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2011 Portfolio Performance

January 3rd, 2012 Leave a comment Go to comments

Here’s a summary of the performance of my portfolio for 2011.

For 2011, if the company was boring, has an unloved business model or product, or had a decent, sustainable yield investors bought it. Did investors simply wake up and decide that all of these companies should be bought? I think that is part of it, not because the professionals have any particular sound valuation methodology. They are simply following the smart money. And the smart money has been saying to buy yield. Wall street is broken up into two camps:

  • Top 5%, leader (e.g. Goldman Sachs during the crisis)
  • 95%, everyone else who follows the momentum.


The trade this year has been to buy yield because that’s where the momentum is. The top performing high yield (4+%) stock for 2011 was Lorillard (NYSE:LO). This is quite surprising because not only is the tobacco business unloved but the domestic U.S. cigarette business has been thought to be a dying industry. The raw volume numbers indicate this is true, cigarette volumes have been declining over the years.

In the case of Lorillard, this is not actually true. If you simply didn’t pay attention and just lumped Lorillard in with the rest of the domestic crowd you would have missed an opportunity. Its volumes have been increasing because it’s taking share from competitors. When I bought this company at the beginning of the year, it was yielding over 6.5%. Lorillard returns over 40% this year (including dividends), but even its largest competitor, Altria (NYSE:MO) which actually is losing volume was up over 20% for 2011.

Another Portfolio Surprise

An unexpected position performance was that two of my preferred stocks Realty Income D (NYSE:O-D,)/Realty Income E (NYSE:O-E) had sizable capital gains. Preferred stocks usually perform like fixed income investments, which don’t move much in price particularly when interest rates are stable. This year has been another banner year for bonds so that this rule has been broken. If you owned quality bonds your positions are up for the year. Chalk this one up to yield chasers and others seeking safety.

The 10 year U.S Treasury bond again was up this year, forcing the yield down to under 2%.

The Losing Position

My position in MER-E, which is a preferred stock was down 9.0% this year, including dividends. This Merill Lynch preferred, which is now owned by Bank Of America (BAC)  got caught up in the European debt crisis as well as entangled in all of the problems with BAC. While BAC has issues, it is unlikely to default on any of this debt, but like Europe, the market will price the debt lower to reflect a perception of lower credit quality.

2011 Portfolio Performance

Here is a summary of my portfolio performance for 2011. I can’t complain about the numbers but it is concerning when stocks prices move up too high, too quickly. This makes it less attractive to add new money. I’m not going to sell anything here in 2012, but I will be looking for new opportunities to invest.

Investment Name Portfolio (%) 2011 Gain
2011 Dividend yield
2011 Total Return
PM Philip Morris 10.26% 34.1% 4.8% 38.9%
EPD Enterprise Partners 9.47% 11.5% 5.8% 17.3%
MO Altria 3.24% 20.4% 6.50% 26.90%
PAYX Paychex 5.21% (2.6%) 4.30% 1.70%
LO Lorillard 4.94% 38.9% 6.3%

45.2%

O.E Realty Income E preferred 11.10% 5.2% 6.9% 12.1%
O.D Realty Income D preferred 16.67% 3.3% 7.3% 10.6%
HCN.D Health Care REIT D preferred 2.60% 0.4% 7.8% 8.2%
MER.E Merrill Lynch E preferred 2.56% (16.2%) 7.2% (9.0%)
Cash 33.97% 0.00% 0.9% 0.9%

Stock Gain Alone

+18.10%

Total Gain (Includes Cash)

+12.2%

S&P500

(0.4%) 2.1%

+1.7%

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  1. January 3rd, 2012 at 16:24 | #1

    Those are fantastic returns SFI! I did add LO to my portfolio and the returns were quite a surprise! I beat the market but returns were nowhere close to 18.1%! Congratulations!

  2. January 4th, 2012 at 12:28 | #2

    Looks like you had a pretty good year despite the market troubles. Good for you. We are working on reviewing our portfolio right now and seeing if we want to do any rebalancing.

  3. January 4th, 2012 at 18:53 | #3

    Thanks Miss T for stopping by. It was a crazy year considering all the movement for very little overall gain.

  4. January 4th, 2012 at 18:54 | #4

    Thanks for stopping by MC. Good that you got in LO!

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