Exiting a few positions on the continued Trump rally

Beta than the S&P 600 – March Performance
Beta than the S&P 600 – January Performance
Beta than the S&P 600 – April Performance

The first trading week of 2017 is in the books and I have started the process of transitioning my portfolio which I’m calling the “Beta than the S&P 600” portfolio.  Since my last portfolio update recapping my horrible 2016 performance, I decided I would focus on small to mid-cap companies rather than those in the S&P 500. I am a mere 33 years old and really need a growth component in my investments. My 401k is currently overweight fixed income products because I view stocks near all-time highs and the incoming Trump administration as a HUUUGE risk to a market crash. With just one tweet Trump can wipe away billions of value.

So why small caps?

While it’s true small cap companies are more risky, I also view their small size as an advantage. In theory, good growth stories can soften the blow if the market does take a downturn.

The problem is the Russell 2000 just had a pretty amazing year so valuations are high.

My Current Holdings

I sold several positions this past week simply because they do not fit the small-cap strategy of the portfolio. It worked out nicely because there was a decent rally.

One of my largest positions was in RING, a gold miner ETF. Luckily for me the dollar weakened and gold rallied, so I was able to sell at less of a loss. Another position I closed out that I had been holding a while was Gilead Sciences (GILD). Given the terrible stock chart below it was probably for the best either way.

I have taken these proceeds and plowed them into IWM, the iShares Russell 2000 ETF.

My current holdings are below. I still have positions in Coach, Diamond Offshore, Gamestop, and LGI Homes. LGI Homes is a member of the Russell 2000, the others are not. Given Diamond’s market cap, I’m not sure why they are not included since they are no longer a member of the S&P.

My portfolio

 

Coach – has been rumored to be a potential bidder for Kate Spade. This is probably a negative for Coach shares as the buyer’s stock tends to fall while the company being bought out gets a nice bump. Of course, it’s possible nothing happens. I have held Coach for quite a while and they have paid a decent dividend over that time so my total return is positive. Exiting the Coach position is a priority since it doesn’t fit with the portfolio strategy ($3b and lower market cap).

Diamond Offshore – performance has been inextricably tied to oil prices, for good reason. Diamond needs a sustained increased in oil prices for their customers to re-enter the drilling market.

Gamestop – I was hoping we would hear some good news for Gamestop from the 4th quarter but it appears most retailers suffered the wrath of Amazon. Kohl’s and Macy’s announced store closures and layoffs this week. Sears is selling their iconic Craftsman brand, the one brand that I can associate with Sears. It appears Sears’ days are numbered. The long-term outlook for  brick and mortar retailers gets darker by the day. Gamestop will be another position I look to exit in the near future.

LGI Homes – I plan to continue to hold because the growth story continues. The company just had their best month ever with a record 467 homes closed. They also closed 4,163 homes for the year which is up 22.3% from 2015.

Plan for the Portfolio

My goal is to stay fully invested in the market as much as possible. I will try to keep cash below 10%.

I would eventually like to try to match the Russell 2000 sector allocations but at this point it’s not something I am going to stress over. I will use the sector allocations as a guide in order to not be extremely over or underweight to a specific sector. This is something I haven’t done in the past.

If I am unable to find stocks at a reasonable price, then the money will stay invested in the IWM. When I see opportunity, I will simply swap a portion of IWM into the desired stock.

Going forward I hope to post a bi-weekly update on the portfolio. I am currently don’t have an audience but this process will certainly be beneficial as I look back on the year to see how my portfolio developed and learn from the process. I might be setting myself up for utter failure and embarrassment so at least there will be laughs (and tears) to be had.

 

 

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