Archives for January 3, 2018

The R.I.P. Portfolio: Q4 2017 Update

The Retire In Peace portfolio, or R.I.P. portfolio, was first introduced to the Seeking Alpha (“SA”) community in December 2015 and I have published quarterly articles that captured the activity and performance of the portfolio since that point in time. The companies that I write about on SA are largely the holdings of the R.I.P. portfolio, so the main purpose for the quarterly articles is to allow for my SA followers to track the performance of the stocks that I write about on this platform.

However, I am also interested in hearing from the entire SA community about these stock holdings because I learn valuable lessons from the insights that are provided on this platform. Therefore, I hope that these quarterly updates lead to constructive discussions about the companies that I consider core holdings.

The core holdings – see linked article above for a listing of the core holdings, in addition to each company’s identified short- and long-term catalysts – are not necessarily the companies that I plan to hold for the next 30 years; but instead, they are the companies that I would like to hold for that period of time (i.e., buy-to-hold strategy). I will closely monitor these holdings and will trim, add to, or eliminate positions if a company’s “story” materially changes.

The R.I.P. Portfolio’s Goals And Strategy

I am building this portfolio with retirement in mind, so I have 30-plus years to invest and make adjustments; therefore, the quarterly volatility is not a major concern. These funds will stay in the market for the foreseeable future, so the portfolio will have the luxury of compounding for many years.

Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.” –Albert Einstein.

It is also important to note that this is a real-money portfolio. The R.I.P. portfolio is made of five different accounts: a Roth IRA, a Traditional IRA, and three taxable brokerage accounts. This is not my family’s main retirement assets, but it is a portfolio that I hope will greatly contribute to a stress-free and relaxing retirement.

The Goals and Strategy section was last updated in March 2017.

Main Investments (i.e., core holdings) – The companies that are considered core holdings should have established management teams that have proven track records of creating value. Furthermore, the companies should have competitive moats and be above-average operators within the respective industries. The core holdings are mainly large cap companies that are widely held by the financial community and this is by design.

Goals & Strategy – The portfolio seeks primarily long-term capital appreciation by investing mainly in equity securities of high-quality companies that have already shown the ability to produce sustainable earnings growth.

The portfolio aims to beat the benchmark, the SPDR S&P 500 ETF (SPY), by at least 1% on an annual basis.

Missing out on short-term gains and/or having paper losses are not my main concerns, because I plan to stay committed to my long-term strategy of utilizing a bottoms-up investing philosophy to select companies that I plan to hold for many years.

The portfolio has the following allocation targets and acceptable ranges:

Industry Target Allocations Acceptable Range
Industrials/Conglomerates 20% 15-25%
Healthcare 10% 5-15%
Financials 15% 10-25%*
Insurance 5% 3-7%
Technology 10% 5-15%
Communication Services 10% 5-15%
Basic Materials 5% 3-7%
Conservative Allocation Fund 5% 3-7%
Consumer 10% 5-15%
Other** 5% 0-10%

*I may allocate more to this category from time to time but I plan to keep the overall allocation below 30%.

**The Other category comprises of speculative investments in companies that have the potential to create outsized gains over the next three-to-five years (what I like to refer to as “investing in seedlings”). The investments within this category could eventually become longer ranged holdings if after further analysis it is determined that the companies indeed have the attributes that I look for.

Contributions – I plan to contribute between $1,000 and $2,500 of new capital per month to the portfolio and I typically put the new capital to work each and every month, regardless of the performance of the overall market.

Q4 2017 Update

Below you will find the portfolio and its performance, and the activity for the fourth quarter of 2017.

Company Ticker # of shares Price @ 12/31/2017 Beg Value @10/1/2017 Activity Purchases (Sales) Quarterly Unrealized G/L Quarterly Realized G/L Current Value Unrealized Gain (Loss) Portfolio Weighting Yield On Cost Current Yield Annual Income
General Electric (GE) 505.762 $17.45 $11,345 620 $ (3,140) $8,826 $(2,530) 8% 2.1% 2.8% $243
Baker Hughes (BHGE) 25.00 31.64 $916 (125) 791 (136) 1% 1.8% 2.1% 17
Honeywell (HON) 36.94 153.36 5,211 455 5,665 1,588 5% 2.7% 1.9% 110
AT&T (T) 114.93 38.88 4,437 31 4,469 1,398 4% 7.5% 5.1% 230
Verizon (VZ) 96.78 52.93 4,738 385 5,123 627 5% 5.1% 4.5% 228
Franklin Income (FKINX) 2488.03 2.38 5,872 50 5,922 1,087 5% 6.2% 5.0% 299
Walt Disney (DIS) 27.23 107.51 2,684 243 2,928 997 3% 2.4% 1.6% 46
Bank of America (BAC) 412.42 29.52 10,409 1,766 12,175 5,662 11% 3.0% 1.6% 198
Bank of America Warrants BACWSA 153.00 17.56 2,026 661 2,687 1,700 2% 0.0% 0.0%
Bank of America B Warrants BACWSB 0.00 0.78 234 (304) 70 49 0% 0.0% 0.0%
Citigroup (C) 49.22 74.41 3,564 98 3,662 1,238 3% 2.6% 1.7% 63
KeyCorp (KEY) 78.29 20.17 1,466 113 1,579 703 1% 3.8% 2.1% 33
DowDuPont (DWDP) 95.48 71.22 5,060 1,584 156 6,800 1,316 6% 3.2% 2.6% 176
Synchrony Financial (SYF) 99.35 38.61 3,071 765 3,836 1,510 3% 2.6% 1.6% 60
Target (TGT) 9.22 65.25 540 62 602 78 1% 4.4% 3.8% 23
Kroger (KR) 113.14 27.45 2,266 840 3,106 (109) 3% 1.8% 1.8% 57
Johnson & Johnson (JNJ) 24.42 139.72 3,156 256 3,412 1,269 3% 3.8% 2.4% 82
Amgen Inc. (AMGN) 6.08 173.90 567 742 (253) 1,057 (194) 1% 2.6% 3.0% 32
Pfizer (PFE) 134.36 36.22 4,330 450 86 4,866 895 4% 4.6% 3.8% 183
Merck (MRK) 17.00 56.27 947 10 957 10 1% 3.4% 3.4% 33
Charles River Labs (CRL) 11.00 109.45 1,134 70 1,204 70 1% 0.0% 0.0%
Cardinal Health (CAH) 6.08 61.27 404 (32) 372 (67) 0% 2.6% 3.0% 11
AIG warrants AIGWS 179.00 18.12 3,040 492 (289) 3,243 (103) 3% 0.0% 0.0%
MetLife (MET) 51.83 50.56 2,672 (52) 2,621 875 2% 4.8% 3.2% 83
Brighthouse Financial (BHF) 4.00 58.64 243 (9) 235 44 0% 0.0% 0.0%
Xinyuan Real Estate (XIN) 315.06 6.81 2,158 (523) 511 251 2,146 830 2% 9.6% 5.9% 126
Apple (AAPL) 15.40 169.23 2,365 241 2,606 1,113 2% 2.6% 1.5% 39
Twitter (TWTR) 111.00 24.01 1,873 793 2,665 733 2% 0.0% 0.0%
CISCO (CSCO) 145.65 38.30 4,860 718 5,578 1,825 5% 4.5% 3.0% 169
Intel (INTC) 75.63 46.16 2,863 628 3,491 837 3% 3.1% 2.4% 82
Cloudera (CLDR) 2.00 16.52 33 (0) 33 (3) 0% 0.0% 0.0%
Accenture plc (ACN) 5.10 153.09 682 98 780 204 1% 2.1% 1.6% 12
General Motors (GM) 76.96 40.99 3,080 75 3,154 633 3% 4.6% 3.7% 117
Alibaba (BABA) 1.00 172.43 173 (0) 172 49 0% 0.0% 0.0%
Adcare Health Systems ADK 64.00 0.17 58 (47) 11 (88) 0% 0.0% 0.0%
KMG Chemicals (KMG) 8.00 66.08 439 90 529 219 0% 0.3% 0.2% 1
Wabash National Corp (WNC) 43.00 21.70 981 (48) 933 140 1% 1.6% 1.4% 13
Under Armour (UA) 91.00 13.32 1,187 167 (141) 1,212 (242) 1% 0.0% 0.0%
MasTec (MTZ) 17.00 48.95 721 111 832 111 1% 0.0% 0.0%
Flexible Solutions International (FSI) 170.00 1.82 292 17 309 (10) 0% 0.0% 0.0%
Green Plains Inc. (GPRE) 9.00 16.85 152 (0) 152 (0) 0% 2.8% 2.8% 4
American Vanguard (AVD) 8.00 19.65 152 6 157 6 0% 0.3% 0.3% 0
CASH 28 (23) 5 0%
$99,322 $6,310 $5,269 $300 $110,901 $24,286 100% 3.2% 2.5% $2,769

Industry/Portfolio Companies

Value Portfolio Weighting Goal Weighting Over (Under)
Industrials/Conglomerates – GE, HON, BHI, WNC $16,214.92 15% 20% -5%
Healthcare – JNJ, PFE, AMGN, CAH, MRK, CRL 11,867.85 11% 10% 1%
Financials – BAC*, C, KEY 20,102.82 18% 15% 3%
Insurance – AIG*, MET, BHF 6,098.71 5% 5% 0%
Technology – AAPL, CSCO, INTC, ACN, CLDR 12,488.20 11% 10% 1%
Communication Services – T, VZ, DIS, TWTR 15,183.93 14% 15% -1%
Basic Materials – DWDP 6,799.73 6% 5% 1%
Conservative Allocation – FKINX 5,921.52 5% 5% 0%
Consumer – KR, GM, TGT, UA, BABA, SYF** 12,082.29 11% 10% 1%
Other – XIN, ADK, KMG, FSI, MTZ, AVD, GPRE 4,135.46 4% 5% -1%
Cash 5.44 0% 0% 0%

*AIG and BAC TARP warrants are included in value and weighting

**Direct consumer play – read articles on profile for more info


(1) Bank of America B Warrants – As anyone who follows me knows, I am extremely bullish on this bank’s long-term business prospects. I sold the B TARP warrants simply to reduce my exposure to this bank (and financials, in general) but I have no plans to sell my A TARP warrants. For full disclosure, I may sell the BAC common stock in my IRA and convert the A TARP warrants to common stock in my taxable brokerage account if I want to further reduce my stake in Bank of America in the future.

(2) Xinyuan Real Estate – I am still long this Chinese real estate company. I sold a small portion of my position because the stock jumped too far too fast, of course, in my opinion. Looking ahead, I may add to my position if the stock sinks back under $6 per share because this company is extremely undervalued based on several different metrics.


(1) Added to (or initiated) the following positions: MasTec, Amgen, General Electric, Merck, Xinyuan, AIG TARP warrants, Charles River Labs, American Vanguard, Pfizer, DowDuPont, Green Plains, and Under Armour.^

^ – Subscribers of the Going Long With W.G. marketplace service receive advance notifications/explanations for all purchases and sales, in addition to receiving buy/sell/hold recommendations for all equity holdings of the portfolio. Please consider checking out the marketplace service for your investment research and analysis needs. Additionally, see articles on my profile for the respective companies for additional thoughts on each of holding.

Portfolio Performance for Q4 2017 and since the portfolio was first introduced to SA community (December 4, 2015)

Return (Q4’17) Return (YTD) Return (Intro) Return On Invested Capital Review
5.1% 11.6% 29.2% 42.3%
This period YTD Since Intro Since Intro
Beg. Balance $99,322 $77,428 $52,610 Initial Value $46,042
Contributions 6,310 23,143 37,465 Contributions 37,465
Unrealized G/L 5,269 10,330 20,826 Realized G/L 3,109
Ending Balance $110,901 $110,901 $110,901 Unrealized G/L 24,286
Portfolio Bal. $110,901
Dividend Inc. $726 $2,587 $4,322
Realized G/L 300 1,845 3,109 Dividend Income $4,322

Full Disclosure: The American Association of Individual Investors, or AAii, prescribed calculation (The Beginning Vs. the End) was used for calculating the portfolio’s return for each period-end.

From an income perspective, the portfolio’s annual dividend income is trending in the right direction.

The portfolio’s dividend income was $726 for Q4 2017, which is slightly higher than the previous quarter ($724 in Q3 2017) but significantly higher YoY ($477 in Q4 2016). Furthermore, the portfolio’s projected dividend income for 2018 is ~34% higher than the income received in 2017, and this is even after factoring in General Electric’s steep dividend cut. It should be noted that I do not have a dividend income goal for the portfolio, but I have purposefully focused on investing in high-quality dividend paying stocks since late-2015.

The recent performance of the portfolio for full-year 2017 is nothing to brag about but the portfolio is still outperforming the S&P 500 since December 4, 2015.

The portfolio’s outperformance is largely a result of the significant investments made in the financial sector – Bank of America, Citigroup, and KeyCorp – over the last few years.

As shown, the financial sector makes up over one-third of the portfolio’s unrealized gains as of Q4 2017, with Bank of America being the largest contributor. Looking forward, I believe that this portfolio is well-positioned for the future and that it will greatly outperform the broader market as we head into 2018 and beyond.

For the most recent quarter, the top performers and underperformers for the portfolio are: Performers – [1] Bank of America, [2] Kroger, and [3] Twitter; Underperformers – [1] General Electric, [2] AIG TARP warrants, and [3] Amgen.

I will spend a few minutes talking about the top performer (Bank of America) and underperformer (General Electric), which are actually the top-2 holdings of the R.I.P. portfolio. To start, Bank of America has been one of the best performing positions for the past few quarters and I expect more of the same in the future. The position (BAC shares and A TARP warrants) had an unrealized gain of ~$2,400 for the quarter, which brings the total unrealized gain since the position was initiated to slightly over $7,300.

As described in this article, BAC shares have significantly outperformed the S&P 500 since December 2016 (up over 70%). Bank of America has long benefited from a shrinking expense base but, lately, the bank has jumped back into growth mode. For example, each of the bank’s business segments performed well over the most recent three-month period.

Source: Q3 2017 Earnings Presentation

Additionally, looking forward, Bank of America and the other large financial institutions are positioned to benefit from a rising rate environment and a pullback in regulatory rules/requirements. So, I believe that the bank should slowly creep back up to a valuation that is more in line with JPMorgan (JPM) and Wells Fargo (WFC) as we progress through 2018.

BAC Price to Book Value data by YCharts

At the end of the day, there is a lot to like about Bank of America and, even after the recent run-up in the stock price, BAC shares are still attractively valued.

General Electric, on the other hand, has been a major drag on the portfolio’s overall performance since late-2016. GE shares are now trading under $18 and the quarterly unrealized loss came in at ~$3,100 for Q4 2017 (total unrealized loss is now ~$2,500). This company used to be my largest holding and I have been kicking myself for riding the stock down to current levels, but I am still bullish on GE’s long-term business prospects. To this point, GE has several operating segments that have promising prospects (e.g., Aviation, Renewables and Digital), which seems to get lost in the noise. For example, the company reported strong results for each of these three operating segments in Q3 2017.

Source: Q3 2017 Earnings Presentation

There are legitimate reasons for GE shares to be trading below $20, but in my opinion, the stock is starting to trade at an attractive valuation based on today’s price.

Ticker Price 2018E EPS PE/ Ratio Dividend
GE $17.71 $1.03 17.2 2.71%
HON $153.66 $7.79 19.7 1.94%
MMM $238.13 $9.63 24.7 1.97%
UTX $122.81 $6.84 18.0 2.28%
Avg 19.9 2.23%

Source: Table created by W.G. Investment Research; data from Yahoo! Finance

GE shares are not likely to outperform the market in 2018, of course, in my opinion, but the company’s future looks brighter the further that you are able to look out. You can read GE: What To Look For In 2018 for additional thoughts on this industrial conglomerate.

Noteworthy Quarterly News:

General News

(1) It was announced that AIG would no longer be designated as a systemically important financial institution or SIFI. This move not only allows for management to return capital to shareholders without getting approval from the government but it also removes the need for an additional layer of expenses (i.e., compliance and legal expenses) that was necessary to keep up with the burdensome regulations.

(2) General Electric announced a significant management shake-up, which resulted in 2 new members on the board (one being a member of the Trian Fund) and the retirement of the company’s CFO. At a later date, the company announced that 9 board members would be leaving and that the board would be reduced from a total of 18 members to 12 by April 2018.

Buybacks And/Or Dividend News:

(1) Baker Hughes, a GE company increased its quarterly dividend by 6% (from $0.17 to $0.18), which makes the forward dividend yield 2.1% based on today’s price.

(2) GE cut its quarterly dividend by 50% (from $0.24 to $0.12), which makes the forward dividend yield 2.8% based on today’s price.

(3) KeyCorp increased its quarterly dividend by 10.5% (from $0.095 to $0.105), which makes the forward dividend yield 2.1% based on today’s price.

(4) Merck increased its quarterly dividend by 2% (from $0.47 to $0.48), which makes the forward dividend yield 3.4% based on today’s price.

(5) Disney increased its quarterly dividend by 7.7% (from $0.78 to $0.84), which makes the forward dividend yield 1.6% based on today’s price.

(6) Amgen increased its quarterly dividend by 14.8% (from $1.15 to $1.32), which makes the forward dividend yield 3.0% based on today’s price.

(7) AT&T increased its quarterly dividend by 2% (from $0.49 to $0.50), which makes the forward dividend yield 5.1% based on today’s price.

(8) Pfizer increased its quarterly dividend by 6% (from $0.32 to $0.34), which makes the forward dividend yield 3.8% based on today’s price. The company’s board also authorized a new $10B share buyback program, which is in addition to the remaining $6.4B that is still outstanding from a prior buyback program.

(9) Wabash National increased its quarterly dividend by 25% (from $0.06 to $0.075), which makes the forward dividend yield 1.6% based on today’s price.

Merger, Acquisitions and Disposals:

(1) GE closed on the sale of its Water & Process Technologies division to SUEZ for $3.4B on September 30, 2017.

(2) Honeywell announced plans to spin off two industrial units, Transportation Systems and Homes And Global Distributions, that are expected to bring in ~$7.5B of revenue in 2017. The transactions are expected to be tax-free spin offs that will occur before the end of 2018 and management believes that the new structure will allow for them to better manage the remaining businesses – Aerospace, Building Technologies, Performance Material And Technologies, and Safety And Productivity Solutions – while also putting the newly created companies in a better position to unlock shareholder value.

Looking Ahead – It’s Not About Tomorrow, It’s About 10 Years From Now

In a broader context, I have been (and will continue to) position the R.I.P. portfolio to capitalize on a three major trends: [1] the digitalization megatrend, which includes autonomous cars and the Internet Of Things industry, [2] a rising interest rate environment, and [3] the changing media space, which includes how companies will be structured and how content will be consumed by/distributed to customers.

The following are the companies in my stock universe that I see being the biggest beneficiaries of these trends:

[1] Digitalization – Cisco, Intel, Apple, Accenture, General Electric, Honeywell, GM, AT&T, and Verizon.

[2] Rising Rates – Bank of America, Citigroup, KeyBank, AIG, and MetLife

[3] Media Shift – Disney, Twitter, AT&T, and Verizon

More recently, I have been factoring in expectations for the business environment in general to also improve over the next few years, as the current administration appears committed to being business-friendly. The widely expected tax reform bill passed in late-2017 and it is currently in place for 2018. Moreover, I fully expect for the new administration to roll back some of the burdensome regulatory requirements, i.e., Dodd-Frank and SIFI, or at least limit new rules from being implemented, so the big banks and insurance companies will benefit from an improving backdrop.

For more details about this portfolio and how it is structured to benefit from tomorrow’s economy, please consider joining the Going Long With W.G. subscription service.


I look forward to reading (and responding to) everyone’s thoughts on this portfolio because I believe that the best investment advice is hearing opposing viewpoints and responding to constructive criticism. I try to contribute at least $1,000 per quarter to this portfolio, but sometimes it will be a little more or a little less. I will attempt to provide updates at least quarterly but I may miss a quarter or two over a 12-month span (I have not missed a quarter since late-2015 so hopefully this streak will continue in 2018).

For full disclosure, I will still write about these companies on a regular basis so stay tuned. And lastly, I always have these two quotes in mind whenever I make an investment decision:

Peter Lynch“Behind every stock is a company. Find out what it’s doing.”

Warren Buffett“Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.