WWTBAM Bored

I have been doing a lot of financial thinking lately in some directions that I haven't gone before and in this thread I am outlining some of the ones on portfolio management. Another thread will likely follow on another topic.

In the last few weeks I have listened to a lot of stuff by Warren Buffett/Charlie Munger and others in that vein(Monesh Pabrai, for example).

Buffett/Munger are big on portfolio concentration and believe that too much diversification is a mistake. They say don't get in the way of your compounders -in other words let the winners run

Well, I my portfolio is way over-diversified and I don't plan to change that, but I am trying to tinker around the edges some.

1) The coal investment is a somewhat concentrated investment. As of the start date, it comprised 12.3% of the portfolio. A few days before that, I posted that it was about 11.5%. After that, I evened up some share totals in the 4 companies and the final start percentage was 12.3%.

Yeah, maybe a large percent of the stock portfolio-but very minor in terms of wider asset holdings-real estate etc.

2) Current structure of the account is that most of the companies pay a dividend. Some of these dividends are automatically re-invested in the company and some of the dividends are just used to buy shares of a different company. Currently, I using this money to buy Archer-Daniels Midland (ADM)

3) I have always been pretty happy with the way I have these companies chosen. I want to accumulate more shares (obviously slowly) in the companies where the dividends are re-invested and I did not really want to own more shares of the companies in which I am not reinvesting and I would rather use those dividends to buy other companies.

4) However, I have been taking a second (and 5th) look at the companies where I am not reinvesting the dividends to see if I am getting in the way of a good thing.

5) Some of these decisions are very easy. For example. I own International Paper (IP) for the dividend and the price has moved very little over time. I have no interest in owning any more and am content to use the dividend to buy other companies.

6) Some took a little more thought. For example, my crown jewel which is Phillip Morris and the 4 spinoff companies. As of the end of Q1 2025, I am sitting on a 36X (3675%) return on this over the last 25 (or so years). Within reason, and given a few more decades of life-this could be the precious 100-bagger.

For many years, I re-invested the dividends until I reached a share number that I was comfortable owning and for the last 5 years or so I have using the dividends to buy other companies. I strongly considered re-investing these dividends back into PM (and cronies) -but it is at all-time highs now and I have no desire to buy at these high levels.

Interestingly, I now get substantially more in dividends every year than the original investment.

7) I considered a few other of my big gainers and only settled on moving Blackstone (BX) to the dividend re-investment side of the portfolio. I have owned it for many years and I am currently sitting on a 535% gain. Interestingly, BX hit a major high in February when I was about 800% ahead (damn Trump). I have never re-invested the dividends back into BX so I have collected dividends for years on it and put them to work to buy other companies.

Unfortunately, I only started keeping track of dividends by company and quarter in 1Q 2018 and you can't search history on my brokers site past 2021 so there is no easy way to figure out the dividend history farther back than that. But, since then (1Q 2018) I have gotten substantially more in dividends than the original investment was (whenever that was). The main broker page has the cost of the shares when I bought them -but not when that might have been and I have no recall of that. PM is really the only holding that I can easily reconstruct.

I made a portfolio change this morning based on some decisions made yesterday. For various reasons, I decided to buy stock in one of the homebuilders (Toll Brothers or Pulte Group). Also for various reasons, I chose to invest in Pulte Group. Downside for me is that neither of these companies pays much of a dividend.

interestingly, both companies are very near their 52-week lows which possibly starts to mitigate some risk. Buying near 52-week lows has worked pretty well for me over time. I envision Pulte as a very long-term holding.

However, since I am always fully invested, I have to sell something to buy something.

1) I chose to sell the ADM shares that I have been accumulating through investing other companies dividends. This was an easy decision.

2) I chose to sell all of my shares in Occidental Petroleum (OXY). I bought this 2 years ago and have been sitting on a negative return in OXY almost since I bought it. I sold out at a 25% loss. I was just kind of bored with it and I never felt real good about it. The main reason I bought it was because Warren Buffett owns a lot of OXY and I figured he might buy the company (he says he won't) or something.

Besides, I am still over-invested in the oil industry even with the sale of OXY.

The 2-year holding period is extremely short for me as many of my shares have been held for well over a decade.

See Note #1 on holding time

3) I took the rest of the money needed for Pulte out of Otter Tail Power. I have held Otter Tail for over 20 years and have slowly accumulated shares through dividend reinvestment. I chose to sell some of the accumulated shares to complete the Pulte buy.

Note #1

I am a very long term investor and have no problem holding shares for decades. It has seemed to work well for me. I am the very opposite of a trader.

However, many here will remember my "Dividend Game" of a couple of years ago which was a strategy based on very short term trading. Most here will not be surprised that my OCD nature really enjoyed that but it was too time-consuming and it just wasn't worth putting the time in. There are bigger financial fish to fry.

Oddly enough with the market drop-the Pulte investment made 2 days ago (see post above) could not be working out better short-term from a market arbitrage trade (my term) standpoint.

I always make a point to remember that if I sell something to buy something else and the wider market goes down right after that-that while the new company (Pulte, in this case) might go down-it is also likely that the stocks I sold would have also gone down.

Well, Pulte went down yesterday and was showing red on the screen and while I didn't do the math-the companies also went down (some hard like OXY) so I always try to remember-"No harm, no foul."

But today, Pulte (oddly enough) is the only thing showing green on my screen today and it has made up the losses from yesterday and it is currently moving just above or just below the price I paid for it.

OTOH; Oxy, ADM, and Otter Tail Power have gone down over the last 2 days (particularly-OXY) and so through a completely randomly timed move-I was able to miss a little of the market drop with Pulte (at least for now).

In addition to the accidental Pulte one as described in the previous 2 posts, I made an "actual market arbitrage trade" (my term) on Thursday and Friday.
in contrast to most
My definition of a "market arbitrage trade" applies mainly to a hard market down day (as Thursday and Friday obviously were) and you sell a stock that is even or possibly up and you buy a stock that is down hard on the day (or 2).

I sold Bristol Myers Squibb (BMY-A drug company) on Thursday and bought Schlumberger (SLB) on Friday morning. SLB is the largest oilfield services company-think Halliburton writ large.

I have owned BMY for less than a year and, through Thursday, I was sitting on a nice but not spectacular gain in BMY. On Thursday, in contrast to most stocks, BMY traded mostly even or up throughout the day and as the day wore on I decided to sell some of my BMY and buy SLB.

Oil and oil-related stocks had a tough day on Thursday and, even moreso on Friday. I sold some of my BMY on Thursday, thus locking in my decent 9 month gains in it and bought SLB on Friday morning.

SLB was down Thursday and down a fair bit on Friday morning when I bought it not long after the market opened. I should have waited as it dropped more as the day wore on. But, I missed Thursday's drop and about half of Friday's.

But BMY was also down on Friday for about the same percentage that SLB was after I bought it-so "No Harm, no foul" there and I missed Thursday's and half of Friday's oil-related drop.

One way to think of it is I bought Friday morning oil-related stocks with Wednesday money.

Long term-given the price I sold BMY for and the price I paid for SLB-I think I will do better owning SLB and remember I still own some BMY

As a matter of record-I tend to hold my stocks for years and even decades by this point. However, having said that, I do enjoy trading around the edges of the account.

I didn't think of it until this morning, but a late Friday Pulte Homes (PHM) to Occidental Petroleum (Oxy) would have been a great "Market Arbitrage Trade" (my term-see above post for definition).

This would have reversed the Wednesday Oxy to PHM trade.

Late Friday, I could have sold some of the PHM for about the price I paid for it and I could have bought OXY for a LOT less than I sold it for on Wednesday.

I will obviously have my eye on this possible market arbitrage trade as we move into the week. I am out of pocket on Monday for a funeral and I won't even have the means to find out how any stocks that I am interested in are doing. This will soon be a common feature as we move into spring planting and such.