Stock Portfolio and Watch List Updates for February 2012

Following are the activity from the previous month:

a)      Closed the following longs: United Parcel Service (UPS) at $76.33 on 2/10/2012 for a 19.22% gain (0.37% impact to the portfolio) and National Presto (NPK) at $100.28 for a 2.39% gain (0.04% impact to the portfolio).

b)      Increased the following longs: iRobot Corporation (IRBT) by 25% at $26.84 on 02/09/2012 and doubled down on Exelon Corporation (EXC) at $39.12 on 02/22/2012.

c)      Long Calls: Closed the Apple (AAPL Feb 2012 380) position purchased at $22.79 (~1% of portfolio) on 12/19/2011 at $65.15 on 01/26/2012 for a 185% gain and 1.93% impact to the portfolio and closed the Apple (AAPL Mar 2012 460) position purchased at $12.35 (~0.5% of portfolio) on 2/6/2012 at $50.02 on 02/21/2012 for a 305% gain and 1.72% impact to the portfolio.

d)     Long Puts: Opened an Apple (AAPL Mar 2012 510) position at $15.15 on 02/22/2012 with 0.2% of the portfolio.

e)      Shorts: Opened a ~1% of portfolio position on GMCR at $49.34 or 01/24/2012. ~30% of the position was covered at $63.37 for a loss of 21.5% and 0.08% impact to the portfolio.

f)       Short Calls: Opened the following positions – Nucor (NUE July 2012 43 at $2.9) for a net credit of 0.15% of portfolio, Itron (ITRI Aug 2012 40 at $4.2) for a net credit of 0.05% of portfolio, Alcoa (AA Jan 2013 12.5 at $0.64)  for a net credit of 0.07% of portfolio, Quality Systems (QSII Sep 2012 45 at $2.7) for a net credit of 0.15% of portfolio, Market Vectors Gold Miners ETF (GDX Jan 2013 59 at $6) for a net credit of ~0.15% of portfolio, and Dryships (DRYS Jan 2013 2.5 at $0.65) for a net credit of 0.06% of portfolio.

g)      Short Puts: Ameritrade (AMTD Feb 2012 14 at $1.55) position written on 08/15/2011 expired worthless netting a gain of 0.23% of portfolio.

The cash position in our portfolio is at 29.34%.

Long/Short Portfolio Update:

The overall portfolio is 6.2% ahead compared to our cost-basis.

2012 Transactions Summary:

 Excluding dividends, we have a realized gain of 6.32% in the portfolio YTD.

Option Position Updates:

Short Puts: Click Software (CKSW) shares (May 2012 7.5) and Applied Materials (AMAT) shares (Apr 2012 10) with a cash coverage requirement of about 10.06% of our cash position.

Short Calls: Diebold (DBD May 2012 35 at $3.40), Itron (ITRI Aug 2012 40 at $4.20), Nucor (NUE July 2012 43 at $2.90), Alcoa (AA Jan 2013 12.5 at $0.64), Quality Systems (QSII Sep 2012 45 at $2.70), Market Vectors Gold Miners ETF (GDX Jan 2013 59 at $6), and Dryships (DRYS Jan 2013 2.5 at $0.65). The short calls account for ~10% of the portfolio.

Long Puts: Apple (AAPL) shares (Mar 2012 510 bought at $15.15) with ~0.2% of total portfolio value.

Watch List: Automatic Data Processing (ADP), Amgen (AMGN), Air Products & Chemicals (APD), Beam Inc (BEAM), Bemis Company (BMS), Canon (CAJ), Church & Dwight Company (CHD), Canadian National Railway (CNI), Cresud (CRESY), Darden’s Restaurants (DRI), Emerson Electric (EMR), Kaman Corporation (KAMN), Coca Cola (KO), McGraw Hill (MHP), 3M Company (MMM), PepsiCo (PEP), State Auto Financial (STFC), Teva Pharmaceuticals (TEVA), and Whirlpool (WHR).

Carnival of road to financial independence #40

Welcome to the February 22, 2012 edition of road to financial independence.

Frugal Living

Super Saver presents Surviving the Great Recession posted at My Wealth Builder, saying, "The Great Recession has truly been a test of economic survival capability. Here are some of the actions we took and how they helped us survive so far."

Steve Faber presents Get Better Fuel Economy - Diesel Truck Fuel Economy Tips posted at super gas saver, saying, "A diesel pickup can be just the thing if you need to tow or haul the heavy stuff. It works for the job and gets much better fuel economy than a gas powered truck while doing it. Diesel is expensive though, so here are some powerful ways you can reduce your fuel burn."

Misst presents 10 Reasons You’re Broke | Prairie Eco-Thrifter posted at Prairie Eco-Thrifter, saying, "If you always have more month than cash and never seem to get ahead or even to even, it’s time to look at some reasons you may be broke."

Paul Vachon presents Personal Finance for College Graduates posted at The Frugal Toad, saying, "Graduating college is an exciting time in your life. You are finally on your own and facing many important decisions such as what career path to choose or where to relocate. Decisions made now can have a big impact on your potential income and living expenses. If I could offer one piece of personal finance advice to a new college graduate it would be to start saving money as soon as possible. Here are several other tips to get you on the road to financial success."

Reducing Expenses

Theresa Torres presents How to Keep Start-up Costs Low posted at Just Creative Design, saying, "Here are some tips on how business owners and entrepreneurs can monitor their start-up costs and wisely allocate their start-up funding."

Daryl Sams presents Banks vs Credit Unions - Edgar Allen Floe® posted at Edgar Allen Floe®, saying, "Differences between the two major types of financial institutions to help you save money."

Jeremy Biberdorf presents Starbucks Coffee Prices Brewing A Hole In Your Wallet posted at Modest Money, saying, "Most coffee drinkers are sure to know that their daily habit adds up to a lot of money. What they might not realize is how that habit may be affecting their other financial decisions."

CultOfMoney presents Refinancing your home mortgage, save thousands | CultOfMoney posted at CultOfMoney, saying, "Appropriately refinancing your home mortgage is likely the pinnacle of the frugal living meme that you can accomplish in your lifetime. Go ahead and compare this to not buying a coffee every morning, or living like a pauper for 30 years. You can save thousands of dollars by refinancing, and still have the exact same house you have now! And most people don’t put in the few hours of effort that it takes, essentially turning down consulting work paying several thousand dollars an hour."

Scott Skyles presents FHA Loan Requirements and Underwriting Guidelines 2012 posted at Mortgage 1A, saying, "The Federal Housing Administration, commonly known as “FHA,” is part of the U.S. Department of Housing and Urban Development (HUD.) The program was created for low income individuals, or families that might need a little help in the homeownership process."

Stock Investments

LivingInVol presents Mad Skillz [part 1] posted at Living in volatility, saying, "A reality check on how difficult it actually is to be a successful investor."

 Dr. Dean presents Can You “Like” This Post: On Facebook? posted at Dr. Dean's TheMillionaireNurse.com Blog, saying, "You may already own stock in Facebook in your mutual fund or retirement account. When it finally goes public, will you be rich? Don't go buy that Lexus, yet!"

All Others

Jen Samson presents How to Become Great in any Field - Success Secrets Revealed posted at Personal Hack, saying, "I realized while writing this article that it might sound very negative. Please read the whole article before making any judgments. I realize there are plenty of "nice sounding" advice out there, most of which doesn't work. While sometimes writers are very careful not to offend most of their readers, I'm more concerned about offering real value to my readers. While I do respect all of my readers, I have to warn this isn't a "feel good" post, it does touch on topics that might be sensitive issues for some. Writing this post was a wakeup call for me, since I'm also working on many of topics I discuss. I'm still working on implementing and maintaining many of the strategies and tips I provide. All of the strategies have worked for me personally in one way or another. I've also noticed many of the extraordinary individuals I know in my life, who are great in their specific field, use some if not all of the strategies."

Roger White presents Making 401k Withdrawals posted at 401k Calculator, saying, "If you are thinking about making a 401k withdrawal, you should consider the choice very carefully. This blog post highlights some of the risks of making a withdrawal."

Gregory Stokes presents Don’t Miss The Tax Credits Income Deadline posted at Tax Credit Calculator, saying, "The deadline for income tax credits is January 31st. If you don’t provide your actual income figure by this time you could get the wrong amount of tax credits and have to pay a penalty."

Mark Roberts presents How To Choose The Right Filing Status posted at Tax Brackets, saying, "This blog post looks at how to choose the correct filing status for your situation."

Tim @ Faith and Finance presents 16 Great Jobs For 16 Year Olds posted at Faith and Finance, saying, "We’ve all known what’s it’s like to be a 16 year old looking for a good job. Here are 16 job ideas that any 16 year old can do to make some extra money."

 Charles Chua C K presents Are You Managing Your Personal Finance Effectively? posted at All About Living with Life.
  
Steve presents My Secret to Get Rich Quick (Enough) posted at Money Infant, saying, "Getting rich quick is a nice dream and for almost everyone out there that is all it is…a dream. You can get rich quick enough though by following a conservative and consistent savings and investment strategy. Remember that only 2.5% of the U.S. population are millionaires so anyone who has reached that level of wealth has gotten rich quick enough (i.e. before they’ve died)."  

Hemant Beniwal presents Setting SMART Financial Goals posted at The Financial Literates, saying, "Let’s simplify the whole process of setting smart financial goals, you can check how to set smart financial goals, few examples of financial goals & finally you can download a financial goals worksheet which will help you in converting your dreams into reality."

John presents Do You Have to Pay Taxes on Your Rewards? posted at Wallet Blog, saying, "2012 tax season has arrived, and with it, the big question that Citi brought forward when it issued 1099's to its customers -- Are rewards and incentives taxable or not?"

Joe Morgan presents Why A Mortgage Loan Without PMI Is A Bad Idea. posted at Simple Debt-Free Finance, saying, "Private mortgage insurance is one of those things homeowners love to hate, but some banks offer mortgages without it. Here's why I think mortgage offers without PMI are a bad idea."


That concludes this edition. Submit your blog article to the next edition of road to financial independence using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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George Soros' Portfolio - Q4 2011 Update

Below is a spreadsheet that highlights George Soros's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking Mohnish Pabrai's Portfolio - Q4 2011 Update

Below is a spreadsheet that highlights Mohnish Pabrai's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking David Einhorn's Portfolio - Q4 2011 Update

Below is a spreadsheet that highlights David Einhorn's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking Bill Ackman's Pershing Square Portfolio - Q4 2011 Update

Below is a spreadsheet that highlights Bill Ackman's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking Bruce Berkowitz's Fairholme Portfolio - Q4 2011 Update

Below is a spreadsheet that highlights Bruce Berkowitz's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking Berkshire Hathaway Portfolio - Q4 2011 Update

Below is a spreadsheet that highlights Warren Buffet's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

Tracking Seth Klarman's Baupost Group Portfolio: Q4 2011 Update

Below is a spreadsheet that highlights Seth Klarman's moves this quarter. Please check-out our SeekingAlpha column for an analysis of the moves:

R2I Living – Gas Service

Cooking gas is supplied in Kerala by employing large LPG (Liquefied Petroleum Gas) cylinders. Gas pipeline infrastructure is non-existent making this the only option throughout India. The government provides 50% subsidy and distribution is accomplished via gas supply agencies. Applying for a connection at the nearest agency is technically the sole step to obtain subsidized gas connection for one’s house. Although private agencies provide this service in most urban areas of India at three times the cost, it is not popular as most people find the cost intimidating.

So many half truths swirl around the process of receiving a gas connection. Upon inquiry we were referred the services of this person who knew the works of getting a connection inside out. The process involved visiting a gas agency known to him regardless of the fact that agency was not authorized to provide service to our area. To counter that ‘inconvenience’ his ready solution was to use our parent’s vacant address which happened to be in that service provider’s area by submitting in writing (stamp paper) that we are renting the place. We weaved out of that arrangement as the procedure did not sound legitimate and decided to muddle through on our own.

Numerous gas suppliers provide cooking gas cylinders to consumers although the chosen supplier is dependent on the area of residence. Based on reviews for our area, we visited the office of BharatGas. The documents required to apply for a gas connection is a proof of identity and proof of address. Voters identification card, passport, driver’s license, PAN card, photo id from the state government, or Aadhar number allotment letter qualifies as proof of identity. Proof of address document can be one of voters identification card, ration card, electricity bill, telephone bill, employers certificate, rent receipt, LIC policy, flat allotment letter, house registration papers, or Aadhar number allotment letter. If these documents are on hand, the only potential delay with getting a connection is the waiting involved. Waiting lists are dependent on the distributor – the largest provider IndaneGas is known to have the longest such lists and below-par service. Our experience with BharatGas was not only painless but also pleasant and we got the connection the same day. We went armed with the two documents required and submitted an application letter. There was a verbal verification process whereby the proprietor gathered personal information such as where we were from, other properties we owned, whether we are renters or owners at this current residence etc. Apparently, these innocuous sounding questions are posed to weed out dishonest customers. We passed their screening and they sanctioned a connection for our house hold. The total connection bill of Rs 7000 included a double-gas stove, two cylinders, and certain accessories. While opting for just one cylinder can keep the initial payment low, two cylinders are a better option as delivery is not immediate when the first cylinder gets used up. Moreover, the extra cylinder provides a cushion to tide over the times when there are shortages. On the average last year our waiting periods were only under a week and that is considered as very good service. Refills cost around Rs 425/-.

There are ways to counter the disadvantages the cylinder arrangement has over gas connections supplied through pipelines with some upfront investment. The glaring problem is storing the cylinders. While they can be accommodated inside the kitchen in close proximity to the gas stoves there is no evading that they are a fire hazard sitting right inside your kitchen. Further, such an arrangement will obliterate the advantage of having a second cylinder as it is possible for both cylinders to get over around the same time if connected to different stoves. The problems can be offset by housing the gas cylinders in a cage outside and running copper tubes to the stoves in the kitchen. The upfront cost can run upwards of Rs 10K but in our experience this is an investment worth making – the potential fire hazard is eliminated and valuable real-estate is available inside the kitchen. Also, as only one cylinder is connected to the copper tubing at any given time, that cylinder is completely used up before the other cylinder is plugged in, allowing for a full-cylinder’s worth of time to account for any delivery delays. Newer residential projects go one step further and provide gas reticulation infrastructure. 

Related Posts:

• R2I Living – Solar Water Heater Installation Experience
• R2I Living - Electricity and Inverter Experience
• R2I Living - Gas Service
• R2I Living - Public Water Service
• R2I Living - Purchasing a new car

Last Updated: 03/2012. 
 

401K and Retirement Accounts – BOY 2012 Reallocations

We ended 2011 with a allocation percentage of 32:31:37 across bond, international, and domestic funds respectively. Our bond allocation approximated the age-old “100 MINUS your age” when including a TreasuryDirect account we maintained. That account was liquidated last year – the taxes will be lower compared to previous years because of the bush-era tax cuts that will be there at-least till 2012 and also because our income this year is low and so the marginal tax rate that will apply to this liquidation will also be low.  

We also converted ~10% of our overall retirement portfolio value into a Roth IRA account as we figured this year is a good option to do that, given the tax situation. Roth IRA transfer allows conversion of your retirement account monies into after-tax monies, although it requires you to pay taxes on the conversion amount at the time of conversion. We plan to continue to use this strategy as long as we can do it at a low marginal tax rate. Basically, the idea is that you won’t have to pay taxes on the monies withdrawn at the time of withdrawal (usually during retirement), as it is already after-tax money. The strategy will payoff, if the marginal tax rate at the time of withdrawal is higher than the marginal tax rate at conversion. There is also the long-term benefit of tax-free accruals.  

The liquidation of the TreasuryDirect account essentially meant we are underallocated in bonds. To get our allocation back to conform with the “100 MINUS your age” guideline, we did a few exchanges. The new allocation is approximately 39:30:30:1 across bonds, international, domestic, and cash funds. Below is our portfolio after the exchanges:

 

Below is a summary of the exchanges:

1. Exchanged ~4% of portfolio value from Vanguard 500 Index Fund (VFINX) into Vanguard Interm-Term Treasury Fund (VFITX),
2. Exchanged ~2% of portfolio value from Fidelity Small Cap Stock Fund (FSLCX) into Pimco Total Return Bond Fund (PTTRX),
3. Exchanged ~2% of portfolio value from Thornburg International Value Fund (TGVIX) into Pimco Total Return Fund (PTTRX),
4. Exchanged all of the monies (<1%) in the Fidelity International Real Estate Fund (FIREX) into a cash fund.

Note: Fidelity charges $75 per transaction for exchanges into many funds and this is something to consider when doing reallocations.

2011 investment portfolio performance and future planning

We started 2011 with about 54% of our portfolio in stocks and the rest in cash (click to read last year’s update). The portfolio size went up slightly (~2.5%) this year as we liquidated some treasury’s to take advantage of lower taxes this year as we do not have salary income. During the year, we continued to write several cash-covered puts and covered calls in an attempt to reduce our cost-basis and to realize periodic investment income. Many of them expired worthless letting us generate income as envisioned. We will continue to use both these vehicles in the coming year. Our cash position has come down to around 27% of our total portfolio value.

Our portfolio generated an overall return of ~1%. The returns out-performed most of the major indexes that were flat (US markets) to significantly down (emerging, pacific, and most others) during the year.

While last year’s performance was respectable, going forward, we plan to shift the portfolio towards a strategy of generating absolute returns as opposed to returns that correlate with the general market direction. As such, we plan to gear our portfolio to a long-short model by using short-selling along with long calls, short puts, and non-directional options strategies. Also, the number of positions and the allocations will be shifted to have a few very large (upto 10%) high-conviction positions, some large (upto 5%) positions, and a number of medium-sized positions (~2%). With options, covered positions (covered calls and cash-covered puts) will be limited to 2% of portfolio value. Positions with entire premium at risk (long calls) will be limited to 1% to limit the downside. Positions with more than the committed cash at risk (shorts and short puts) will be managed to have a downside risk that is limited to the size of the initial position (click to read about the strategy).

Our portfolio details as of 12/31/2011 follow:

Longs: Altria (MO ~2%), Philip Morris (PM ~2%), Kraft (KFT ~2%), iRobot (IRBT ~2%), Plum Creek Timber (PCL ~2%), CPFL Energia (CPL ~3%), BP Plc (BP ~2%), AT&T (T ~2%), Sysco (SYY ~2%), Excelon (EXC ~2%), Vonage (VG ~3.5%), Archer Daniels Midland (ADM ~2%), Intel (INTC ~4%), Pearsons (PSO ~2%), Nucor (NUE ~2.5%), Procter & Gamble (PG ~2%), Walmart (WMT ~2%), Waste Management (WM ~2%), United Parcel Service (UPS ~2%), Microsoft (MSFT ~9%), and Quality Systems (QSII ~2%). We also have smaller positions in Itron (ITRI), Aegon (AEG), Dryships (DRYS), Telefonica (TEF), Nokia (NOK), Harris (HRS), NYSE Euronext (NYX), Encana (ECA), National Presto (NPK), Market Vectors Gold (GDX), SPDR Gold (GLD), Diebold (DBD), Clearwire (CLWR), Cameco (CCJ), and Alcoa (AA).

Short Puts: Click Software (CKSW) shares (May 2012 7.5), Applied Materials (AMAT) shares (Apr 2012 10), and Ameritrade (AMTD) shares (Feb 2012 14) with a cash coverage requirement of about 21% of our cash position.

Short Calls: Diebold (DBD) shares (May 2012 35 written at $3.40).

Long Calls: Apple (AAPL) shares (Feb 2012 380 bought at $21.75) with ~1% of total portfolio value.

Watch List: Automatic Data Processing (ADP), Amgen (AMGN), Air Products & Chemicals (APD), Beam Inc (BEAM), Bemis Company (BMS), Canon (CAJ), Church & Dwight Company (CHD), Canadian National Railway (CNI), Cresud (CRESY), Darden’s Restaurants (DRI), Emerson Electric (EMR), Kaman Corporation (KAMN), Coca Cola (KO), McGraw Hill (MHP), 3M Company (MMM), PepsiCo (PEP), State Auto Financial (STFC), Teva Pharmaceuticals (TEVA), and Whirlpool (WHR).