Strategy

First quarter of the year is over and what a ride it was. First the markets were hitting all time hight valuations and then corona virus hit the global stock markets like a black swan on steroids. In retrospect quick adaptation by selling everything would have  been the sensible choice but that doesn’t really fit into the DGI influenced strategy. Real impact on dividends will remain to be seen. Short term there will be a significant hit but there are also long term possibilities. Some of the strong companies should probably eliminate the whole dividend and invest the money wisely. Prime candidate for this would be Sampo Plc which could increase the stake on TopDanmark. For the main portfolio this quarter was quite bad with -37% drop in value. Impact on dividends is not visible on metrics until next quarter. Dividend income during Q1 was 1 302,58 USD and 101,40 EUR before taxes.

Overall this drop was not totally unexpected though it should be noted that exact timing and reason was unexpected to me. In retrospect it should have been quite obvious if one would have paid enough attention on the news coming in from China during January and February. Long term strategy has not been changed. I was always planning on buying at least for one turn of the economic cycle. Therefore I’ve naturally now moved back to normal buying mode. I’m quite well positioned for it unless of course if this economic turn hits my personal finances. Even that should be quite easily digestible event as I’ve prepared for the turn for quite some time now. This was mainly done by reducing the debt load to minimum. It’s quite easy to take this kind of hits without mortgage. This drop also opens the possibility to make some tax efficient moves by e.g. moving certain assets between providers.

Third quarter is over and this time around it was a bit special one. I decided to restructure my overall finances and paid off my mortgage. This operation involved some stock sales as well since the main motivation was to trim things into a more defensive position (keeping the investment debt carried in portfolio in low end of the allowed range). In global economy main risks are still in place as I expected. Recession risk is real but then again political decisions can easily cause big shifts in a way or another. I might increase cash position in fourth quarter but that remains to be seen. I’m also considering splitting the main portfolio between Nordnet and Nordea. This could be achieved by making additional purchases in portfolio hosted in Nordea.

Third quarter was quite solid considering all the global challenges. Dividend income was 1 337,50 USD and main portfolio value increased 5,45% during the quarter.

Q2 is over and not much has changed. The very same problems in world economy are still in place. Markets are close to all time high valuations but there’s increasing discussion about recession or worse. I’ve successfully eliminated effectively all debt within the portfolio and the question remains: should I keep building cash reservers or look for investment opportunities? There are some interesting possibilities such as Wärtsilä corporation (dropped today on earnings but long term energy mega trend story is still there) or EPR properties (new REIT position with monthly and relatively high dividend). On the speculative growth side there’s the Second Sight Medical Products which I’ve been looking at as a speculative brain-machine-interfacing position.

Q2 results didn’t contain any major surprises. Dividend income was 3047 EUR before taxes which can be compared to 1824 EUR year before. Solid growth mostly fuelled by additional investments.

First quarter is now over and it can perhaps be best described as unexpectedly quick rebound from previous quarter. Main dividend portfolio value increased over 15% in value during the quarter. Received dividends totalled 1442,40 USD including one time extra dividend from BHP Billiton. Main problems are still in place as the trade war tensions between US and China have not been resolved and the brexit resolution was once again pushed forward. Main portfolio is currently in maintenance mode in order to deleverage while waiting for better opportunities and some kind of resolutions for the main problems in global economy. One extra ingredient in this are the local elections which might end up changing the local tax environment from quite bad to extremely bad. This remains to be seen.

Another year has passed and it’s time to take a look at the results. Sentiment really changed towards the end of the year and we saw quite dramatic volatility. The problems however are the same old ones: Trump presidency & trade war tensions, weak EU & brexit and possibly slowing global economy. There’s no doubt that we have been closer to the end of the cycle than to the start of it. Who knows when the real turn will happen – it could be happening already or it might still be years away. Looking back at the results, it’s clear that I got what I wanted and managed to follow the strategy I’ve set to myself.

• Fourth quarter dividend income was 1 514,51 EUR (992,23 EUR during Q4/2017)
• Dividend income for whole year was 5 373,07 EUR (4 450,93 EUR during FY2017)
• Primary portfolio performance was -0,36% during the whole year
• Debt ratio was maintained at or close to the planned 10% of the portfolio market value

What will happen in 2019 then? I don’t personally expect big changes going forward. We are likely to see even extreme volatility on index level but I don’t see strong reasons for changing the existing strategy. I will continue to buy and will aim to make at least one purchase per month for the main portfolio. For the secondary portfolio I’ll probably make one small purchase per month or one per quarter at the minimum. ETF portfolio will get a small buy each month and will be funded from the primary portfolio dividends.

I’ll keep an eye on few things: high yield companies with reasonable debt loads (as we might see mainly sideways movement for the next couple of years), quality companies with significant cash positions (which might be thrown overboard when the overall market tanks and which are in great position to deploy cash during a downturn) and advanced technologies such as brain-machine-interfacing, fuel cells & hydrogen economy. High yielding candidate could be e.g. Apple Hospitality REIT or Nordea Bank. Quality companies with significant cash positions would be the likes of Apple Inc. or Berkshire Hathaway. Advanced technologies will be much more difficult to cover. NEL is obvious candidate and it might be accompanied by PowerCell Sweden. Brain-machine-interfacing will require extensive analysis if I intend to find a suitable for addition for the secondary portfolio.

Fiscal year 2017 is coming to an end so it’s time to look at the results. This time around there were multiple significant events but none of those had massive short term effect on the market. Trump won the presidential election and first year has been interesting, tensions in the Korean peninsula escalated a bit and Catalonian independence remains unclear. Then there’s the hype like Bitcoin and cryptocurrency boom which will not end well for some of the participants I suspect. Predicting the future is always a bit difficult but I’d guess that none of these issues will truly be resolved during FY 2018. I’m also expecting Euro zone to face again the underlying problems hidden by the ECB. We might see a mild market correction but I wouldn’t expect a full recession until well into the 2020’s. My personal assumption is that ECB fails to significantly raise the interest rates before the next recession. I expect the interest rates to be below 3% when the next recession forces ECB to lower them again. Having said that, I’m also interested in reducing the debt I’m carrying as a defensive measure. That’s because I believe more in defence that I do in predictions.

In the portfolio FY2017 was quite boring. Pre-tax dividend income was 4 167,45 EUR which is a solid increase from the previous year’s 3 186,27 EUR. Adjusted and currency converted portfolio value didn’t change much as it increased merely 0,15% which clearly is a loss compared to (almost any) index. This is quite insignificant for me as this is pretty much defensive and income oriented portfolio but added margin of safety would have been nice bonus. Market valuation being in general all time high, I’ve moved the portfolio once again to a maintenance mode. Currently I plan to slowly add on Fortum and Loundspring positions while using majority of the new cash to improve the debt level. This is possible due to the secondary brokerage account I opened in Nordea Bank as they have pricing model which allows small transactions with acceptable fees. I’ll also consider selling some assets to eliminate the portfolio debt but that remains to be seen. Potential elimination list contains VEREIT (turnaround play with legal issues, original target price close to 11 USD per share), Hennes & Mauritz (sector I have mixed feelings for in general) and Nordea Bank (once there’s suitable M&A taking place).