Investment Portfolio Feb-2020

In November 2017 we made an analysis of our investment portfolio (PART II in Spanish only), so we showed you the different changes and investments we have done and we laid out a plan. 

We also wrote our Investor Policy Statement (IPS) to fix the rules to be followed in different circumstances and that helped us as a guide to restructure our investment portfolio. 

Now, at the beginning of 2020, it’s time to look back to the numbers and share with you how we’re putting our money to work.

In the second part of our Portfolio analysis I mentioned we made an important investment in a start-up, that we’ll call PiedPiper, this is the company in which I’m co-founder, have a good steak and is the one paying my salary so we can save and invest and achieve FI 🙂

The investment in PiedPiper started to appear in our portfolio analysis Part I in October 2017.

This “investment” could multiply in a very important way once I decide to quit, I get laid off or we sell the company to a bigger fish, I’ll tell you more about this later in this article but let’s start:

Our Investment Portfolio Feb 2020

This is how our portfolio looked like in October  2017

Hour investment portfolio in 2017
Hour investment portfolio in 2017
 Hour investment portfolio in 2020
Hour investment portfolio in 2020

And this is how it looks now in February 2020.

Detailed positions Feb-2020
Detailed positions Feb-2020

I’ll make the analysis following up on the IPS to check how close we’re following the statements. 

I’ll start from the bigger positions to the smallest position, so let’s begin:

Pension Funds 20.8%

The majority of the funds in this section, 86%, are blocked in the 2nd pillars.

Pension funds' investment
Pension funds’ investment

As you know, the problem with this money is that it isn’t working as it should and that you only get 1.5% of the interest in these funds. So basically this money should be counted as “cash” that you can’t touch.  

The 10% corresponds to the 3rd pillar that today we have with VIAC, since it allows us to invest  97.3% in stocks. The advantage is that the total commission paid by these funds is 0.51%.

We moved out from UBS 3rd pillar to VIAC 3rd pillar just last year (2019)

Have a look at this guide from ThePoorSwiss or from The Mustachiam Post if you want to open VIAC account.

Here’s how the funds are performing since then.

VIAC funds performance
VIAC funds performance

You’ll notice a 4% slide in the pie graph, this is the money for the apartment’s deposit. This money really generates zero. Actually it isn’t even adjusted for inflation. I guess there’s nothing you can do about it. 

How to put this money to work?

One way I was thinking you can put that 96% (86% pillar 2 and 10% pillar 1) of the portfolio to work is by buying a property in Switzerland, taking into account that interest rates are so low and that we could be doing AirBnB on that property. 

To be honest, it is just a thought, I haven’t done my research, I write it down here so I can look back to this later. 

PiedPiper 19.8%

WTF is that? and why are you almost 20% locked there?

If you don’t know what PiedPiper is, close the browser and go!… just kidding… If you don’t know so go and look it for yourself here.

After long days talking to Msr. HdLR about a career move from my side I have decided to quit my corporate job. That was 2014 and we were just pregnant with Mini HdLR. That was a tough decision.

 I had a good managerial position, a good salary, and benefits. We were just about to have our first child so why not? right? why not start a new start-up where according to statistics more than 90% fail?

The risk was high, so the reward must be higher. Today I’m the co-founder of PiedPiper and work my ass off to get it growing. In 2017 I was “forced” to make a capital increase in order to avoid being diluted at such an early stage, so we agreed (Msr. HdLR and myself) that was the best decision. 

We structured the capital increase as a loan from the investors so that this capital is bringing us +4% per year as an interest to our loan.

Like any high-risk investment you expect a higher than normal return, so, since inception, I signed an agreement with PiedPiper that if I quit or get fired for any reason, the company or the shareholders need to buy my shares back at an established share price according to the financial results of the company.

This means that as per the math formula we have agreed, we could get 15x to 20x the initial investment while in the meantime receiving a good salary. 

Nevertheless. For the calculation of our Networth, we don’t take into account the potential gains but only the loan that generates 4% p/year.

Cash 10.1%

According to our Investor Policy Statement (IPS), we should keep at least 2 months of expenses in cash.  Today we have much more than that. 

The reason is that I haven’t found how to relocate this money and I don’t want to plug it into low-cost ETFs just now. I’ll check what to do with this and update you soon. 

In the meantime, we’ll be sitting on this cash cushion.

Non Dividend Stocks 9.4%

This is a part of the portfolio that contains single picked stocks, which do not pay any dividend and, honestly this is the part of the portfolio that contains some of my initial mistakes when starting to invest. 

There are 6 positions still open (during the last years  I have eliminated some others to clean up the mess) this part of the portfolio is yielding -16.7%, 

None dividend stocks
None dividend stocks

Facebook, AMD, Amazon, and Twitter are on the positive side, but GoPro and Advaxis, are super low. 

Advaxis went down to  -99.4% from purchase value.  GoPro and Advaxis are 2 of the mistakes made back in 2015 since I overweighted GOPRO in the portfolio I guess this is the way you learn diversification and “position sizing

3x Leveraged ETF’s 9% 

WTF is that?

If you haven’t heard of 2x, 3x Leveraged ETFs I’d recommend you go read this or simply watch This  

Since the beginning of December, I started “playing” with these instruments by using one of the most liquid leveraged ETFs TQQQ which is a 3x Leveraged ETF looking at replicating 3x the performance of the NASDAQ 100 in a day. The non-leveraged ETF tracking the same index is called  QQQ.

Leveraged ETFs
Leveraged ETFs

From the beginning of December till mid-January I accumulated some TQQQ ETF and then sold them all with a +23% profit, not bad, not bad. 

In January there was a pull-back in the market so I opened again a position and I’ll let it ride. This is our 3.9% position appearing now in our portfolio, or 40% of the 9% in leveraged ETFs. Today this position is up +24.6%.

In the same way, I have a 5% position open in SOXL, this ETF is aiming for a daily 300% of the PHLX Index of semiconductors. (up +9.4%)

Yeah, I know… leveraged ETFs may be risky according to the theory and that makes many people scared. Nevertheless, I believe it can be a good instrument to potentially increase your gains using leveraged without borrowing money directly.

The instrument is looking for the 3x daily factor and in theory, it shouldn’t be used for a long term strategy because of the volatility, decay and all that stuff. 

So let’s look at the real numbers and see how a 3x leveraged portfolio would have performed in the recent bull market.

Leveraged ETFs Vs Standard ETFs 

I made a quick simulation of 3 different portfolios, all of them with a starting 100k investment in 2011 and no capital increases:

  • Portfolio 1 = 100% TQQQ (3x NASDAQ 100)
  • Portfolio 2 = 100% QQQ (1x NASDAQ 100)
  • Portfolio 3 = 100% VTI (1x CRSP US Total Market)

The results are shocking (to me). 100k investment in 2011 would have resulted in a 3M portfolio today. with an amazing  45.66% CAGR compared to 17.79% from the non-leveraged ETFs, same index or 12.86% from VTI

Leveraged 3x ETFs performance 2011 - 2020
Leveraged 3x ETFs performance 2011 – 2020

Yeah… I know, I’m simulating the very nice bull run of the past 10 years but we’re doing the same with all other ETFs.

Of course, not all is pink colored. The volatility of such a portfolio is not for every investor. Drawdowns can be harsh. The portfolio holding TQQQ had a maximum drawdown of more than 45% compared to the other two portfolios with a maximum of 15% drawdown. 

Drawdowns between 2011 - 2020
Drawdowns between 2011 – 2020

I’m not suggesting it is the best time to go all-in with leveraged ETFs, especially considering the market conditions but, that’s the beauty of having money, you can put a small portion of your portfolio in riskier investments. 

On the other hand, everyone is waiting for the big crash since 2016, or earlier, so have a look to the opposite side of the bet and there are the same instruments that short the market in a leveraged way, see SQQQ for the NASDAQ 100 and SPXS for the S&P 500.

NOTE: Before buying any instrument of this kind put some time into your own research and your own situation. I’m not advising you to buy just telling you what we’re doing.

HEDGEFUNDIE’s Adventure 8.3%

OK… first leveraged ETFs and now this…  What is this, a 10x ETF?

Well, I haven’t found any 10x ETF, although that would be interesting to understand, but, “HEDGEFUNDIE’s Adventure” is a strategy based in 3x leveraged ETFs as well.

This strategy is different from just buying TQQQ, which is 100% stocks. 

This strategy mixes the position of an S&P500 ETF 3x  (UPRO) with the 3x ETF 20+ Year Treasury bonds (TMF).

The Assent Allocation is made of  55% UPRO y 45% TMF, the basic assumption is that when Stocks are high, Bonds are down and when Bonds are high Stocks are low so that each side of the portfolio compensates each other and always moves in the positive side long term.

According to the simulations: since 1982 the 55/45 asset allocation has delivered 21.8% CAGR with a max drawdown of 62%. Compared with the S&P 500 which has delivered 11.6% CAGR with a max drawdown of 51%. Because when UPRO would have been plummeting, TMF would have usually been soaring.

Sounds cool, right? 21.8% CAGR with low volatility? Well, it isn’t me who came up with this strategy, it was HEDGEFUNDIE, you can followup the whole discussion and details as I did, by reading more than 3354 posts in PART I  of the adventure and more than 2665 posts of PART II in Bogleheads forums. Enjoy it!

I started reading about this strategy las autumn 2019 and I jumped in just in December, as for today this part of the portfolio is marked at +20.33% in a very soft ride.

Passive Indexed ETFs  6.3%

Ok, this is the part where our IPS was looking at. Although we have made a small tuning to simplify the portfolio. 

Passive Indexed ETFs Portfolio
Passive Indexed ETFs Portfolio

Basically our target mix on this section of the portfolio is to achieve 

25%10%15%45%
VTVWOVXUSVTI

Looking at today’s numbers, the mix is not perfect. I need to re-balance. I’ll do the re-balancing at the end of Q1 2020 by buying the missing parts.

With this mix of ETFs we have a geographical exposure as follows:

Geographical Exposure on this portfolio
Geographical Exposure on this portfolio

This ETFs strategy is marked at +20.2% since inception (around 1y)

Dividend Stocks 4.4%

4.4% of the complete portfolio is based on single stocks paying dividends.

Dividend-paying Stocks
Dividend-paying stocks

As it happened in the non-dividend stocks, this part of the portfolio still carries on some of the initial mistakes of not using the right position sizing mechanism. Or better said, not position sizing at all. 

There are 7 positions, STX, IBM, OHI, APPL y NGG are performing well and all on the positive side, nevertheless  LB and GE are on the red side. Since GE represents 40% of this portfolio, the impact of the complete performance is high. 

On the other hand, if APPL would be the one overweighted, things would look different here but I guess that’s why active managers underperform ETFs in the long run. 

So this part of the portfolio is marked at -18.7% 

Why don’t we sell GE?

That’s a good question that is juggling in my mind all the time. Why don’t we sell at a loss (we own GE since 2016, when it used to pay dividends) so we’re down -50% I guess we could sell at a loss, put all the money into TQQQ and get our money back (ideally). Or, we do nothing and keep the stock as long as we want, it may happen that in 5 years things change…

We’ll see.

Personal lending 4.3%

This is not Peer 2 Peer lending as in Mintos or any of those shit SCAMS out there.. (sorry P2P lovers).

This is money we have lent to friends and family for business reasons. It is money they needed at some ping in 2013 and 2015 to make a profit from it so we get our cut as well. 

This money will be fully paid back by the end of this year so we can use it to invest in another asset. We do not lend money anymore since it isn’t liquid and there are other better instruments to pit it to work.

This lending yielded +7% after inflation so I guess it’s ok. 

Real Estate 4.1%

This is a rental property we own in Mexico, as we discussed in PART I and PART II the ideal for this property would be to sell it to relocate the funds towards other investments.

The difficult part about this asset is to get it to work properly. We have a real estate operator that manages to get it rented, collects the rent and takes care of the property but. It hasn’t been easy to get the occupancy rate we would like, so, whatever income the house is generating it is going into maintenance and services. 

Still no action in this regard, I guess I need to take action ASAP.

Crypto 3%

As i wrote on my take on Bitcoin, In my opinion, Crypto is the future. As a technology, blockchain is the next step our society will take in any area or sector. From the Government to the banks and finances as well as the supply chain. Have a look at what China is doing in this direction, even Huawei is ready to go along (ok.. Huawei..china… same thing)

But not only China is going that route, look into what the Americans are doing with the JPMorgan blockchain network since 2017. 

At the moment we’ll keep our positions in Crypto as it is, and we’ll monitor the environment to catch-up opportunities.

Crypto portfolio Investment
Crypto portfolio Investment

Gold 0.4%

We still keep this small positions in Junior miners. It is a small amount so I won’t bother with the details, the 2 companies are GoldMining Inc. y Equinox Gold Corp.

Inverse ETFs 0.1%

This is another 3x leveraged ETF position we keep, this is a bearish position that increases the value when the underlying index goes down. Our position is MIDZ Direxion Daily Mid Cap Bear 3X Shares. This ETF tracks the S&P MidCap® 400 Index.

This position shouldn’t be present in our portfolio!!

Summarizing our Investment Portfolio PART III

  • Comparing our IPS with our current portfolio there are definitely some differences.
  • Comparing our previous portfolio to the actual one, we have made some changes in the direction we have decided back in the last analysis. 
  • Our position in single picked stocks is reducing and the position in low-cost ETFs is increasing. 
  • We’re playing with 3x ETFs in 2 strategies and we’ll see how that performs. 
  • On the other hand, The biggest positions, pension funds, and PiedPiper account for almost 40% of the complete portfolio. I guess that we need to start to think about a withdrawal plan.

We’ll keep you posted!

So what do you think about the portfolio? 

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