I didn’t hear no bell! It is (past) time for my (depressing) personal finance and investing journal update. Let’s update the State of my Stash…
If you are new to my blog, or this series of posts, I am tracking my liquid savings/marketable investments. I am using these posts as sort of a finance and investing journal, so I can look back and see what I was thinking and (hopefully) how I achieved certain financial and savings goals. The primary benefit for me is to have a “forcing function” to make me drill down and see what’s going on.
CURRENT PORTFOLIO ALLOCATION
As I’ve mentioned before, most of my stock exposure is through index funds. I do tweak the allocations to these funds based on valuation and/or trend, depending on the account.
In my biggest account, I basically allow myself to allocate between 50% and 100% to stocks (equally split about 1/3rd each between SPY, VXY, and EFA). As discussed below, I also alter allocations in my value + trend account.
So, I definitely did not come into 2022 long and strong. As a result, I am only getting half-smashed (or something like that). Of course, that’s probably after years of “performance drag.”
At the end of Q3 2022, I had about 7% in SPY and 5% VXF (or their equivalents). About 15% was allocated to foreign stocks (~15% EFA and 0% VXUS…VXUS is what I use in my trend account).
EFA was down (25.80%) YTD though end of Q2 in 2022 (12/31 – 09/30). The S&P 500 was down (21.92%). The completion index (VXF) was down (28.28%).
I’ve got about 15% in accounts where I pick stocks. The remaining ~58% is in bills and cash equivalents. My allocation seems to be basically unchanged from the end of Q2.
Participating IN CAPITALISM
As stated, I allow myself to pick stocks with a “sleeve” of my portfolio. It’s at ~15% of the total portfolio at quarter end. I have been contributing to this sleeve kind of heavily of late. I have been buying lots of $SLG and some $LAMR as well. I’ve got about 5% notional exposure to $SLG but only about 2% net/equity.
I will plan to write up a summary of my reasons for buying these in the coming weeks, but basically you can read the Boston Omaha reports for the reasons I like $LAMR. Lamar buys smaller outfits @ around 10x EBITDA and so I’m buying Lamar itself (a superior, scaled up player) at around that same mark. I also have been drinking their Koolaid about the decentralized way they run the business and the family control/alignment with capital.
For $SLG, I basically don’t think class A office is going to be impacted long term. At least I like the risk/reward of the bet. If it’s worth a dollar it’s worth >$60.
I like that these guys already have One Vanderbilt up and leased, the competition will have to get through the cost inflation and get funded in this market. I’m hoping we see a lot more pressure on Vornado and Relative to build in a lot more residential and mixed use in their developments. I also like the way $SLG and their management has navigated prior crises. I liked the fact that they actually shrunk the float and I like the move to do more joint ventures where you need to raise equity capital but don’t like the quote on your stock. Basically they appear to be very intelligently responding to the choices on offer in capital markets. I am on board with turning off buybacks to pay down the floating rate debt (which they claim to have concluded now after refinancing some things with banks and putting on some interest rate swaps).
I will say that I didn’t love the incentive fees to CEO and COO for One Vandy and would like to see CEO buy stock in the market (rather than the prefs). I also never liked Midtown as far as areas in Manhattan but it seems like maybe NY will offer some tax incentives to get it to be more mixed use and more sustainable and just a better neighborhood over time.
I view this as like my NYC commercial real estate focused merchant bank (I like the mezzanine debt and preferred lending business too for the synergies with the rest of ops.) with pretty good evidence of limited agency costs and very low fees (total SG&A is less than 1% of total assets; not 2% + a 20% carry plus a bunch of other fees).
I see a fair amount of other attractive stuff, but I am trying to maintain a lot of capacity to hammer BRK.B in case I get another chance near trailing book.
VALUE + TREND
I also manage some of my portfolio based on a very simplistic, systematic trend and value strategy.
When long, the account is divided equally: 33% each to the S&P 500 (SPY), the Dow Jones Completion Index (VXF), and foreign stocks (VXUS). Basically, if the valuation of one of these indices/funds is rich (as determined by me, based on a somewhat discretionary “process”), then I apply a simple moving average trend-following rule.
The idea is to have some risk management in place when stocks are expensive by selling when they have negative time-series momentum (for example, when stocks are down over the last 12 months or below the long-term moving average).
When stocks aren’t expensive, I just want to be long and strong (so no trend-following). I only allow changes once a month in an effort to limit the number of “whipsaws”(when I sell and later buy back into the equity fund at a higher price than I sold, because the trend rule says so, resulting in a loss).
If you’re interested in learning more about trend following, I would recommend you start by searching for info on the Alpha Architect and Meb Faber sites. Jeremy Siegel also touched upon the subject of trend a little bit in Stocks for the Long Run.
I have about 25% of my investments in this account/strategy. I am prioritizing contributions into this account. It should become a larger allocation over time (unless the relative performance stinks).
As of 09/30/2022, this account was 100% in t-bills/cash (it’s actually in one of those “stable funds”). Since March 2022, this account has been 100% in cash equivalents. YTD in 2022 this account is down (4.3%). This beat the primary benchmark I’m using: $AOR. AOR tracks a globally diversified version of a “60-40” portfolio. AOR was down (19.48%) YTD through 09/30/22. As I’ve said, SPY got smoked YTD (21.92%).
I remain pretty pleased with the performance of this account. It put up a 17.29% return in 2020, smoking the 10.75% return for $AOR (and basically matching the 17.24% return for SPY). Some of that was just timing luck around the COVID crash and rebound, but that’s ok ,I’m not looking for this to avoid those kinds of moves. I’m looking to mitigate like a 29-31 or 2001 – 2003 type bear market.
While I took a loss versus SPY in 2021 (+30% vs. +14% for this account), that was due to the 33% each in VXF and VXUS (there were no trend rule signals/changes). I’m just not sold on concentrating everything in U.S. large caps.
I also like how the strategy has continued to serve as sort of a psychological “release valve,” providing reassurance that even though the market was expensive I am rolling with some risk reduction. I have taken a few whipsaws over the last few years (for example a small one in 2020…which could have been worse), but those haven’t been huge or bothered me much. I basically view it as cheap insurance that I only buy when I think the market is expensive.
STASH STATS
Now on to the balance update. As a reminder, at June 30, 2022 I was at about $411,000.
Since that date, I continued to automatically save. Automating my savings is my strategy of managing my behavior (and limiting the willpower required to stay on plan) by basically saving/paying myself first and then dealing with the consequences in the rest of my budget.
I have been saving about $5K per month automatically into my relevant accounts.
Whelp, that was all for naught as market losses incinerated all of my additional savings. After paying the penance to the market gods, I ended Q3 2022 with only about $406,000 in my portfolio. Oof! That is the wrong direction.
In 2021, I started tracking the rate of how quickly the stash is growing, including both savings and investing gains (or…losses). This is an odd metric for most use cases, but it’s easy and does reflect both levers that I am trying to use here (saving and investing). Thanks to an idea from a twitter friend (@DadInvest, follow him if you don’t), I also started tracking the 5-year trailing CAGR for my total invested assets (also including gains and contributions).
First, my percentage increase in the stash from saving and investing YTD for 2022 was minus (4%). The five year trailing portfolio/savings CAGR is 22.28% (09/30/2017 to 09/30/2022)(again, this includes contributions and is not offered as evidence of an investing savant).
This 5 year CAGR is cratering and is much lower than the almost 40% rate when I computed this at year end 2021. I guess it is still a decent motivator.
THAT’S A WRAP
So anyways, that’s the
state of my stash. I threw tons of cash into the abyss. However, I guess it would have been much worse if I were fully long stocks coming into this year.
Thanks for reading!