Waiting for the Pull Back…
Eight long months ago, I was so excited to have a $5000 one day (unrealized) gain in the DDI portfolio. Yet my enthusiasm was definitely tempered by my concern of a good sized pull back. Since that last post, we have had a few up and down waves in the market, but yet no sizable pull back to date. The Dow has gone from about 21,000 on March 1st to hovering around the 23,400 mark today. We’ll continue to enjoy the upward rise….and hope that any correction is small and short lived!
Cleaning the Cobwebs
Shortly after my last post in March, I went through the DDI Portfolio and did some house cleaning. I sold off shares of:
- AA – Alcoa
- DBD – Diebold
- DLR – Digital Realty Trust
- NFLX – Netflix
- TPL – Texas Pacific Land Trust
- WDC – Western Digital
- NAT – North American Tanker
Some of the shares such as DLR and TPL had some nice gains. A few had turned into dogs, including DBD and NAT. And for some reason I thought it would be a good idea to put Netflix into the portfolio as a potential “future dividend payer” – but decided I should stick to current dividend stocks. Needless to say, I missed out on about a 50 point run in NFLX – but as they say, hindsight is 20/20. But I’m ok with that as I’m working towards being more systematic about the day to day management of the DDI Portfolio.
Creating the Systems
One of my goals early on for the DDI Portfolio was to come up with a systemized process for buying, holding and selling the companies that make up the portfolio. I have to admit, I’ve often just shot from the hip over the years when buying and selling and while I’ve done well, I probably could have done BETTER.
In September and October of this year, I decided that the cash balance in the Portfolio was a little too low for my liking. If we did see a large pull back, I’d like to have some cash available to pick up some potential bargains. Additionally, I’d like the Portfolio to be liquid enough that I can start taking distributions on a regular basis without having to look for what to sell each time I need cash.
I came up with the following first pass at a systemized process for operating the Portfolio. The first goal is to let your winners “run”, so while I’m not opposed to taking some gains, my first focus would be to trim the losers. Selling losers isn’t as easy as it might sound. If you believe in the fundamentals or the “moat” of a given company it’s hard to give up on them and sometimes it just takes a little time to work through a down period for the company. As an investor though, at some point you have to say enough is enough and stop the bleeding before it goes too far.
I decided that at the end of each quarter, I would review the DDI Portfolio and make the following sales:
- Any position down 10-15%, sell 25% of the current holding
- Any position down 15-20%, sell 50% of the current holding
- Any position down >20% sell 100% of the current holding
Applying the System
After reviewing the DDI Portfolio and applying the new “Sell” rules listed above, I was able to sell some underperforming assets and raise the cash position in the DDI Portfolio to about $30,000.00 or about 5%. I am satisfied with where the DDI Portfolio sits currently with regards to company holdings as well as cash flow and cash balances. I’m optimistic that applying these sell rules moving forward should help to keep a healthy cash balance as well as keeping the portfolio losses in check.
Final Adjustments for 2017
One of the many goals I’ve had for the DDI Portfolio over the last few years, was to see the account balance grow to $500k. After reaching that milestone a little over a year ago, the portfolio has been stable within the $500-$600k range even with some losses and a number of cash distributions.
Since the portfolio has remained consistently above the $550k mark for the majority of the year, I have decided to transfer about $50k from the Wells Trade account that holds the DDI Portfolio and fund a new account at Charles Schwab where I plan to create the DDI 2 Portfolio. I haven’t decided what the emphasis or goal of the DDI 2 Portfolio will be just yet, but I’m thinking about possibly taking some more aggressive positions such as using options to try and “juice” the income returns. Longer term goals include growing both DDI Portfolios to at least $500k each! Once the funds have arrived at Charles Schwab, I’ll post some updates on my future plans – stay tuned.