Friday, November 18, 2016

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A Note For The Granddaughters

I'm actually ahead of the "game" this year. Often I wait until it's too late, but for whatever reason I cleaned up my equity portfolio before the end of the year, selling my losers (and some were significant) and using whatever cash I might have for new investments.

A reader asked me earlier this month on some of my thoughts on investing. I am the last person one would want to ask. No doubt I would have done much better over the years had I turned everything over to a professional financial advisor, but
  • I would not have had as much fun;
  • I would not have learned as much; and,
  • I would not have stayed involved in the US economy, which I really enjoy
I have mentioned to other readers that I seldom check my portfolio unless I plan to sell or buy something. In the process of buying something, I then check to see if there's anything worth selling. I am not a trader. I am pretty much "buy and hold."

Now that I am retired I don't have as much discretionary income as I had when I was part of the labor force. Most of my discretionary income available for investing comes from dividends that are not automatically reinvested from which they came.

It takes a few months for enough cash to accumulate to make purchases in new investments worthwhile.

So, that brought me back to the reader's question, about my thoughts on investments.

Reflecting on that, I asked myself, where did I do best over the years? What investments did the best? Anecdotally, it appears I did best when a company was spun off, or a company was bought, or a company was sold. And some of those "events" were incredibly significant. The problem: no one can predict those "events."

Two of the commonalities of those "events" were:
  • the "events" all involved blue-chip stocks (small-cap, mid-cap, or big-cap)
  • shares in all companies had originally been bought with a 20-year horizon
  • BNSF/Berkshire
  • BAX/Baxalter/Shire
  • ATT breakup (years and years ago)
Close but no cigar:
  • GE/BHI
Some of these deals resulted in a better outcome even if the dollar amount at the time was not particularly noteworthy. For example, at the time, I would have preferred that BNSF not be bought by Berkshire (for several reasons) but it has turned out to be much better than expected over the years.

So, now with my cash today, where do I invest?

For awhile I was accumulating GE because I think it's a great company for someone with a 20-year horizon. But then when I saw the big computer chip companies buying smaller computer chip companies, I began to wonder whether accumulating XLNX might not be a better idea. In other words, invest in a great company with a "small market cap" in an enviable sector, thinking it might be taken over.

So, a challenge: should I change my investment strategy from accumulating a big-cap company like GE and investing in a blue-chip company that might be bought by another company? So, I'm struggling with that right now, but I think I've come to a solution.

I think I will stop here. The post is getting long. Maybe more later.

Oh, some thoughts with regard to the economy / political environment.

XLNX was recently in the news as a possible buyout candidate, but that "excitement" died when a chip company other than XLNX was bought by a larger chip company. I had invested in XLNX over the years and the question rose whether I should now sell it, that it was temporarily out of favor as a take-over candidate. Then Trump won the election, and XLNX suddenly looks incredibly better. I did not sell; I purchased more. I bought XLNX before the election (for the same reason) but with the election outcome, I feel even better.

The other day, I mentioned GEO. In the current political environment, it's interesting. Two problems: I don't see this as something I would accumulate over a 20-year horizon; and, it's in a sector I know little about. I haven't said I won't invest in GEO but it would go against two of my "rules" when investing.

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