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Pandemic Portfolio: Update #2
This is an update to a series. See Starting a Portfolio from Scratch to learn how it started.
New in This Update
As I mentioned in Update #1, the Pandemic Portfolio doesn’t receive weekly updates with me only updating its status when an existing position has been added to or sold, or, as in this case, a new position has been opened.
In addition to adding a new position in this update, I’m also touching on interest payments from uninvested funds as well as dividend reinvestment programs (DRiPs) for existing positions.
Opening a New Position
Initially, I wanted to create the Pandemic Portfolio with just five positions, however, I knew that approach wouldn’t likely work for me and I’d probably be adding more.
Rather than add to existing positions on the way up and thereby raising my per-share basis like some investing sites recommend (I’m looking at you, Motley Fool), I prefer to keep positions profitable and open new positions in viable opportunities, instead.
This approach is a matter of personal preference, of course. However, in the decades I’ve been investing, I’ve found that it’s better to stay satisfied with the opportunities the market provides me rather than raise the per-share cost of an existing position by buying higher.
In my experience, whenever I buy up a position’s per-share price, an inevitable systemic selloff will cause the stock to drop through my new per-share cost and even drop below my original per-share cost, making me feel like an idiot for buying up my per-share cost instead of waiting for the market to give me a second opportunity to add at my initial cost.
It’s important to remember that investors should be prepared to perform one hour of homework per stock per week (reviewing earnings reports, news updates, reviewing balance sheets, etc.), so adding a new position means adding work to the weekly grind.
Currently, the market’s relentless climb higher has made adding to existing positions challenging as there has been a lack of any significant pullback (even on late in July). I’m all for patience and sitting on my hands, but I’d like to put more money to work, so when an opportunity shows itself in a new company, I take it.
That opportunity presented itself this week in the form of Crown Castle International (CCI), a 5G play with a decent 2.8% dividend yield which dropped nearly -6% to hit my price target.
Interest Payments on Uninvested Cash
In all of my portfolios, I always keep uninvested cash in a money market fund, if available. Even with the Federal Reserve Bank’s interest rate around 0%, money market funds let me earn something rather than having cash just sitting there doing nothing at all.
My broker for the Pandemic Portfolio pays out interest mid-month (typically the 15th of the month if it doesn’t fall on the weekend).
The combination of the payouts in June and July were the equivalent of 0.2516% on my cash (89.66% of the portfolio at the time). That works out to an annual yield of 1.51%. Sure, it’s not great, but it’s quite literally something for nothing.
Change since Last Update: +0.80%
Holdings: 13.45% | Cash: 86.55%
1st Buy 5/12/2020 @ $306.88
Current Per-Share: $304.12
Crown Castle (CCI)
1st Buy 7/21/2020 @ $167.24
Current Per-Share: $167.24
Digital Realty (DLR)
1st Buy 5/12/2020 @ $143.35
Current Per-Share: $137.31
1st Buy 5/12/2020 @ $180.74
Current Per-Share: $178.85
1st Buy 5/13/2020 @ $132.97
Current Per-Share: $130.16
1st Buy 6/12/2020 @ $282.41
Current Per-Share: $281.23
Target Position Size
Click image for an enlarged version.
Moves Since Last Update
Costco (COST): No Moves
Current Price: $325.78
Per-Share Cost: $304.12
Next Buy Target: $296.90
Costco (COST) reported a blowout earnings report since my last update, once again showing why this company is an excellent long-term investment. Costco will succeed regardless of whether the economy is in a recession as consumers need to buy food and they love buying at Costco.
Crown Castle (CCI): *New Position*
Current Price: $166.70
Per-Share Cost: $167.24
Next Buy Target: $151.20
I added Crown Castle International (CCI) to the portfolio this week. CCI specializes in building cell phone towers and fiber-optic cable solutions which it leases and offers to the major mobile service providers including Sprint (S), T-Mobile (TMUS), AT&T (T), and Verizon (VZ).
CCI has a long track record of good performance, however, Elliot Management, an activist investment firm, recently opened a position in CCI with some good suggestions for how to extract more value for the company, one of which being to increase the dividend, already near 3% at these levels.
Elliot Management has a history of bringing out value in companies (sometimes aggressively) and, in CCI’s case, their suggestions are to decrease investment in the low-margin fiber-optic installations in favor of the high-margin cell phone towers.
The combination of the different factors plus the network expansion for 5G makes Crown Castle a very intriguing long-term investment to me. When the stock dropped on Tuesday, I opened a position at $167.24 with a 2.5% allocation of the total new target of 16.67% for the portfolio. My next buy target for the stock is at a lower support level near $152.60.
CCI closed the week at $166.70, down -0.32% from where I opened my position on Tuesday.
Digital Realty Trust (DLR): Dividend Reinvestment
Current Price: $146.99
Per-Share Cost: $137.31 (lowered -0.78% from last update)
Next Buy Target: $134.20
Digital Realty Trust (DLR) paid out its dividend on June 30. At the time, DLR paid out an annual $4.48 per share or $1.12 per quarter. The dividend lowered my per-share cost -0.78% from $138.38 to $137.31.
Microsoft (MSFT): No Moves
Current Price: $201.30
Per-Share Cost: $178.85
Next Buy Target: $178.85
Microsoft shot up from where I added to the position last update, hitting a a new all-time high of $216.38. Despite reporting a decent quarterly report this week, Microsoft pulled back to around $200. Many analysts believe this pullback is an indication that the market has become substantially overbought and may be due for a correction.
Pepsico (PEP): Dividend Reinvestment
Current Price: $136.06
Per-Share Cost: $130.16 (lowered -0.51% from last update)
Next Buy Target: $128.70
Pepsico (PEP) paid out its dividend on June 30. At the time, PEP paid out an annual $4.09 per share or $1.0225 per quarter. The dividend lowered my per-share cost -0.51% from $130.83 to $130.16.
UnitedHealth (UNH): Dividend Reinvestment
Current Price: $300.79
Per-Share Cost: $281.23 (lowered -0.42% from last update)
Next Buy Target: $279.70
UnitedHealth (UNH) paid out its dividend on June 30. At the time, UNH paid out an annual $5.00 per share or $1.25 per quarter. The dividend lowered my per-share cost -0.42% from $282.41 to $281.23.
UnitedHealth gave an outrageously record-breaking quarterly earnings report, however, the company pointed out that the pandemic prevented many consumers from visiting doctors for regular/routine visits. Accordingly, the record-breaking profits would likely not be ongoing, particularly as patients return to their doctors for the visits they missed as economies continue to open nationwide.
* Target allocation for each position in the portfolio is 16.67% of the overall portfolio.
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Disclaimer: Eric "Irk" Jacobson and all other Get Irked contributors are not investment or financial advisers. All strategies, trading ideas, and other information presented comes from non-professional, amateur investors and traders sharing techniques and ideas for general information purposes.
As always, all individuals should consult their financial advisers to determine if an investing idea is right for them. All investing comes with levels of risk with some ideas and strategies carrying more risk than others.
As an individual investor, you are accountable for assessing all risk to determine if the strategy or idea fits with your investment style. All information on Get Irked is presented for educational and informational purposes only.