Freedom Fund Update – September 2011

Well, the time has come to update the Freedom Fund once again as we start another month. The Freedom Fund is my portfolio, and I think it’s aptly named. My portfolio is my way to freedom; freedom from working at a job I don’t enjoy to purchase goods I don’t need to impress neighbors I don’t care about.

The market has been all over the place lately. This past Friday seen a 2.2% drop in the DOW, and it seems like large jumps and drops in the market are a daily part of life lately. The volatility in the market is in direct correlation with the volatility in the overall economy. Every week seems to produce different stories about where we are headed. Unemployment is down, then it’s up. Houses are being sold just before additional foreclosures deluge the the market. The talking heads are like bobbleheads….it’s yes, then no and then sideways.

What do you do? Well, you could do like me. Every month I continue to spend much less than I earn and invest the difference in wonderful companies that produce products people continue to need. That is, to me, the true way to wealth. I’m pretty good at saving money and wonderful companies are pretty good at growing that money for me. I do my thing, then I let them do theirs!

The current market value of the Freedom Fund stands at $37,453.44. This is a large increase from the last published value of $35,816.48. This increase is due to my recent buys in Chevron and ConocoPhillips. As I stated before, my energy buys are likely done for a while as the energy sector comprises almost 25% of my portfolio. I still own 17 positions; this is unchanged since my last publication.

I’m excited about the way my fund is progressing. My monthly contributions through thick and thin is a  hallmark of my investment philosophy. As those monthly contributions start to add up I feel blessed. I’m nearing the $40,000 mark and I feel, outside a major economic collapse, I’ll eclipse that mark before the end of 2011.

How are your investments doing?

Thanks for reading.

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24 Comments

  1. cashflowmantra,

    Thanks for that. My progress has obviously been stalled a bit lately by the falling markets. That’s ok though. As I’ve said before, I prefer flat markets so I can purchase cheaper equities.

    The dividend income is slowly rising as well. I’m unlikely to hit my goal of $1200 in dividend income this year, but I’m excited about the possibilities!

    Keep in touch.

  2. Great progress DM!
    I think your Freedom Fund already makes you sleep very well at night.
    For me this month is a very good one in terms of dividends and there is some more to come.

    Let’s see what tomorrow brings, european stock markets took a major hit today.

    Best of luck!

  3. Westphalian,

    This fund does help me sleep well at night. Instead of investing in instruments that I hope some guy buys off of me for a higher price, I invest in companies that produce wonderful products that people need through good and bad economies.

    Yes, let’s see what this week brings. “Double-dip” seems to be a buzzword all of the sudden. I’ll continue to do my thing, no matter what.

    Thanks for the well wishes. Best of luck to you as well.

  4. Oculista,

    That’s your portfolio? Very interesting! I see we have a few of the same positions. You are very heavy on tobacco I see! Very nice, as those companies generally are very shareholder friendly in terms of remuneration. We are both long TEF too!

    The two columns to the right…one is return and one is weight in your portfolio I’m guessing?

    I like tobacco, but I’m waiting for a pullback in that sector before adding to my positions in MO or PM. I would like MO closer to $24 and I’d like PM closer to the mid $60’s if I can get it…but it wouldn’t make a bad investment at it’s current price.

    Thanks for sharing!

  5. “The two columns to the right…one is return and one is weight in your portfolio I’m guessing?”

    You are right. Impok doesn’t calculate the return properly when it shows the portfolio distribution because it doesn’t include dividends, but the graphic below shows the year-to-date track record accurately (with dividends included).

    “I like tobacco, but I’m waiting for a pullback in that sector before adding to my positions in MO or PM.”

    Tobacco and consumer staples in general are very strong at this moment. I am willing to increase my position in Ambev and in tobacco companies but I am also waiting for a pullback. For the moment I am adding positions on Admiral Group, MLPs, and spanish stocks which have been hit heavily. I am also considering starting a position in an european apparel retailer. But cash is needed in first place. I can talk more deeply about any of my stock picks if you are interested but I recommend you to check the dividend track record of these companies in their investor websites. You will be surprised in most cases.

    Take care.

  6. Oculista,

    I agree. Consumer staples and tobacco are both pretty strong right now. Anything defensive is going to stay strong through this market, where everything is a bit unsteady. I’m not sure where my next buy is going to go, but I’m looking at AFL, INTC, T and PEP among a few others.

    We’ll see how it goes!

    Thanks for the information! I appreciate it.

  7. Congrats on the continued diligence.

    As per the above comment, about your next buys, I’m looking in similar areas- away from some of the more defensive names. Near the top of my list are HGIC, NVS, and pending a more thorough re-investigation, HCBK. I’ve got an analysis on HGIC coming up tomorrow, and I see you’re a holder of it, so I’d be interested in your feedback. Looks like a solid buy at current prices to me.

    I’m also seriously considering opening up a twin position in MSFT and INTC. It’s hard to predict the future of tech (I sold my only tech position, TXN, which I felt the most familiarity with), but at these valuations and with their moats, I think the risk adjusted return potential is substantial.

  8. Hey Mantra and Oculista,

    Talking about TEF, recently S&P downgraded it’s rating to BBB+ because the lowering of its business, specially in Spain, and the great debt burden.

    Also, if i’m not wrong the dividend for the next year will represent a pay out of nearly the 98%, so some analyst put in jeopardy its acomplishment.

    Any thoughts?

    Oculista, are you living in Spain? If it’s true, how do you manage the tax impact in the dividends payed by your US holdings because of double retention?

    Thank you in advance.

    Very truly,
    Manefla

  9. Monk,

    Thanks for your continued support. I really appreciate it.

    I like where you’re at in terms of buys. I think INTC is a strong pick. Great entry yield, backed by some of the biggest R&D in tech. It is hard to say where tech is going, but I truly don’t see Intel going anywhere. I’m a little mixed on MSFT.

    I just read your analysis on HGIC. Great stuff as usual. I’ll be commenting on it shortly.

    I’m probably going to be making a buy later this week. Maybe I’ll post an article asking my readers what the best buy is. I’m thinking of initiating a position with AFL. I wouldn’t mind bolstering my holdings with PEP. I also think INTC is a phenomenal buy right now too. I’ll have to pick one. We’ll see.

    Thanks for stopping by!

  10. Manefla,

    Thanks for commenting.

    I’m not totally sure where you’re getting the 98% figure from? The 2010 EPS was 2.25 Euro per share, the current dividend is 1.60 Euro per share. That is a payout ratio of 71%. The 2012 dividend is scheduled to be 1.75 Euro per share. I don’t see the EPS declining that far, and was reading most analysts predicting flat earnings. If they do stay flat that would put the payout ratio at 77%.

    I’m more concerned about the debt load than anything else. The Eurozone crisis is concerning, but people don’t just shut down phone use. I think TEF is attractively priced right now, and I missed the boat on this one. I bough them at a much higher valuation than I should have. If I wasn’t already long with 125 shares, I’d be purchasing at current levels. I’m just already a little heavy on TEF as it now, as a percentage of my portfolio.

    Let me know your thoughts.

    Take care!

  11. Hey Mantra,

    Out of curiosity, can you clarify what you’re mixed about regarding Microsoft? Would you say your concern is more towards a transition to server computing (“cloud”), or mobile? Or does it have more to do with, say, the acquisition of Skype?

    As far as MSFT, INTC, and for that matter, WMT, are concerned, I have a few legitimate criticisms of all of them, but at the current valuations, I find that benefits outweigh risks. Could be wrong, but I’d say 5-10 years now, the market will look back and say at the current prices, they were oversold.

  12. Monk,

    My concern for MSFT goes beyond just the numbers. As a consumer I look at their products and wonder where they are going? The acquisition of Skype could be pointed to as concerning…preferring acquisitions instead of innovation.

    The yield isn’t that inciting, and the dividend growth has been very erratic. The P/E ratio is similar to INTC, but with INTC I think there is a better chance for growth internally and you get a much better yield from a company that seems to be a bit more shareholder friendly in terms of remuneration.

    In general, I’m probably not the best guy to ask about MSFT. I’m not real keen on tech in general, and INTC will likely be my only tech buy.

    MSFT is extremely heavy on cash, which makes them a bit nimble in terms of acquisitions…which could be nice. I just see no organic growth through innovation.

    I’m no techie though!

    Take care. 🙂

  13. Talking about TEF the 2010 EPS of 2.25 euro is a bit misleading. Part of the 2010 EPS was due to the buyout of the 50% of VIVO owned by Portugal Telecom.

    TEF had to change the value of its 50% former stake in VIVO in its balance sheet because they payed a higher price for the remaining 50% and have to apply a mark-to-market rule. No additional real cash flow was received.

    Also TEF doesn’t provide an adjusted diluted EPS when reporting so is a bit difficult to get the true picture.

    Nevertheless EPS is not a good measure to calculate the payout. In the case of Telefonica they have had a bigger depreciation cost than CAPEX in recent years so free cash flow is bigger than reported EPS and payout is lesser than one can figure. Payout nowadays is about 80% of FCF.

    Personally I am not adding more TEF to my portfolio even at these prices. Only getting the big yield and reinvesting in other opportunities with wider economic moats or better growth prospects. Telecoms are a commodity type business.

    Regarding how I manage the tax impact in my foreign dividends. In Spain most of the US retention is automatically recovered when filing your income tax return so I don’t bother too much about it.

  14. Oculista,

    Great response. I am in the same boat as you. I’m currently holding TEF due to the large weight it carries in my portfolio. I would buy at current prices if I had no position or a much smaller position. I averaged down on this position twice and currently have no more room for it, unfortunately.

    Thanks for the fantastic information!

  15. Inq,

    I don’t really set up targets for market value of the fund. Market value can swing wildly due to fluctuations in the general market. I’ll be very happy to eclipse $40,000 however, which I am more than on pace to accomplish.

    I only set up targets for dividend income. I set up a goal to receive $1,200 in 2011 but am highly unlikely to reach that goal.

    We’ll see how it goes!

    Thanks for stopping by.

  16. Hi DM,

    I live in Singapore and I have the same dream as you. I realized I dun love money. I love the 2 most important things money can provide me, Freedom and Time.

    I want to have the freedom and time to whatever I want, whenever I want, wherever I want. ^^

    I also have a dividend portfolio. No snazzy name for mine though. Lol.

    My dividend portfolio is generating about 7% annual yield for me. I am heavy on telcos.

    Check it out.

    http://dividendsrichwarrior.blogspot.com/2011/09/sep-2011-dividend-portfolio-update.html

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