Investment Portfolios For The Future and Interview With Former Morningstar Director
We Are In For a Rough Ride
On Friday, the 10-year treasury yield (long bonds) crossed the rate on the 3-month bill, and economists like to call this yield curve inversion. This implies that we are closer to a recession than before. However, I want you to understand that the return from the stock market can still be attractive in the next 2-3 years. Nobody knows when it actually hits us, so if you’re exiting now, you might leave a ton of gains behind.
I do though encourage you to do even more research on your own stocks, on your own investment and to make sure that you are mentally ready for a 50% cut in your portfolio. It could happen any day, but that’s the game and you better be prepared.
Do Your Due Diligence and Come Prepared
The single most important thing is that you don’t react when it truly hits us the hardest. Then there is no chance you’re thinking straight and the choices you’ll do will be based on emotions, not brains.
You don’t want that.
So, use the next weeks and read up on your investments, get comfortable with the upside and the downside and make sure you actually know what you own.
Interview With Former Morningstar Director Brian Nelson
In the coming weeks, I will interview Brian Nelson. He is the president of equity and dividend growth research and ETF analysis at Valuentum Securities.
Before this, Brian worked as a director at Morningstar, where he was responsible for training and methodology development within the firm’s equity and credit research department.
And before Morningstar, Brian worked on a small-cap fund and a micro-cap fund that were ranked within the top 10th percentile and top 1st percentile within the Small Cap Lipper Growth Universe, respectively, in 2005.
I’m really excited to interview Brian and to learn more about this methodology, how he thinks about stock valuation and so forth. If you want a sneak peek, you could go ahead and read his book here
On Seeking Alpha, there’s a user called Chowder and he is a genius. To make sure that his knowledge doesn’t go away, I’ve tried to compile Chowder’s Wisdom in a full page. You can find it here
Stock and ETF Portfolio
For a long time, I’ve been focusing on dividend stocks. Early in my investment career, I was obsessed with Aristocrats and Kings, but I’ve now later learned that even the mighty can fall.
” In 2009, nine companies, including Anheuser-Busch, Bank of America, Comerica, Fifth Third Bank, KeyCorp, Progressive Corp, Regions Financial, Synovus Financial, and Wm. Wrigley, were removed from the list as a result of the Financial Crisis. In 2010, ten more companies failed to stay on the list. Avery Dennison, BB&T, Gannett, General Electric, Johnson Controls, Legg Mason, M&T Bank, Pfizer, State Street Bank, and US Bancorp disappointed. In 2012, CenturyLink was removed, and in 2013, Pitney Bowes was dropped as a result of its own dividend cut” Value Trap, Brian Nelson
The Best Firms In The World
Thus, I’ve tried to focus on the firms with the greatest competitive advantages, the safest dividends, the best free cash flow now and most likely in the near future too, the easiest business models to understand and the strongest earnings during the earlier recessions.
By making a % of portfolio list, one can focus on building the largest positions first. It’s especially useful when the market turns red because I know what to look for and what to buy.
The S&P Dividend ETF SPDR
|“The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P High Yield Dividend Aristocrats Index. The fund generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index is designed to measure the performance of the highest dividend yielding S&P Composite 1500® Index constituents that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years. The fund is non-diversified”|
See what I’ve done?
I’ve removed the problem with identifying the best Aristocrat and simply added an ETF which includes the highest yielding firms. Let’s hear what Morningstar has to say:
SPDR S&P Dividend ETF is a compelling option for well-diversified exposure to highly profitable U.S. dividend stocks. The fund’s high bar for consistent, long-term dividend-growers reduces its exposure to firms with weak fundamentals that may not…
If you were to ask me, I’d say that’s simply excellent.
Note: keep in mind that I need to dollar cost average often due to currency risk. An ETF truly helps this mission.
What To Do With The Old Portfolio?
As of now, I’ve had to neglect a few firms which I thought would be in the portfolio, namely: NextEra Energy, Hormel Foods Corps, Welltower and Starbucks. While I do want to own these firms, I’m going to let the SPY take care of those investments.
I’ve noticed that it becomes harder and harder to manage the portfolio in terms of both stock valuation, but also currency risk.
Long-term positions which can be found in the current portfolio, but not in the new version:
So far, I’m not going to touch these positions. They are right now under review and I might just keep them, but neglect them? Honestly, not sure.
I do not plan to sell other positions to start to fix the weighting either, but rather focus from now on to reach the set target weighing on the respective shares.
Again, I am not going to start selling, but rather put other assets on my buying lists.
For those of you thinking, why bother with all of this stuff? Just do what you’ve always done. To you, I say that I think I could allocate my assets better, that I’ve focused too much on the historical numbers rather than what the future holds.
Please keep in mind that I’m 27 and being overly focused on primary income might not be the best idea. Also, this is my investment diary and it truly feels so great being able / forced to write this down.
Stock and ETF Portfolio
Start Portfolio For New Beginners
My Japanese/Korean girlfriend asked for advice on how to start investing, so I created a very easy plan for her. It’s aggressive, but she is young so I think she will do just fine. For now, until she has read a few books, I’m going to manage the portfolio and give reports.
Why So Much in Emerging Markets?
Take a look at the following graph from Morningstar. As you can see, the expected total return is highest in the emerging markets, so it makes sense to weight that the heaviest.
Fund and Index Portfolio
My index and ETF portfolio looks a bit different, but it’s quite similar. 50% emerging markets, 20% global markets, and 10% Nordic markets. What you should notice here is that I also have three other funds which aren’t that normal, but I believe that they will perform very well in the future. Another reason for choosing these funds is that my broker (Nordnet) offers free monthly savings in these ETFs, so it’s a win-win.
You might notice 3 interesting funds:
- IUSA is a very cheap (0.07%) ETF which tries to follow the S&P500. I’m letting this weight 10% in the portfolio.
- The investment firm mix consist is a fund that holds many famous Swedish investment funds, such as Investor, Latour, Kinnevik, Industrivaerden and so forth. It’s a great way to continually add more and more money to the best firms in the Nordic region. I will try to buy more when the discount to NAV (Net asset value) is high
- DX2D is a private equity ETF that consists of the 25 largest PE firms listed on the stock exchange. Private equity firms invest in non-tradable firms on the stock exchange, and they should outperform the global index. I advise you to look at Bain Capital (PE fund) during 1999/2000 and 2008/2009. These guys made so much money while everyone else was struggling.
Returns for Private Equity
Returns for Private Equity
That’s it. Now you know how I invest for the future and how I’m planning to create more and more wealth. I hope you enjoyed this article and if you haven’t read my article Going Public, you can find it here Going Public and feel free to connect with me on LinkedIn here.
What do you think? Any comments? Please share your view and how you’re planning to approach the next recession.
Have a great week everyone.