returns on Invested Capital that is greater than its cost of capital. JNJ has an extremely disciplined governance system requiring all its businesses to be financially focused. In a sense owning JNJ was like owning an ETF. It has demonstrated to be a solid well run blue chip company. The stock was somewhat depressed because of specific quality related issues, but knowing how focused their governance structure is, these issues had a high likelihood of being rectified. I sold it because I was over my minimum return level of 20 percent. In addition, with market sentiment looking particularly bullish, I decided I would rather bank the profit and wait for a pullback and another opportunity to buy in again at a lower price if the story remains the same.
SOLD Powershares International Dividend Achiever ETF (Total Return: 15.2%)
I bought this ETF in 2011, mainly to get exposure to a basket of global dividend paying companies that wasn’t too heavy in financials. I was looking for a bit of an income stream given that interest bearing securities were paying next to nothing as well as diversifying that income stream globally. I sold it to bank the returns, but I also did it because I realized holding the security goes against some of my beliefs about dividend paying stocks and I have blogged about in the past. As I’ve said in the past, I’m not against the concept of paying dividends, but I don’t think buying a stock just because it pays a dividend should be used as a primary screen. I earned a reasonable return that was close to my expected return of 20 percent, so I decided to bank the profit.
BOUGHT: Horizon Betapro S&P500 Bear ETF
We begin 2012 with the market sentiment extremely positive. If you looked at my Consensus Watch Blog, you can see there appear to be many occurrences of bullish sentiment, specifically the return to the market of the retail investor, more mainstream media play about buying stocks, increases in margin investing, as well as technical indicators showing investors having greater appetite for taking on more risk. The psychology of the market in January was very bullish and from my past experiences, when the market gets very, very giddy, it is time to consider opening positions on the other side of the trade. Despite the giddiness, I’m looking at some serious clouds on the horizon, specifically the lack of resolution on the Fiscal Cliff/Debt Ceiling in the US. I chose HSD because it is in Canadian dollars and reduces the currency risk. I bought it as a short-term trade with an understanding that I could be selling it very quickly if market sentiment changes.