FFJ Portfolio – August 2020 Interim Report

This is my FFJ Portfolio - August 2020 interim report. The portfolio was created in January 2017 for the purpose of demonstrating how investing in high quality companies with competitive advantages and with a record of consistently increasing dividends can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.

While many investors may be in a state of euphoria when they compare the value of their investment portfolios as at late March/early April and the present day, I get a sense of frustration when I see the dramatic increase in the value of our holdings across multiple accounts. I am building our portfolio for the long-term, and therefore, want to acquire attractively/fairly valued shares in high quality companies with a proven track record of profitability, strong free cash flow, competitive advantages, and strong management.

I have no problem acquiring shares in high quality companies which are experience short-term challenges. What amazes me, however, is the willingness of investors to completely ignore the underlying fundamentals of a company. Many appear to be making investment decisions based solely on the share price behavior which is resulting in share prices being bid up for no rational reason. In my opinion, we are witnessing a recurrence of the dot.com bubble of 1999 and 2000 and a swift and significant broad market pullback in the not too distant future should not be ruled out.

I long for market conditions much like what we experienced in March and April when the pool of companies which met my investment criteria was far greater and I had the opportunity to acquire shares in:

  • Canadian Pacific Railway (CP)
  • The Royal Bank of Canada (RY)
  • Broadridge Financial Solutions, Inc. (BR)
  • Ecolab Inc. (ECL)
  • Paychex Inc. (PAYX)
  • Union Pacific Corporation (UNP)
  • The Hershey Company (HSY)
  • McDonald’s Corporation (MCD)
  • other companies which can be accessed here.

Most recently, the share price has pulled back for some high quality companies and I have disclosed additional purchases in very recent articles.

In addition to having occasionally acquired shares, I have taken the opportunity to write out-of-the-money covered calls where I was of the opinion I could skim additional income. These trades have generally been profitable but there have been a few trades I wish I could ‘do over’.

One such trade was covered calls on Becton, Dickinson and Company (BDX). I certainly did not expect BDX’s share price to rise to ~$267 but shortly before the July 17th expiry I closed out my $250 calls at a loss. When I closed out my position I remained of the opinion BDX was overvalued, and therefore, wrote new covered calls with a $290 strike price to expire August 21st.

Subsequent to publishing my FFJ Portfolio - July 2020 Report in which I disclosed recent additional purchases, BDX released Q3 2020 results on August 6th and provided lowered guidance. Following the release of these results, BDX’s share price has dropped from ~$284 to the current ~$255. With this pullback I took the opportunity to acquire additional shares for one of the ‘side accounts’ within the FFJ Portfolio and for an account for which I do not disclose details.

Purchase Made for Young Investors

In previous recent articles I have mentioned that I am helping with my daughter and her boyfriend build investment portfolios for the long-term; my FFJ Portfolio - July 2020 Report reflects companies in which they acquired shares.

On August 10th, my daughter acquired additional shares in Brookfield Asset Management Inc. (BAM-a.TO) for one of her investment accounts for which I do not disclose details.

I have written several articles about this company and highly encourage readers unfamiliar with BAM-a.TO to:

  • read at least the first 32 pages of the company’s 2019 Annual Report to get a basic understanding of the company;
  • listen to this relatively recent interview with Bruce Flatt (CEO) on the long-term investment outlook;
  • listen to an interview with Howard Marks, co-founder and co-chairman of Oaktree Capital Management, the largest investor in distressed securities worldwide, to learn about Oaktree’s credit investing approach and how it fits in with Brookfield; BAM-a.TO acquired a 61.2% interest in Oaktree in September 2019.

Final Thoughts

Although some are of the opinion that active trading is a critical and a necessary component to ‘investing’, I fall in the Buffett, Munger, and Pabrai camps in which the method of making money should be ‘laziness bordering on sloth’.

Until such time as the companies on my ‘shopping list’ retrace to reasonable valuations, I am prepared to deploy my time and energy toward other aspects of my life. Sitting in front of a computer monitoring stock price gyrations is not what I envisioned as being a critical component of my retirement years.

Stay safe. Stay focused.

I wish you much success on your journey to financial freedom!

Note: Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.