A new year shouldn’t make any difference in how you invest. Your strategy should be to find companies or sectors where you like the story, and make decisions accordingly. It doesn’t matter whether you’re investing on March 6 or 7, so it shouldn’t matter whether you’re investing on December 31 or January 1.
However, changing the calendar has a psychological effect that we can’t ignore. So I like to take the changeover to look at asset allocation and make some decisions about how I might change things going into the new year.
I want to stress that this has to do with a portion of my retirement portfolio, not for my entire regular and retirement holdings. I am rejiggering those for when I launch The Liberty Portfolio is a few weeks (stay tuned).
If you’ve been reading my column the past two years, you’ve noticed that I find a lot of great companies whose stocks are, I believe, wildly overvalued. When I see price-to-earnings-growth ratios of 2 or greater, I get concerned — especially when earnings per share are being goosed by share buybacks.
To that end, I have rotated about a third of my holdings in the growth categories elsewhere. By that, I mean I dumped Dreyfus Appreciation Fund (DGAGX), officially considered “large-cap blend.” DGAGX was underperforming for two years in a row, and it was time to go elsewhere.
My first asset allocation came when I moved some of those funds into FPA Crescent Fund (FPACX). If you haven’t read CEO Robert Rodriguez’s commentaries on the market, then you’re missing out. He’s a genius and sees a lot of risk in the market. This is a very conservative fund with a high cash position. Rodriguez sees very little value it the market and is waiting to swoop in and grab stuff on big declines. The top 10 holdings make up 23% of assets, including Microsoft Corporation (MSFT) and Oracle Corporation (ORCL). Expenses for FPACX run 1.23%, or $123 for every $10,000 invested.
My next asset allocation move came when I also chose to stick with the FPA family by moving into FPA Perennial Fund (FPPFX). The Perennial fund is a bit more exposed to equities, but it has a very low turnover rate. Management picks what it likes on a value basis, and holds. It’s a concentrated portfolio whose top 10 holdings make up almost 60% of the portfolio, including O’Reilly Automotive Inc (ORLY) and Signet Jewelers Ltd. (SIG). Expenses for FPPFX run 0.96%.
I also did some asset allocation with funds into my favorite hotel REITs — Ashford Hospitality Trust, Inc. (AHT) and Ashford Hospitality Prime Inc (AHP). The hotel industry in general is thriving, and I could just as easily have put together a basket of these stocks, but I’ve followed Ashford since its IPO, and I’ve watched Prime since its spinoff. These are the cream of the hotel crop, with great management that pays out great dividends.
I took the remainder of the cash and decided that the best asset allocation decision was to keep it in cash. I am generally 100% invested when it comes to my retirement portfolio. However, as mentioned, I see a lot of systemic issues, and Rodriguez’s viewpoint has a lot of merit.
I want some cash set aside so I can pick from among the carnage, should carnage come to pass.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he was long FPACX, FPPFX, AHT and AHP. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He is the Manager of the forthcoming Liberty Portfolio. He can be reached at TheLibertyPortfolio@gmail.com.
