I had feeling November was going to be a pretty eventful month and potentially not in a good way. Going into it, I was planning to take a hands off approach to see how things evolved with the election. At the back of my head I held out a nugget of a feeling that Mr. Trump would somehow, some way steal the election and sure enough! Despite this the month turned out to be a surprisingly profitable one for me.
We all know the narrative. On election night when it looked like there was a clear road to the White House for Trump, the market freaked out, dropping a 1,000 points overnight. Sure enough when the markets opened, life resumed and the markets continued its Red Bull infused ascent to record highs. The Teflon Stock Market has spoken again!
I did nothing the day after the election. I was perusing my list of stocks that I’d like to pick up on the chance they got thrown out, but it never happened. Sure enough my portfolio grew anyway.
Despite the incredible amount of uncertainty the election has created, I continued to stay true to my investing ideology and look for opportunities. At the same time, I was faced with several selling decisions. As November evolved, several opportunities did emerge. I opened positions in 3 stocks which I will share in subsequent posts over the next few weeks. In this post I review my sell decisions.
Sold position in Tiffany (Ticker: TIF) for combined return of 23.7%
Position 1 return = 20.0% Position 2 return=26.1%
I opened a couple of positions in Tiffany at the start of 2016. One in my own personal account ($62.04) and one in my wife’s account ($63.37). At the time the market was really down on Tiffany and luxury retail stocks as whole as sales were continuing to fall, mainly because of falling demand from Asia and China, despite these companies still being meaningfully profitable. Slowly in the last few months the stock have been edging up and in November Tiffany went back as high as $80. I didn’t expect the stock to move like this and in fact I was contemplating buying more stock. At this point factoring in currency adjustments, I was up well over my threshold return level of 20 percent. I felt that the stock had moved pretty fast and that I was comfortable to bank the profit and come back again if the stock were to pull back. I’ve followed a similar path with Tiffany before and it has been a profitable move for me.
Sold position in Southern Copper Company (Ticker: SCCO) for 29.5% gain
The position has basically treaded water since I bought it, mainly because copper prices have been low. China has been up until now the main reason as it has reduced its purchases over the last few years. That all changed when Trump won the election. One of his key promises was to spend $1 Trillion in infrastructure projects. Building roads and buildings requires a lot of copper and that is what got everyone excited suddenly about copper stocks. The week after the election, copper prices experienced the biggest weekly price increase in 35 years! Southern Copper which is a pure play copper company popped and suddenly I was up almost 30 percent on the position. Copper stocks never move like that and so I decided there seems to be a fair bit of hysteria behind the stock so I decided to bank the profit. It wouldn’t surprise me to see copper prices fall back, especially if Trump fails to get any traction on getting infrastructure projects off the ground. I think SCCO is a great company. Despite falling copper prices they have still managed to create positive Economic Profit mainly because they are low cost leader in copper production. If the stock fell back, I’d be OK to buy back in.
Sold position in Southwest Airlines (Ticker: LUV) for25.9 percent gain
This was a tough one as I really had no intention to sell Southwest, given I just bought it only a few months ago. It’s been a company I’ve always wanted to buy but the stock has always been pricey. I bought in ($37.18) after the company reported a “weak” quarter, even though it was profitable and has posted over 45 consecutive quarters of profit. The stock got killed 15 percent and airlines stocks were out of favour by Wall Street analysts. Sure enough the stock has been creeping up in the last month or so. Then news broke out that Warren Buffet started buying up airline stocks including Southwest and suddenly the stock popped to near $47. I was well above my 20 percent threshold return. I was then going back and forth on whether I should sell. I’m thinking if Buffet’s buying in then that has to be a strong endorsement of the company and the stock being underpriced. I thought of holding and riding it is the way to go. Then I thought about my basic ideology to adhere to my discipline of banking profits on stocks over 20 percent. At this point I was up 25 percent. How greedy am I? At the end I decided to sell and bank the profit. I was happy to take another 25 percent profit. It’s very possible that I may have left money on the table, but I’m OK to take 25 percent return on any investment. Making a profit is never a bad investment decision. That’s just me. For myself, I’m happy to buy back in if the stock pulls back.
Lessons Learned: Small ball wins
My approach to returns follows a baseball analogy in that I’d rather play small ball and try to hit singles and doubles rather than trying to hit a home run with every investment. I feel strongly that if I stay disciplined to my investment ideology which is to buy quality businesses at discounted prices, I can hit enough singles and doubles to grow my savings meaningfully over a long period of time. In the case of Southwest and Tiffany if the stocks come back down and I come back in and the stock return back upwards another 20 percent, I’m essentially generating 40 percent cumulative returns by investing in those specific companies. It’s like picking up low hanging fruit. For me generating large returns in this manner is a less risky proposition than buying a stock and hoping it goes up 50-60-100 percent in one shot. Normally I achieve this over a period of years, so I’m not really “trading” the stock. Southwest, given I’ve held it only a few months, would be the closest thing to a “trade” for me. I don’t buy stocks hoping to sell them the next week or month. I’m comfortable enough with the business to hold the stock for multi-years in order to generate the returns I’m seeking.
Added to position in iShares India ETF (Ticker: INDY)
One business event that really hasn’t gained any traction thanks to Trump sucking the oxygen out of everything is the decision by the Indian Government to essentially render certain denominations of Indian Rupees as void overnight and would begin a period where old currency could be exchanged for new denominations in limited amounts. Nobody saw it coming. Goal is to weed out corruption and cash based transactions to avoid taxes. Currency demonetization has shaken the economy as many small businesses in a variety of industries that operated on a cash basis were rendered frozen. The Indian stock market did not take it well as stock indexes fell to six month lows. Many observers claim that the move will destabilize the Indian economy in the short term, however the initiative was deemed necessary to cleanse the economy of a rampant black market. I agree also that in the long term, this will amount to a blip and that the long term fundamentals ofIndia are quite appealing. There also is likely to be a fair bit of volatility as India and other Asian countries that are dependent on strong trade ties with the US try to figure out if Trump will go hard on trade protectionism. Trump has various business interests with Indian companies and has gone off on India as much as China, so I wonder if he will back off the rhetoric. The ETF I owned went down and so I took this opportunity to buy a little more stock to average down my costs which are now at $27.26/share.
A fair bit of tough decision making went down in November. At the end it's about the result which is I made three investment decisions that yielded meaningful profit and continued to allow me to grow my portfolios. In the next few posts, I'll review each of my three new stocks that I bought in November.