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 a job I don’t desire to purchase goods I don’t need to impress neighbors I don’t care about. This journey is all about freedom and flexibility. One day the dividend income this portfolio generates will fully cover my expenses and my time will be completely my own. What could you possibly want to own more than your time?
I feel extremely fortunate and thankful that I’m able to post these updates every single month which shows the power of monthly contributions to investments because of the high savings rate I maintain. It shows how a relatively large sum of money can be built through the power of time, patience and perseverance.
It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.
October was very interesting month. For my personal life, it couldn’t have been better. Claudia and I celebrated our five-year anniversary with an engagement. Meanwhile, the weather here in Sarasota has been amazing. We’ve been trying to take advantage of this as much as possible, and just this past Friday spent a couple of hours out at Siesta Key while we watched a gorgeous sunset from the comfort of our $6 beach chairs. Who said having fun on a Friday night had to be expensive?
Of course, the stock market has offered plenty of free entertainment all by itself. Well, not so free if you’re losing money! But, then again, what have we really lost?
My portfolio’s value took a big dip toward the middle of the month, dropping down to a bit over $167,000 on the 15th. But this exercise is really valuable. A temporary drop like that basically turns my portfolio into a coiled spring. I added fresh capital throughout the month in a more aggressive manner than usual, which allowed this spring to really pop when stocks recovered.
I started the month off with an ill-fated addition to my position in American Realty Capital Properties Inc. (ARCP). I don’t regret the logic, but I obviously regret the timing. I’m honestly not that upset about my mistake here because managerial incompetence that leads to accounting fraud isn’t something I can really foresee, nor can anyone else. Although, I did note that complete mismanagement was possible, albeit unlikely, when I analyzed the company earlier in the month. Obviously, this was a bit more realistic than I thought. But this is an important lesson on risk and diversification.
I felt ARCP was a fairly risky play as it was, due to massive acquisitions in such a short time frame, recent equity issuance after it was indicated that wouldn’t happen at such a low price, a questionable transaction involving Red Lobster, and a management team that left me a bit uneasy. However, I felt the risk was priced in and the company’s real estate portfolio was among the biggest and best out there. But even though I thought ARCP shares offered an attractive risk/reward relationship, I still decided to keep ARCP a small position in the portfolio due to it naturally carrying more risk than most of the stocks I typically invest in. I’ll never sacrifice substantial quality across the portfolio for the potential of outsized gains. I’m still holding shares here because they seem incredibly cheap based on all known information, but that could change in the near future as the risk has increased beyond my comfort zone. Q3 results should be released soon, and I’ll have more information with which to make an educated decision.
Soon after the ARCP purchase I added to my position in BHP Billiton PLC (BBL) for the first time in more than a year. This allowed me to average down at a cheaper price and, hence, a higher yield. And the yield wasn’t higher only because of the lower price, but also because BBL has increased its dividend twice since my initial investment. Nice!
Then I noticed toward the middle of the month that shares in consumer giant Unilever PLC (UL) were attractively priced after a recent 7% pullback. Shares seemed at least 10% undervalued, with a yield that competes with some utilities. Meanwhile, the company’s business continues to hum along. So I initiated an investment in the company and I’m actively looking to add here.
Late in the month we saw some serious volatility in two blue chip stocks that are members of the Dow Jones – The Coca-Cola Company (KO) and International Business Machines Corp. (IBM) both fell significantly after releasing poor third quarter results. I view volatility as an opportunity, especially when we’re talking about high-quality companies, so I decided to add to my position in IBM for the first time since my initial investment in the company in September 2013.
The current market value of the Fund now stands at $177,726.78, which is a 4.1% increase since last month’s published value of $170,704.39. This increase comes even though I have a fairly significant unrealized capital loss in ARCP. Again, diversification is always important; the rest of the portfolio is well-diversified and was able to largely overcome the ARCP issue. Furthermore, you can see that my portfolio swung by over $10,000 in value this month. That’s the coiled spring I was speaking of earlier. When stocks are cheaper, you add capital aggressively and that spring is able to pop a little stronger when stocks recover. It’s a lot of fun to watch, if you can stand five-figure swings in your portfolio over the course of a week or two. I personally don’t mind at all.
So the Fund continues to hum along. This is now an all-time high, and I’m slowly closing in on $200,000. Although I’m a steadfast value investor that loves to see stocks cheaper, it’ll also be wonderful to see the portfolio surpass that milestone.
November, and possibly December, will likely be light in regards to capital deployment. I was a bit aggressive in October due to what I thought were attractive deals in a variety of economic sectors. I try to always keep at least $5,000 both for emergencies and a little capital reserve for when the stock market offers opportunities I don’t want to pass on. So I’ll have to simultaneously refill that capital reserve while adding to the portfolio over the next couple of months.
The Fund now has positions in 51 different companies. This is an increase since last month, as the investment in UL is a new position for me.
These updates are mainly designed to show the increase or decrease in the value of the underlying equities I’m invested in, but the main purpose of investing in dividend growth stocks is for the rising stream of dividends over time. So, with that said I don’t put too much emphasis on these monthly updates on the value of my portfolio. I think it is a good idea, however, to keep track of the rising (or falling) value of one’s securities and be aware of where they are in terms of the marketplace and whether or not certain stocks are attractively priced. It proves to be a useful exercise, for me at least, to update the values monthly. It gives me fresh perspective on which equities are performing well and which aren’t, and from there I can make educated decisions (based on further due diligence) on which stocks I’d like to add fresh capital to (while considering portfolio weight as well).
Full Disclosure: Long ARCP, BBL, UL, KO, and IBM.
How did the month of October treat you? Is your portfolio now sitting at all-time highs?
Thanks for reading.
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