The Curious Investor

Today, we’ll wrap up the first quarter summary with a quick look at my two longer term portfolios - Portfolio B and the hypothetical Curious Investments Equity Income Strategy.

Portfolio B
This strategy performed admirably through the turmoil this quarter. While it posted a total loss of 12%, it was up in March and most positions seem fairly stable. The trouble caused by bad reports by Well Point and Humana cast a pall on my view of Aetna and I decided to move from this position to Bank of America and hunker down for the potential recession and general market slowdown. Bank of America was trading near its 52-week low, but had just bounced up in what looks to be a potential double bottom. In addition to this cursory chart analysis, I was enamored with the 6% dividend yield the stock is projecting and the potential for growth built in through the purchase of Countrywide and securing a market leading position in home lending. While this isn’t popular now, as the market turns back in the next year or two, Bank of America looks well positioned to lead the charge. For a more in depth analysis, check out my post on the trade.

J. Crew continues to execute and reported another strong quarter. I’m loving this retail pick and believe we’ll be looking at a double in a few years. For now, provided the stock does not break down, I’m willing to ride and near term fluctuations with the belief that in the long-term earnings will be on the way.

MEMC Electronic Materials and Mastercard are becoming a bit iffy for me and we could see moves in these positions. After further research, while I am enamored with the near term performance by MEMC Electronic Materials, it seems to be buffered by silicon pricing well in excess of reasonable projections for the long term. ($300+ per kilogram for polysilicon versus projections in the range of $25-$100 per kg by 2010.) I believe that with the run in commodities and continued support for green energy, MEMC will likely be able to continue to outperform in the short term so I will allow this stock a little more room to run, but I do intend to cut ties with it once my return targets are met (~$83).

Mastercard is worrying me for the opposite reason that MEMC bothers me. I continue to love the longterm story and am actually happy to have Mastercard over Visa as its smaller size offers more potential for growth through expanding market share. That being said, the stock seems to be hitting quite a bit of resistance at the $228 range. Having made 50% on this position, despite my long term view on this company, it may be in my best interests to lock in profits. Once again, I will allow near term performance in this stock to dictate my next move.

Curious Investments Equity Income Strategy
Not much has changed in this portfolio except that BKCC has only become a stronger investment. For those following this strategy and thinking about timing into positions, the dividend in the high teens and a valuation which is not necessarily reflective of fundamental changes in the company’s investments (last quarter there were no reports of an influx of under performing investments like at Ares Capital) but more a reflection of general downward trend in debt asset prices (which I see as temporary). A valuation in excess of $14 per share wouldn’t be unreasonable and you’d be able to lock in 13% dividends. My sweet spot for this one is $12 should I decide to add it to one of my real portfolios.

The rest of the portfolio has continued to provide the dividends expected. Autoliv even raised its dividend 5%. It would seem that on the long term, this portfolio is well positioned for strong gains and has thus far been providing significant returns through dividends - projected yield is in excess of 5%, provided you don’t need immediate liquidity (the strategy unfortunately is trading at a 16% loss since inception).

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