FFJ Portfolio – January 2021 Report

This is my January 2021 FFJ Portfolio 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.

In my December 2020 month end report I stated at the beginning that 'we might be hard pressed to say that 2020 was not an 'interesting' year from an investment perspective'. January has also been extremely interesting with the unprecedented bizarre political situation in the US to the financial world being upended by day-trader activity resulting in sophisticated investors incurring HUGE losses.

The FFJ Portfolio has been relatively immune to all this activity since I do not speculate but merely invest for the long-term in high quality companies with a track record of generating profits and free cash flow.

Portfolio Tweaking

In November I streamlined my workload slightly by reducing the number of 'Core' Accounts within the FFJ Portfolio from 7 to 4. In January, however, circumstances arose wherein I had to open a new account so the number of 'Core' accounts has increased to 5.

I also moved funds between accounts. One such transfer was at the beginning of January when I withdrew cash held in one of the FFJ Portfolio's 'Core' accounts so as to make our annual Tax Free Savings Account (TFSA) contributions; I do not disclose details of TFSA and retirement accounts.

I have also been building cash positions so I can acquire additional shares of high quality companies as/if they become more attractive. Since the cash positions are building I have decided for confidentiality reasons to no longer reflect the cash component of any account reflected in my monthly FFJ Portfolio Holdings reports.

Option Transactions

In November 2019 I disclosed that I had initiated a position in Stryker Corporation (SYK) in one of the 'Core' accounts within the FFJ Portfolio and in an account for which I do not disclose details. I subsequently wrote this November 2019 article in which I disclosed an option trade. The options I wrote expired worthless in mid January 2021 meaning I retained 100% of the option premium I collected.

In November 2019 I initiated covered call and short strangle option trades on Microsoft Corporation (MSFT) and Mastercard Incorporated (MA). I initially published these articles but upon further consideration I removed them from publication. Covered calls are a reasonably safe option trade in that I own the underlying shares so I know my maximum potential loss in advance. This is not the case with a short strangle option trades.

Long story short, the MA trades worked out well. When I wrote my options, MA was trading at ~$290. My covered calls had a $350 strike price and my short strangles had $240 PUT and $350 CALL strike prices. While MA briefly exceeded $350, the options were not exercised and all options expired worthless.

My MSFT option trades did not work out so well. When I wrote my covered calls and short strangles, MSFT was trading at ~$150. MSFT's share price rose to ~$220 and my covered calls had a $170 strike price. My short strangles had $130 PUT and $170 CALL strike prices. MSFT's share price rose as high as ~$238 but dropped to ~$212 at expiry. The PUT contracts expired worthless but I bought back my $170 CALLs at a loss. Essentially, all the option premium I collected from my SYK and MA options and the PUT side of my MSFT short strangle just about fully offset the shortfall on my $170 CALLs.

What I learned from my short strangle option trades is that I am not cut out to take the risk I took. In addition, I found myself looking at the price of the option contracts far too frequently. My modus operandi is supposed to reduce my stress level and to limit the amount of time I look at my investments!!

Covered calls are more my speed in that I own the underlying shares, and therefore, know in advance my maximum potential loss is when the underlying share price drops to $0. The types of companies in which I invest, however, are highly unlikely to drop to $0 in the short-term.

The option contracts I wrote also had an expiry date more than one year into the future. Anything can happen overnight so clearly even more can happen in a little over a year. Heck, after writing my option contracts COVID-19 hit North America, the market plunged briefly, we had the most 'interesting' US election witnessed in my generation, and day trading became the favorite pastime for many retail investors.

Share Purchases in January 2021

During the month I deployed funds to acquire shares in high quality companies in which I already have exposure and disclosed same in various articles. I know I can not perfectly time my purchases so when a high quality company's share price drops and the drop is not the result of a permanent impairment to the underlying business, I view the price drop as an opportunity to acquire shares at a more favorable price. A good example of this is with my Lockheed Martin Corporation (LMT) purchases. The company's share price drifted lower after I initiated my position in November so given that I really liked the company when I initiated my position at ~$369 it stands to reason that I would like the company when shares were trading at ~$358, ~$355, and ~$324.

FFJ Portfolio Holdings and Dividend Income

The holdings within the FFJ Portfolio’s ‘Core’ and ‘Side’ accounts can be found here.

The dividend income generated from holdings within the FFJ Portfolio can be accessed here. I also received dividend income from the following companies for which I hold no shares within the FFJ Portfolio.

  • Automatic Data Processing (ADP)
  • Pepsico (PEP)
  • Total (TOT)

Final Thoughts

Although there are several great companies in which I would like to initiate a position, my focus is on acquiring shares in existing holdings when they are fairly/attractively valued. As a result, I want the share price of these companies to drop. The 'crazy' stock price gyrations which have recently been occurring in inferior quality companies are of no relevance to me.

Far too many 'investors' do not view themselves as part business owners when they acquire shares in a company. If you invest with a very short-term mindset your occasional 'wins' become difficult to consistently replicate. Furthermore, your actions are akin to a hamster running on a wheel. You essentially need to continually be running and with the speed at which stock prices gyrate, you have to be running very fast.

Personally, I want my investment activities to lower/mitigate/reduce/eliminate as much stress as possible. Based on my experiences over the years investing in high quality companies with a long-term mindset has worked wonders and I have no intention changing my strategy.

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.