New buys Q2 ’17

Brace yourselves, new positions incoming!
The new additions to the portfolio which were made during Q2!

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1) Scandinavian Tobacco Group: 170 shares. Cost basis: €2,488 . This is a Danish, rather small tobacco company which focuses on high quality, pipe tobacco. It’s no mass production but more for a middle- to high class public who know how to appreciate a good tobacco product.

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2) AB Inbev: additional 50 sharesCost basis: €5,366. I racked in some nice profits from a bold short put. I decided to reinvest them mostly in the company.

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3) Euronav: 100 additional shares, cost basis: €712. An oil tanker company of whom I had bought 100 shares when I started investing but they went downhill after the oil price drop. The company trades at around 25% discount to their book value and the management is doing good things, in my opinion. When the oil market starts to rebound, they will profit.

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4) 300 Ahold Delhaize Turbo’s @ stoploss 15,1Cost basis: €1,296. I bought them right before the Amazon-Whole Foods take-over which proves again that markets can’t be timed. This was a bold move to play on a temporary undervaluation and to rack in some quick profits. I couldn’t believe my own eyes when the stock took a deep dive after the Amazon news. This position will be closed when it rebounds. I need the money for other purposes, see later on. However I still think that Ahold is worth at least €20 a share, patience will reward.

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5) Bpost SA: 90 sharesCost basis: €2,065. This is comparable to UPS or another post/parcel delivery service. They are a Belgian dividend cash-cow and trade at very fair multiples.

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6) Resilux: 20 shares for a grand total of €3,042. This is a Belgian small-cap company that produces PET-forms for the consumer industry. They are quite small and therefore not influenced by big funds or investment companies, which I like very much. Attractive valuations and a family owned business. Buy tip! If I would have more cash, I’d for sure buy extra shares of them! In the next months they will distribute €16,30 per share in cash to the shareholders, tax free.

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7) Norcros PLC: 1,750 shares for a total of €3,536. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. (source: google finance, it was pretty accurate). They are a small firm with a high cashflow and small market cap. There are some questions about their pension deficit but after some homework it was proven to be a non-issue. They are pretty undervalued and have the capability to expand in the future.

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8) LyondellBasell NV: 30 additional shares, cost basis: €2,235. This NYSE traded company stays an unpopular chemical company and is just unloved by Wall Street. It is however interesting for European investors because we don’t pay US or NL taxes on dividends. It has a troubled history concerning their bankruptcy in 2010, but those worries are part of the past and I think they are a very profitable business with capable management and good investors (Leo Blavatnik).

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9) General Mills: 72 shares, cost basis: €3,670. This is a $30 billion U.S. consumer foods company which raised many childs and adults. I like their Haagen-Dasz ice cream way too much!

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10) Gilead Sciences: 15 additional shares, cost basis €890. Mostly a dollar-cost averaging operation. This starts to become a pretty big position but I’m confident they will put their war chest to good use. Patience will pay off.

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11) W.W. Grainger: 13 additional shares, cost basis: €1,995. Part of dollar-cost averaging but a very solid MRO-company. Dividend growth history of more than 46! years. You just gotta love it!

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12) Cisco Systems, 40 shares. Cost basis: €1,150. The market is a bit skeptic but they have plenty, plenty of cash oversea which will come back eventually. Trump, tax holiday? 😉 Almost every human being is affected by Cisco products, even if not in a direct relationship. Might buy more if an opportunity represents itself.

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13) Altria Group: 18 additional shares, cost basis €1,030. After some new government regulations, the market became afraid and sold off the shares. I scooped them up at a nice discount. They also own 10% of AB Inbev.

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14) Hormel Foods Corp.: 45 shares, cost basis: €1,407. Very well managed, family-owned business in the consumer industry, meat processing to be more exact. Ultra low debt and a long dividend growth history.

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15) Pfizer: 15 shares. Cost basis: €445. Small position, how cute! Normally I don’t tend to initiate these small positions but it was better to spend the cash and transaction costs of only $5 were super low.

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16) Symphony International Holdings Ltd.: 5,500 shares. Cost basis: €3,963. Another big, new position. This holding operates in Asia and has many assets. They are investing in companies in particularly high-growth sectors; primarily healthcare, hospitality, lifestyle and branded real estate which will benefit from the rising disposable incomes of Asia’s increasing, and increasingly aspirational, population (source: corporate website). They trade at around $0,85 but their NAV is approximately $1,28. Their director recently bought 2 million shares himself and I think the discount to their NAV will narrow down a lot. Plus, it is a nice geographic diversification for my overall portfolio which yields a very decent 5% net in dividends.

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This was a massive investment quarter. But, there’s a catch.

Recently I found 3 investment opportunities: Resilux, Norcros PLC and Symphony International Holdings. I was too short on cash to make a decent investment in all 3 of them so I created a construction. I sold my entire stake of 80 shares in AB Inbev and 100 shares of Ageas. As I don’t wanted to sell them, I immediately bought 1 call option on each of them at a very low premium (loss of less than 1%). To buy the 100 shares of AB Inbev and 100 shares of Ageas, I only need €10,400 in cash because the premiums are already paid. I expect to complete these buys as soon as halfway November because I already have €2,900 in cash. This means a remaining cash deficit of €7,400.

After that, the cash balance will practically be reduced to zero. I don’t feel comfortable having almost no cash so after this construction I will save up some cash for opportunities.

I hope you enjoyed my new buys and additions to the portfolio! I’m curious to see the dividends next year.

Did you go on a shopping spree lately?

Advertenties

Positions sold Q2 ’17

Hey everyone, time for some portfolio changes!

I’ve been quite active last quarter on the stock market. Normally I don’t tend to be so active, however circumstances and thoughts pushed me towards it.

First of all, I was finally able to sell my Peugeot shares for a small profit of 8% after keeping them for 1,5 years (€135). They were a ‘heritage’ from my first investment days and I was looking forward to put this money elsewhere, more predictable. I don’t like their cars either. The smaller ones really have no comfort for the passengers. I thought I needed new kneecaps after carpooling.

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Secundo, I sold my position of 20 shares in food giant Nestlé SA for a profit of almost 20% in less than 8 months (€230). I sold them shortly after the activist news for 2 reasons. The multiples are getting pretty high and the dividend tax is killing me. 35% Swiss withholding tax and 30% Belgian withholding tax is just too much. These taxes take away more than 1,8% in annual return. Too bad, I liked the company. However, I like money more.

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Next I sold Allergan PLC. I bought them with the prospect of the merger with Pfizer which unfortunately was cancelled. Fundamentals weren’t too clear in my opinion so I decided to sell my small stake and cut losses (luckily enough). This resulted in a loss of €297. Lessons learned.

Fourth and last position I sold was Wal-Mart. I bought them almost 2 years ago when they were on the slaughter bank. I got a 30% profit, being $725 (dividends not included). In my opinion they are slightly overvalued and I do not like the current retail businesses anymore. They are way too competitive and margins are very thin. Almost all retailers are investing big-time in their business and Amazon is another threat to be taken care of. It’s a solid company, but the business is not my cup of tea anymore.

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So far my sold positions... This freed up some cash of course, which was put to work in the weeks/months after.

In a next post I will discuss the rather long buy list with a net worth update!

Note: Normally I do not like to sell stocks of good companies, however this felt justified due to a changed tax regime or business challenges.

Have you ever been forced to sell a company you like because of changing market conditions?

 

Lack of imagination

When I talk to people about the future, they tend to always be average. Most of them want to own a house, have a car and maybe an apartment at the Belgian coast for their old day. Don’t forget a decent pension after a career of 45 years. Then they see their life as succeeded.

Seriously? Is that what you would settle for for the rest of your life? I can’t imagine a life following the herd.

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Think bigger, set goals and achieve them. Truth is, I don’t tell them my real vision on my future. They simply wouldn’t understand or would think I just don’t understand life.
One of the first things that pops into my mind is flying a helicopter or relaxing in Miami enjoying a cocktail. Celebrating New Year at the beach in Sydney or have Christmas in Lapland, home of Santa. Skydiving above the Palm Tree Islands in Dubai or walk on the Great Wall. Maybe work a couple of years in the USA or own a company? The options are endless.

Of course, this comes at a lofty price tag, but isn’t that why people become financially independent? To pursue dreams and lifegoals? This might all sound cocky and big talk but what’s the point in living an average life? It really irritates me how people don’t dream big or set high goals.

Aiming for the stars and landing on the moon isn’t that bad after all. Most people stay on the Earth.

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Without big dreamers, no multinational companies would exist. No man would have put a foot on the Moon or flown a plane. No telephone or electric cars. The world needs people with huge dreams to innovate.

Do you sometimes get irritated by how little people dream?

Dividend Report June-July ’17

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Long time no see, my friends! Exams and 4 straight weeks of work obligations without a laptop decreased my time to investigate the financial markets and keep you updated.

Let’s get it over with and peek at the dividends.

June:

National Grid: €202,22
Unilever: €26,55
RD Shell: €48,59
Imperial Brands: €15,36
WW Grainger: $5,33
Wal-Mart: $11,52
LyondellBasell: $32,76
IBM: $8,02
Johnson&Johnson: $6,00
Gilead Sciences: $20,11

= €292,72 + $83,74 = €365,54

July:

HSBC Holdings: $43,89
Vanguard S&P500 ETF: $9,91
Altria Group: $5,44
Cisco Systems: $6,90
Walt Disney: $6,50

= $72,64 = €63,17

The used conversion was 1,15$/€.

June got a massive boost from a special dividend from National Grid. The energy company decided to sell off a division and distribute a part of the earnings to their shareholders. This is a non-recurrent dividend and therefore not to be expected next year. The adjusted dividends for June come in at €163,32.

July was a rather poor month, bringing in only $72,64. However as I was literally ‘off the grid’ due to work, it was truly work-free capital joining my account.

By the way, I just exceeded 2016 dividend income with my 2017 dividends YTD.
Total YTD dividend income stands at €1477,5.

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Hope you have a nice summer so far!

Survive or Thrive?

Since I’ve known the concept of FIRE, I’ve wondered if it really is a destination for me or more a step-stone to something way bigger. I’ve found 2 good definitions which could be used to describe FIRE.

Financial independence is having enough money in passive income that you can stop working. Essentially, the money you have invested and saved provides you enough of a return that you don’t rely on a traditional income anymore, hence the term financial independence. People that pursue FI generally have plans to pursue their passions and other things in life.

Early retirement, while similar, takes an ode to its traditional retirement counterpart. It generally means that you retire early and stop working. But instead of retiring at 65, or later, you may retire at 45 or 55. In general, people that want to retire early want to enjoy the traditional benefits of retirement.

However I could still find myself in the FI definition, the Retire Early is not a thing I would pursue. I mean, I don’t want to be sitting on a chair watching through the window all day at age 35.

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Nonetheless, the FI definition can be interpreted in many ways. To me there is a big difference in the ability to stop working VS. pursuing other passions and things in life.

In Belgium, an individual could survive with €18,000-€20,000 a year with a modest lifestyle in my opinion (mortgage/rent included). Without a mortgage or rent, €12000-€14000 should be enough. However, this doesn’t imply traveling to exotic locations, fancy ski holidays or expensive dinners.

Some people enjoy sitting at home, which I fully respect. However, I think this becomes pretty boring soon enough and people tend to spend more money when not working (at least in my case). By seeking new opportunities, money will be required. The portfolio income will thus not be sufficient to cover extra or unforeseen expenses.

What if you want to go Down Under with your family? What if you would like to start a project which requires a sum of money? What if you would like to roadtrip the USA? I don’t plan these things years ahead so it is hard to budget this.

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I rather pay for experiences than for possessions, meaning I’d rather go on a roadtrip to the USA instead of buying a new design leather couch set. I would love to go scubadiving around some cool islands. Or throw a party on a boat with some friends on a hot summer night. Unfortunately these experiences tend to be rather pricy. However, there is a very thin line between prestige and these experiences. I really appreciate a nice car with a roaring motor and some cool options to play with. Is it about the experience of driving it, or about the prestige? It can provide thoughts for an endless discussion.

Knowledge is power, but so is money. Money creates opportunities. As I’m turning 22 soon enough, I’m keeping my eye on the real estate market. Old apartments need a lot of renovations and are still expensive. New apartments cost a lot more but enjoy the benefit of low energy costs and fewer maintenance costs the first 20 years. Then I started thinking if I could buy a piece of land and build let’s say 8 apartments. I can’t, because I don’t have enough money. However it would be way more economic instead of buying just one. I could sell or rent out the other 7. I’m pretty sure I could make a profit out of this, but on my current budget it simply is impossible. I could try to find like-minded people to help me fund it, but I rather have the full control in my own hands.

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I would really enjoy those projects on my own or fund start-up businesses and invest in them. Having enough money to fund these kind of initiatives, is only were my FIRE starts… Being able to do something for the good of the community or start your own business. A whole lot of opportunities and possibilities…

Do you sometimes have similar thoughts in which FIRE for survival just isn’t enough?

 

 

Dividend Report May ’17

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With a little delay, May’s dividend income report! A great part of European companies pays their annual dividend in May, so let’s look at the numbers!

British American Tobacco: €29,24
Bayer AG: €32,00
AB Inbev: €42,00
Sofina SA: €32,26
Solvay: €107,35
BASF SE: €38,65
Peugeot: €23,52
Intervest Offices & Warehouses: €77,42
Ageas: €147,00
Euronav: €27,46
Verizon Communications: $13,75
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Total dividend: €569,40

This is by far my highest passive income ever! I was hoping to reach the €500 mark for once and my stocks didn’t let me down!

May is one of my favorite months as next to my regular paycheck, my holiday money comes in. This is a very nice boost for my net worth.

€1,732 (paycheck) + €1,385 (holiday money) + €569 (dividends) = €3,686 of free cash flow.

However I went on a citytrip to Copenhague and had a very nice time, I still managed to re-invest around 95% of my free cash flow.

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Did you enjoy May?

Perception Is Everything

It’s a quote my first Lieutenant told me once. At the time I didn’t pay much attention to what he was saying, but eventually it always stuck in my mind.

What he tried to say was that it doesn’t matter how you really are, if people have another perception of you. Their perception becomes a reality. It’s not important if you are a hard worker or not, as long as people believe you’re a hard worker. Of course you do give some hints in your behaviour to allow other people to perceive you.

However, perception is often not fail-proof. I like this point. Even my friends don’t have the same perception of me. Most of them know I’m active on the stock market, but their perception of my life style can be completely different. To some I’m frugal, to others I’m more of a big spender. I like these different perceptions.

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Truth is, both perceptions are right. The perception they create is mostly based on my reaction to their behaviour. Their behaviour is a trigger in the way I will let them perceive me. When I go out with friends at home, I don’t mind giving a round or paying for a hamburger. It feels good. These friends are still studying and don’t have an income, but more important, they return the favor as well. This ‘returning the favor’ thing is of major importance to me, as it is not a one-way street. It’s not really about the money, but about the gesture. So at the end of the night, if I paid a couple of euro’s more, that’s fine by me. I won’t reach out for a calculator to ask for a refund.

At the other hand, when I do go out with my employed friends, things change. I realized that when people start to earn money, they become more greedy. They want more. This ‘returning the favor’ gesture starts disappearing, however they are fully capable of doing it. I’m no saint either, but I will adapt to the situation and then decide to pay separately. It’s a bit sad and unpractical in my opinion, as the difference might be a matter of just a couple of cents.

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Theoretically I could pay cash for this badass Maserati Ghibli and shiny golden Rolex Daytona and still have €50k in the bank.

Add a suit to this combo and I’d sure as hell look like a rich, succesful guy. Yes, look like it. I rather am in the situation I am in today because switching my precious assets for liabilities doesn’t make much sense. In fact, I don’t have the need to look rich now. Attracting people for the wrong reasons and always worrying about the appearance, no thank you.

Last week I’ve been watching golddiggers being caught on video on YouTube. It was really funny but sad to see how girls first say ‘no’ to a guy but then suddenly change their mind when he pulls up in a Lambo.

Do you have a different behaviour towards different friends? Would you make a personal choice solely based on money?

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A €1,62 life lesson

A couple of weeks ago I started using a different investing strategy. I focused more on selling at-the-money put options to realize gains. This meant I was actually using money that I didn’t have available. This requires quite a lot of follow-up, possible rolling and manual work.

However the gains on these options can be very decent because you are working on margin and thus realizing profits on money you don’t have, I realized it was not my kind of investing strategy.

These options on a margin implied that my cash was blocked for a possible execution and I couldn’t buy much. I had plenty of cash but little room for buys of my own.

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I bought between 10-15 options and hold onto them for a couple of days/weeks. With the recent panicking due to Trump I didn’t feel comfortable being on margin AND having my cash blocked.

However I could still handle the margin thing, the blocked cash is a killer. This meant I would not be able to buy into a stock if a real opportunity represented itself.

“There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.” – Warren Buffett

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This quote is most applicable to my situation. I like to buy big into a stock when I think the market is too pessimistic about it. This can be very profitable. Working on margin would yield an additional 0,8% YoY (around $900), but for me the opportunity cost is bigger of not having cash available when opportunities represent themselves. By buying at a good moment, the amount of cash that would be blocked by options, could turn out to bear bigger fruits than the $900.

However the option strategy is certainly not a bad one, it’s not my core business. I really like dividends and passive income without lifting a finger. This gives me more peace at mind and doesn’t require me to check on every stock every day.

Regarding the pros/cons, I decided to close 75% of the options. I had some winners and some losers. Eventually I ended up with a €1,62 loss. I’m glad I tried the strategy and that it didn’t cost me a leg. It was a valuable lesson.

I still do have options in my portfolio, but I will be more careful and decisive about which ones I sell in the future. The expiry date should be in the near future for me. I prefer having plenty of cash available.

Other than this €1,62 loss, I realized €1050 YTD with other option plays. Most of this money is thanks to my bold AB Inbev put. These kind of options are the ones I will focus on in the future, instead of selling plenty ATM options and hoping they don’t decrease until my strike price.

A beer to that!

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Your FIRE or your house?

What if it was a decision you had to make?

Let me tell you a little story about John and Jack.

Intro

Both guys are 21, single and in the same class. Their net worth is approximately the same, a nice €100k. However, both have a very different view on their life. While John is testing his luck in the stock market and trying to build assets, Jack is watching movies and doesn’t care all that much about financial literacy. John believes he can make returns of approximately 8% the coming years and decides to work towards FIRE. Jack, however, puts his money on a savings account so he can buy a house in the near future. Both seem feasible options.

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Start of life

The 2 guys undertake actions to reach their goal once they graduate. John decides to rent a modest 1-bedroom apartment for a couple of years to grow his stash and net worth. Rent is estimated at around €600 (yes, cheap rent in Belgium). The portfolio keeps on accumulating.

Jack decides to go house hunting and finds a decent place, fitting his needs and those of a possible family. There is no big luxury, consider it a very normal house.
Total cost: €300,000. (Yes, Belgium is expensive considering real estate). Jack uses his €100,000 savings to pay up front and signs for a €200,000 mortgage. This results in monthly payments of €1,000 at a 2% intrest rate for a 20-year period.

Financial implications

John’s cash flow: €2,100 (paycheck) – €600 (rent) – €750 (food, utilities, others) + €500 (bonus) = €1,250/month (+ dividends but those are immediately reinvested)

John owns assets and keeps buying them. Let’s look at the next 5 years.

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So, John has a net worth of around €232,000 after 5 years.

Notice John’s new annual dividend income as well, almost hitting €6,000 of passive income!

Jack’s cash flow: €2,100 (paycheck) – €1,000 (mortgage) – €750 (food, utilities, others) + €500 (bonus) – €200 (costs because of ownership, big repairs…) = €650/month

Jack owns a liability. Let’s look at his future.

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The above mentioned number is the estimated price appreciation of his house. We should adjust this number by adding his earnings over the last years. I won’t take into account capital appreciation as savings intrest is fixed at 0,11% and thus negligible.

So, Jack’s total net worth stands at €149,500 (= €110,500 + 5x €7,800)


This makes a difference of more than €80,000 in only 5 years!!!

Imagine this for a 10-year period… Spoiler: John has more than twice Jack’s net worth.

However both have above average Belgian saving rates, the end difference in net worth is huge.

So far for the story, now reality.

As I’m in a perfect position to observe behaviour of young people, something is very remarkable. When people start to have a (small) sum of capital, they buy a house, apartment… whatever. They drain their own funds and start paying off their mortgage. Around 50% of my class has already bought real estate to live in. Most of them still stay at work though. We don’t receive a fat corporate paycheck but we can’t complain either. After graduation, we will earn around €2,100/month without bonuses. In Belgium, this is a very nice amount considered our age range. This amount was used as a parameter in the calculations above by the way.

However John is the winner by miles, almost all people tend to walk Jack’s path. By now I hope it’s pretty clear that I’m more a John-type of guy. The opportunity cost is huge. Nonetheless there might be personal reasons as why to prefer buying.

In my opinion, one should grow his net worth until it’s big enough to take care for itself and then start considering buying something as probably family is going to need shelter and stability in the longer run.

With your current knowledge, would you do things differently at age 21? Would you prefer to be a John or a Jack?

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April Income Report

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Time for the monthly numbers! 2017’s divies are marked in green.

Before the European companies drop their yearly dividend bomb real soon, let’s have a look at what April brought in dividends.

Vanguard S&P500 ETF: €9,87
HSBC Holdings PLC: €86,41
Nestlé SA: €19,48

Wal-Mart: $11,53
Altria Group: $5,44


Total april dividend income: €131,40.

Not bad. It’s a good warm-up for May’s dividends. As you can see in the graph above, last year there was a big bump in income for May. I expect it to be even higher this year. I guess it to be a little under €500.

I’m really looking forward to make May’s income report, as a couple of options are set to expire and I’m curious about the movements.

I’m mostly poised about the sold put option on AB Inbev.

Small recap: in the beginning of March I sold 1 put option on AB Inbev, strike 110, expiry date May. I received €1,158 for this action. Due to the recent jump in stock price, the stock is trading near the strike. Actually I do want to be assigned the stocks, so I’m hoping they just trade a little under 110 when the option expires. On the other hand, netting €1,158 in 2,5 months is pretty decent too (almost 12% ROIC).

Yesterday I noticed a very high activity in call option trading on AB Inbev stock. Strike price was $130 (around €118) for September ’17. In case I’m not assigned, I will probably try to sell another put option with a higher strike (preferably 115 or maybe 120 euro), expiring in September.

Now it’s just sitting back and waiting for the end of May. The French elections might still be a bummer but we’ll see how it evolves this weekend.