August 26, 2015 Keeping Our Clients in Touch
S&P 500 1941
Dear Clients and/or Friends,
I wrote a note similar to this one on October 15, 2014. The Dow had dropped over 400 points near that period. As of the close today, the DJIA is down 1,537 points this year (that includes the gain today of 619 points). I have written similar notes over the years, as investors became concerned. I find re-reading some of my old notes to be helpful. You can find these notes and many of my other writings at this link. http://rbcpa.com/commentary.html
Through yesterday the Dow Jones Industrial Average had a year to date loss of nearly 14%. The utility averages, transportation averages and the S&P 500 are having similar negative return years. As I have written many times, this is not an unusual occurrence. I do not believe that corrections or bear markets can be predicted with any type of consistency. Any of our clients should recognize that this is our investment theme.
Investors are concerned that the losses they suffered during 2007 to 2009 can once again come back and decimate their savings. Keep in mind that any of our clients who remained with us had only temporary losses in their portfolios. It is important to mention that past performance is not necessarily indicative of the future.
In my opinion, 2007 – 2009 was a financial crisis where the US financial system could have imploded. I think the drops that became fierce a month ago is merely a normal run of the mill correction. The market needs to eliminate the fearful, and that is often done via lower and scary market prices. In my opinion one can't predict short term movements in the market. My take is that for long term investors downdrafts are normal and are often buying opportunities. I do believe we are in such a period for the investments we have in our portfolios.
I have quoted several sections of my October 2014 note, rather than rewrite similar thoughts in different words.
“I am trying to protect our portfolio vulnerability as best as possible. Market corrections are normal. I think the companies our clients own are generally financially stable and should typically have no survivability issues. I have been buying in this downfall for clients that have cash, new monies etc.” These words hold true today. For those of you with excess cash in your portfolios, you will notice various purchases over the last 3 or 4 trading days.
“As I have mentioned in the past, we are only long term oriented. Our thesis is based on the assumption that for the majority of the companies we own that their dividends are sustainable and that they are still fairly priced. Markets will fluctuate, and corrections will occur. As you know we do not believe in timing of investments.”
“As our clients should realize, we are not at all focused on, nor could us or anyone else control short term results. There will be many periods of portfolios losing money. Corrections, recessions and depressions will occur. It is my opinion that no one can competently time markets.”
“We are using utilities as an alternative to investing in fixed income. As we have mentioned in the past, I am concerned with what I consider still low interest rates. We are still not investing in any fixed income in our portfolios. Of course one can’t compare utilities to the safety of quality fixed income.”
In the words of Charlie Munger (Warren Buffett’s Co-CEO of Berkshire Hathaway), I have nothing further to add to those quotes (except for the first one).
The expected dividend yield of our typical portfolio is over 3%. This yield is slightly over 140% of the 10 year Treasury, which is currently 2.10%. In general we continue to own companies we think are selling at reasonable historic fundamental valuations. We also think the continuity of their business models, profitability and dividends are sustainable.
We have a large allocation to various utilities in typical portfolios of around 19% +/-. When I wrote the note in October our weighting was around 25%. We reduced our utility positions during this period, mostly to make room for more energy holdings, excluding Exxon and Conoco Phillips. As utilities were taken down by the markets this year, we did increase our exposure. At prices we feel comfortable with (and that would most probably be lower than now) we would once again be heavier buyers of selective utilities.
As clients know we have extensive investments in specific oil, gas, solar and oil drilling companies. We have a large allocation to various energy companies in typical portfolios of around 30% +/-. We do not know where the price of oil and gas are going, and had we known that oil would drop from over $135 to $40 a barrel we would not have owned many of these companies. Many of our newer holdings in this arena have been purchased during the oil collapse. We continue to be buyers when possible in many of the energy names you all own in your portfolio.
We continue to have a large allocation to various financial service companies in our portfolios of around 21% +/-. I think the banking sector is a much stronger sector than it was prior to the financial crisis. Banks have stronger liquidity ratios, and so forth. I believe that many of the financial service companies we own are still feeling the fear of the financial crisis. If interest rates rise, that should be a benefit to financial institutions, as their Net Interest Margin should increase. I think our holdings in this sector will start to have increased dividends, when and if the US Government allows them to raise dividends. The regulators want to ensure that first and foremost that solvency exists in large institutions. I do think in time the regulators will start allowing many of these institutions to pay back their shareholders with greater dividends.
We are always mindful of our allocations, and if we think specific investments should be reduced we will do such. I do not currently anticipate any major changes.
If you have any concerns, please reach out to me. I would be happy to speak with those who are not clients or ours as well. As always, we welcome the opportunity to discuss our outlook and investments with you.
Please feel free to contact me with anything you would like to discuss. Feel free to ask general questions on our Facebook page as well.
You can also follow me on twitter www.twitter.com/rbco as well asyou can follow us on Facebook www.facebook.com/RedfieldBlonsky
Ronald R. Redfield cpa, pfs
Redfield, Blonsky & Starinsky, LLC
1024 South Avenue W.
PO Box 2069
Westfield, NJ 07091-2069
908 276 7226 phone
908 264 7972 fax
If you are a client of ours, and if you have questions regarding the company or investment mentioned in this report please call our office. If you are not a client of Redfield, Blonsky & Starinsky, LLC Investment Management Division and are reading these notes, we urge you to do your own research. We will not be responsible for any person making an investment decision based on these notes. These notes are a "by-product" of our research. We are not responsible for the accuracy of these notes. We are not responsible for errors that may occur in these notes. Please do not rely on us to monitor or update this or any other report we may issue. In theory, we could come across some type of data or idea, which causes us to eliminate our long or short position of the company or investment mentioned in this report from our portfolios. We will not notify reader’s revisions to these notes. We are not responsible to keep readers of these notes updated for changes or material errors or for any reason whatsoever. We manage portfolios for clients, and those clients are our greatest concern as it relates to investing. Certain clients of Redfield, Blonsky & Starinsky, LLC may not have the company or investment mentioned in this report in their portfolios. There could be various reasons for this. Again, if you would like to discuss the company or investment mentioned in this report , please contact Ronald R. Redfield, CPA, PFS (partner in charge of investment management division).
Information herein is believed to be reliable, but its accuracy and completeness cannot be guaranteed. Opinions, estimates, and projections constitute our judgment and are subject to change without notice. This publication is provided to you for information purposes only and is not intended as an offer or solicitation. Redfield, Blonsky & Starinsky, LLC and Ronald R Redfield, CPA, PFS, may hold a position or act as an advisor on any investments mentioned in a report or discussion.