The portfolio underperformed against the market in October, due to the following positions: Ecopetrol (EC) +2.96%, JP Morgan (JPM) -0.29%, Oracle (ORCL) +0.99%, Qualcomm (QCOM) +3.22%, US Bancorp (USB) +2.13% and Wells Fargo (WFC) +3.32%.
Out of these positions the only one that concerns me in the long term is JPMorgan Chase & Co. (JPM). The reason for this is all over the news lately – finally it seems that most banks are settling their civil disputes related to the mortgage-bond sales to investors before the financial crisis.
In October, JPMorgan Chase reached a record $13 billion U.S. settlement, the largest amount ever paid out by a financial firm in a settlement with the U.S. To put this number in perspective, only seven companies on the Dow Jones Industrial Average earned more than $13 billion in 2012.
This possible settlement will eat more than half of JPMorgan’s record $21.3 billion profit last year. Although a big portion of this settlement amount will be tax deductible (as some of the losses will be claimed as a business expenses), the hit will be hard for JP Morgan.
I believe this issue will haunt JP Morgan’s stock price for a while and have decided to decrease my position. The only reason I am not closing this position entirely is because the stock continues to be reasonably valued 11.75 PE Ratio and the dividend continues to be healthy at 2.94%.
My portfolio is up 19.30% for the year, as compared to the S&P 500, which is up 25.30%. The best performing stock in my portfolio in October was Petrobras (PBR). Unfortunately that didn’t move the needle because that position was less than 1% of my entire portfolio.
The other position that helped my portfolio move up was Apple (AAPL). Although the stock has begun to perform better than the previous months, I will probably be reducing my position in November.
One of the reasons why I’m taking this reduction is that Apple will incur major overhead expenses with the construction of its so-called Campus 2 – better known as “the spaceship”. The project was presented to the members of Cupertino’s city council last week and groundbreaking may start as early as this year. Apple is also buying a vacant factory in Arizona to produce sapphire glass used in its smartphone cameras, which will be produced by GT Advanced Technologies Inc.
The other reason I’m reducing my position in Apple is because I perceive a lack of innovation at Apple. Today Samsung announced the introduction of folding displays in 2015. Competitors are quickly coming up with better and cooler features than some of the Apple products.
Today while I was in my office, one of my co-workers was talking pictures of himself using a Samsung smartphone. He was not holding or operating the phone with his hand, he was talking to the phone and the phone was taking the pictures in response to his voice command.
I wish my iPhone would be able to do that. In my opinion, radio apps such as Pandora (P), Spotify or Rdio are superior to the new glitchy and limited iRadio from Apple. This is the first time that I have seen Apple introducing unfinished and inferior products to the market, and this causes some concern.
I think Apple can correct the course and get back on track, but I’m proactively reducing my position in case things don’t turn out as well as they are expecting.
In October two positions were closed in my portfolio, Dell (DELL), because it went private, and PACCAR (PCAR), because it had an incredible run, and I wanted to cash in on some profits. PCAR is also no longer as cheap as it was when I bought it.
Going forward, I have decided to concentrate on fewer positions in my portfolio so that I can track them more closely. In November, I will be increasing my positions in Aflac (AFL) and Wells Fargo (WFC), two great companies that are, in my opinion, reasonably priced and continue to pay good dividends.
The investments discussed are held in client accounts as of October 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
I am a value investor, an investment philosophy that boils down to investing in undervalued, under-researched and unpopular companies.
Reasons for one of these three elements can differ. Some examples: special situations (e.g. a spin-off or turnaround), analyst coverage (e.g. low coverage or very negative coverage), investor fatigue (e.g. due to earnings misses), market cap (e.g. under the institutional level for market cap), misunderstood parts of the business (e.g. holdings companies), or cyclicals (e.g. sell-side often doesn't manage to look through the cycle).