Saturday, March 8, 2014

February / March investing update

This has been a great month for my investments. I didn't really notice until now though. It's nice having your finances on autopilot. You reap the benefits of continuously investing, and you can spend your time on other pursuits. It's also pretty crazy how many gains (or losses) the market can yield. The fluctuations are just numbers on paper, but they're fun to keep track of nonetheless.

Here are my current standings, and the differences from my last update in late January:

  • Vanguard IRA - $28,677.65 ($1,662.44)
  • 401k - $1,700.60 ($1,048.69)
  • Lending Club - $2,090.23 (-$147.93)
  • Schwab - $7,830.88 ($513.92)
  • I-bonds - $2,006.48 ($402.64)
  • Total - $42,305.84 ($3,479.76)
I think it's crazy how much my IRA with Vanguard has fluctuated. It has increased in value about 6% from my last update. That 6% increase is pretty big in less than two months. What's even crazier is how 6% can be such a big absolute gain of over $1600. This is what it looks like when your wealth snowball starts rolling downhill.

For my new 401k I'm 100% in the "Columbia Dividend Income Fund". It seemed reasonable in terms of expenses (for a 401k). This means that all of my retirement wealth is in dividend stocks. I'm happy with this for now, and probably will be for the next decade or two. I don't really trust stocks that don't pay dividends, and I'm far enough away from retirement that I'm not concerned about my lack of diversification. Actually, I think a broad basket of companies paying dividends is pretty diversified, but that's another story.

It feels good having a stream of pre-tax income being dollar cost averaged into some investments, without me having to think about it. It feels even better that some of that is essentially free money being matched by my employer, just because I'm doing my own saving. Employer matching 401k contributions are a wonderful thing.

I continue to wind down my positions with Lending Club. I have decided that the best investments for me are the simplest to manage, and that I plan on holding most of my wealth in dividend stocks that I research myself and then hold for long periods of time. I have three notes that are past due, two of which are still in their grace period and one which is 16-30 days late. At my last update, I had two late notes, both of which became current again. I still haven't had any loans default, so I think I'm overdue. I've made enough interest that I'll need a handful of notes to default before I'm in the negative. All in all I'm pretty happy with my Lending Club investments.

My I-bonds are really starting to compound! More than two dollars in two months? Big money big money.

I'm kidding of course. They're increasing in nominal terms, but they're keeping pace with inflation. I do really enjoy watching the interest trickle in month after month though. Come April I'll have my first I-bond that I'm able to redeem.

My Schwab taxable investment account is showing over $500 in completely paper gains, probably because Corning has been doing well again. My cost basis is $13.76 per share, and Corning is hanging out in the mid-$19s. I love the positions I have in that account (GLW and IBM). IBM is also up from where I bought it, after dropping into the $170s. I still really like their prospects for the next few years, though the share price is getting to the point that I'm not sure I would buy in today.

Before tax day (April 15th) I'm planning on fully funding my Roth IRA for the first time ever. I am planning on buying shares of Realty Income Corporation (O). I've had my eye on it for a while. It's a high-quality REIT that pays dividends monthly. Since it is a REIT, its payouts are taxed as regular income, so it's more tax-efficient to hold REITs in retirement accounts.

Sunday, January 26, 2014

January investing update

Apologies for the late investing update. Things have been pretty hectic around here for the past two months, what with starting a new job in December and then the holidays.

My new job is great. I'm really enjoying the change in management. I feel like I can trust those in leadership decisions to correctly decide direction and priorities; now I can focus on execution and writing software, instead of spending time worrying that I'm building the wrong thing for the wrong reason. I can also work from home when necessary, which is a nice perk.

Here are my current totals, along with the differences from my last update in late November:
  • 401k (old) - $27,015.21 ($91)
  • 401k (new) - $651.91 ($651.91)
  • Lending Club - $2,238.16 (-$56.33)
  • Schwab - $7,316.96 ($2,169.26)
  • I-bonds - $1,603.84 ($201.92)
  • Total - $38,826.08 ($3,057.76)
Most of the gains this month were from a stock investment I made in my Schwab brokerage account. I purchased 10 shares of IBM for $181.70 per share, for a total cost of $1,825.95 after commission. While I haven't done much in the way of my own analysis of IBM, it looks like a case of a strong company with great long-term prospects getting beat up in the short term. I wanted to buy in when it was down around $174 in December, but I didn't have the cash and it quickly rebounded to the high $180s. After IBM reported their 2013Q4 earnings last week, and their stock price dipped, I decided I had to make a move. I don't know how many more opportunities I'll have to buy IBM at $180. In any case, this will be my last purchase in my taxable brokerage account for a while. The rest of my discretionary income for the next three to four months is earmarked for my final 0% credit card payoff and (for the first time ever) fully-funding a Roth IRA.

Now that I've been at my new job for two months, I've seen contributions to my new 401k plan. My company offers a full match on 4%, which is slightly better than my previous employer paying in 4% when I paid 5%. The $651.91 represents a full month's contributions, including match. I have also opened an account with Vanguard, which I'm very excited about, and I'm in the process of rolling over my old 401k into an IRA. Since my last post, I've decided against pulling any investment shenanigans, so I'll have the whole thing in Vanguard's dividend growth fund (VDIGX).

Nothing to report on my I-bond buying program. I'll continue purchasing $200 per month for the foreseeable future.

I've continued slowly winding down my Lending Club notes. This has more to do with temporary cash flow than anything else. I've also been reinvesting in soon-to-mature notes on the secondary market. Over the past two months, I had two late notes, one of which was made current, and the other is now 31-120 days late. I expect that it will be charged off.

All in all it has been a quiet two months. I'm spending much of my free time reading up on value investing. I even went so far as to purchase a book from Amazon called Valuation: Measuring and Managing the Value of Companies. It is an excellent read so far and I highly recommend it. It walks you through the theory, and more importantly the practice (with examples!), of developing your own estimates of a company's intrinsic value. Over the next few weeks I plan on analyzing a company to get my hands dirty. I think my two holdings (Corning and IBM) are a bit on the complicated side, so I'll try to find a simpler company I'm interested in for my first go-around. I expect my first discounted cash flow analysis to take a good deal of time and effort. My hope is that I'll be able to analyze a company I'm interested in every few weeks, and then over time I'll have a whole list of companies along with my estimated intrinsic value of them, and I can just wait for the price to be right. As I understand, your initial analysis takes most of the time, and afterward you can update them relatively quickly as earnings get released every quarter.

I'll leave you with the premise of the book. Companies are valuable because of the expected discounted value of their future cash flows. The only ways a company can increase in value are 1) increase Return On Invested Capital (ROIC) or 2) increase growth. ROIC is basically a measure of how effective a company's capital is. ROIC will tell you how much cash flow a company generates from investing $1 in new capital. As a corollary, the authors talk about how the value of a company cannot increase unless its ROIC increases or its growth increases. For example, substituting debt for equity in a company's capital structure, or engaging in accounting gimmickry, can not increase a company's value. Much of the book shows you how to rearrange a company's financial statements to perform discounted cash flow analysis and estimate the intrinsic value of the company. It's really fascinating stuff.