Perfecting my Portfolio

What it was, and what it is.

Over the past couple of weeks I sold substantially all of the stock that I accumulated over the past couple of years.

To be more precise, of all the shares and companies that I owned on the 31st of December 2020, I sold all but one share in Unilever.

Why I Sold

This isn’t a story about me panic selling because I saw a red day. I didn’t sell everything because I’m leaving the stock market in shame, nor did I sell because of some other terrible reason.

The reasons i sold were simple, and easily understandable:

• I wanted to move Brokers

• I wanted to readjust the specific ETFs that I owned

• I wanted to cut some low quality of companies in it and focus on higher quality better priced companies

With that in mind, lets breakdown my portfolio:

In Red are the companies that I have cut.

In Green are the companies that I have kept.

In Blue are the companies that I have added.

The Ones I Cut

The companies I cut are the most diverse group in here both in terms of business, prospects and the reasons that caused me to sell them.

That being said, they can be roughly separated into the following groups:

• Companies which have appreciated in value beyond a level which I think is justified in the medium term.

  • This includes Caterpillar and New Residential Investment Corp. These are good companies with solid balance sheets and income, but that have increased in value beyond a level which i feel is fair for their future prospects.

• Companies who are good value at the moment, but whose dividend policy no longer aligns with my objectives.

  • This includes Kraft Heinz, BP, Main Street Capital and HSBC. All of these companies are at a fair price right now, but as i’m refocusing into a dividend growth portfolio, they no longer fit my strategy.

• Companies who are good value, and that align with my objectives, but that I chose to move that investment to a close competitor for other reasons.

  • This includes only The Coca Cola Company which was replaced by Pepsico purely for the additional diversification, lower payout ratio and higher dividend growth.

The Ones I Added

Technically Unilever should be considered a part of the “Ones I Kept” group, however since my its part in my Portfolio prior to this rebalancing consisted of exactly one share, I felt it was more accurate to state that it’s a new addition to the Portfolio.

In general these are established profitable companies with high margins (only Pepsico and Unilever have margins below 20%) in businesses that I understand and make use of in my daily life (and that I enjoy as a consumer).

While some of their prices might be a bit on the high side, I believe that their margins, balance sheet and solid businesses provide them with a sufficient durable competitive advantage to justify paying their current price.

If we have a look at their “Value Ratio”:

We can see only one of them doesn’t currently have the 0.60 minimum ratio i discussed last week (Pepsico), two of them are priced below what i would consider a bargain, and 2 others are priced at a very fair price.

The Ones I Kept

The companies I kept are much like the ones I added, the main difference is that I already had them in my portfolio previously.

The one I am most bullish on, Aflac we will discuss in its own post later.

Of the remainder, they are all established companies with a clear and consistent dividend growth profile. Some of them, like AT&T, Realty Income and Aflac were dragged down by Covid, and there is some upside potential when it comes to price appreciation.

Johnson and Johnson, and McDonalds are fairly priced for the quality of their businesses, which I believe will continue thrive going forward. These are big companies, with good brands, good management and fantastic economics in their businesses.

In fact, out of all of these companies, the only I didn’t add to my position was AT&T, which I actually trimmed 6 shares to get a nice even number. AT&T is a fair company with a lot of upsides, while they are getting dragged down a bit by the amount of debt, and some poor management in the past, I firmly believe the company knows they have a problem, and their new management team has the courage to face it head on , such as by spinning off DirectTV.

In short, AT&T is a bet on the management and the underlying economics of the business, with a nice yield to go along with it.

And that’s it for my Portfolio! Let me know what you think, what you’d change, and what I’m missing!

And as always, if you have any questions or comments, shoot them on Twitter @TiagoDias_VC or down below!

I’ll see you next time!