FFJ Portfolio – March 2023 Report

This brief FFJ Portfolio - March 2023 Report is an overview of recent activity.

New Positions

I have been investing in equities since the late 1980s. In the span of ~3.5 decades, I have made my share of errors of omission and commission. One such error of omission is my failure to invest in BlackRock (BLK) after it acquired the iShares collection of ETFs from Barclay's in 2009. I have FINALLY taken the plunge and initiated a position which I disclosed in my March 9 post.

I currently only hold 60 shares in a 'Core' account within the FFJ Portfolio. The plan is to periodically add to my exposure when appropriate.

Exited Positions

Despite initiating a new BLK position, I am making a concerted effort to cull holdings I consider to be 'non-core'.

In this June 17, 2017 post, I disclosed a new 400 Hormel (HRL) share position @ ~$33.84/share. Looking at what I wrote, it is readily apparent the appeal was in that HRL had recently become a Dividend King (50 consecutive years of dividend increases).

On March 23, I exited my 441 HRL share exposure @ ~$38.20/share but did not write a post about this sale; the additional 41 shares above my initial share purchase were received solely through the automatic reinvestment of the quarterly dividends.

I have very recently seen articles on widely followed websites suggesting HRL is a worthwhile investment given its recent announcement of a $0.275 quarterly dividend and ~2.77% dividend yield based on the current ~$39.70 share price.

Quite frankly, using dividend metrics is a terrible way to invest.

Although HRL's top line has grown from ~$9.5B in FY2016 to ~$12.5B in FY2022, this growth has not rewarded shareholders; HRL's average annual total return (with dividend reinvestment) is 4.09% from June 16, 2017 to March 23, 2023 (the day I sold my HRL shares).

Who in their right mind would want such an abysmal long-term total shareholder return?

Getting caught up in dividend metrics is a foolish way to invest. The focus should be on a company's:

• future TOTAL potential investment return; and
• degree of risk

while taking into consideration your objectives and ultimate goal.

Having realized that dividend metrics should not factor into my investment decisions, my portfolio now consists of several holdings in which no dividend is issued or the dividend yield is extremely low. I would much prefer that a company allocate its capital to maximize long-term shareholder returns; the distribution of dividends might not be the best use of a company's capital.

Several such companies are reflected in my monthly FFJ Portfolio reports. In addition, our retirement accounts also include many of the same (and more) of the no dividend/low dividend yielding companies.

Purchases

I initiated a Genuine Parts (GPC) position on July 24, 2017 and disclosed this purchase in my July 24, 2017 post.

On March 23, I acquired an additional 100 shares at ~$155.80/share and disclosed this purchase here. I now hold 450 shares in a 'Core' account in the FFJ Portfolio. However, GPC is not remotely close to being a top 20 holding.

Although GPC is also a Dividend King, this is not the reason I added to my exposure.

The average annual total return from this investment with the reinvestment of dividends from the date I initiated a position is ~16.40%. Past performance is not indicative of future performance. However, I think GPC can generate double-digit returns going forward since it is no longer bogged down by S. P. Richards Co., (the office products group it divested in mid-2020).

Purchases For Young Investors

The purchases/sales made for young investors are with their funds and through their investment accounts. I do not, therefore, provide details nor do I include any of these holdings in my FFJ Portfolio reports. I do, however, disclose purchases/sales since I make the investment decisions.

In March, I purchased The Toronto Dominion Bank (TD.to) and Berkshire Hathaway (BRK-b) shares for these young investors. Posts about these two companies are accessible here and here.

Dividend Income

I base my investment decisions on risk, valuation, and long-term total potential return with dividend metrics being of minimal importance. Nevertheless, I do track dividend income.

The income from the holdings within the FFJ Portfolio is accessible here.

During March, the holdings within the FFJ Portfolio generated:

• 'Core' accounts: ~$2,131 CDN and ~$5,911 USD
• 'Side' accounts: ~$2,200 CDN and ~$3,582 USD

YTD dividend income amounts to:

• Core' accounts: ~$6,423 CDN and ~$10,670 USD
• 'Side' accounts: ~$6,284 CDN and ~$6,843 USD

I received dividend income from the following companies in accounts included in the FFJ Portfolio and in retirement accounts for which I do not disclose details.

• Becton Dickinson (BDX)
• Chevron (CVX)
• Church & Dwight (CHD)
• CME Group (CME)
• Emerson Electric (EMR)
• Exxon (XOM)
• Fortive (FTV)
• Goldman Sachs (GS)
• Home Depot (HD)
• Intercontinental Exchange (ICE)
• Johnson & Johnson (JNJ)
• Lockheed Martin (LMT)
• McDonald's (MCD)
• Microsoft (MSFT)
• Moody's (MCO)
• Otis Worldwide (OTIS)
• Raytheon Technologies (RTX)
• Rollins (ROL)
• S&P Global (SPGI)
• United Parcel (UPS)
• Visa (V)
• Brookfield Asset Management (BAM.to)
• Brookfield Corporation (BN.to)
• Canadian National Railway (CNR.to)
• Enbridge (ENB.to)
• Intact Financial (IFC.to)
• SMART Centres Real Estate Investment Trust (SRU-UN.to)

Holdings

The monthly FFJ Portfolio holdings dating back to December 2018 are accessible here.

The following are the monthly values of the FFJ Portfolio over the past several months.

January 2022

Core Accounts: ~$773,000 CDN and ~$1,858,000 USD

Side Accounts: ~$666,000 CDN and ~$1,475,000 USD

Total: ~$1,439,000 CDN and ~$3,333,000 USD

February 2022

Core Accounts: ~$778,000 CDN and ~$2,014,000 USD

Side Accounts: ~$672,000 CDN and ~$1,465,000 USD

Total: ~$1,450,000 CDN and ~$3,479,000 USD

March 2022

Core Accounts: ~$810,000 CDN and ~$2,118,000 USD

Side Accounts: ~$696,000 CDN and ~$1,554,000 USD

Total: ~$1,506,000 CDN and ~$3,672,000 USD

April 2022

Core Accounts: ~$770,332 CDN and ~$2,026,487 USD

Side Accounts: ~$658,363 CDN and ~$1,514,137 USD

Total: ~$1,428,695 CDN and ~$3,540,624 USD

May 2022

Core Accounts: ~$784,833 CDN and ~$2,133,728 USD

Side Accounts: ~$661,080 CDN and ~$1,499,998 USD

Total: ~$1,445,913 CDN and ~$3,633,726 USD

June 2022

Core Accounts:  ~$742,473 CDN and ~$2,006,645 USD

Side Accounts:  ~$595,911 CDN and ~$1,401,823 USD

Total:  ~$1,338,384 CDN and  ~$3,408,468 USD

July 2022

Core Accounts:  ~$794,405 CDN and ~$2,230,466 USD

Side Accounts:  ~$644,255 CDN and ~$1,539,292 USD

Total:  ~$1,438,660 CDN and  ~$3,769,758 USD

August 2022

Core Accounts:  ~$740,560 CDN and ~$2,064,323 USD

Side Accounts:  ~$637,547 CDN and ~$1,478,073 USD

Total:  ~$1,378,107 CDN and  ~$3,542,396 USD

September 2022

Core Accounts:  ~$707,781 CDN and ~$1,894,989 USD

Side Accounts:  ~$612,394 CDN and ~$1,311,542 USD

Total:  ~$1,320,175 CDN and  ~$3,206,531 USD

October 2022

Core Accounts:  ~$740,555 CDN and ~$2,160,153 USD

Side Accounts:  ~$624,677 CDN and ~$1,441,483 USD

Total:  ~$1,365,232 CDN and  ~$3,601,636 USD

November 2022

Core Accounts:  ~$785,647 CDN and ~$2,311,806 USD

Side Accounts:  ~$653,367 CDN and ~$1,516,013 USD

Total:  ~$1,439,014 CDN and  ~$3,827,819 USD

December 2022

Core Accounts:  ~$737,157 CDN and ~$2,271,705 USD

Side Accounts:  ~$602,514 CDN and ~$1,438,680 USD

Total:  ~$1,339,671 CDN and  ~$3,710,385 USD

January 2023

Core Accounts:  ~$775,787 CDN and ~$2,387,269 USD

Side Accounts:  ~$642,451 CDN and ~$1,520,472 USD

Total:  ~$1,418,238 CDN and  ~$3,907,741 USD

February 2023

Core Accounts:  ~$757,627 CDN and ~$2,283,481 USD

Side Accounts:  ~$634,210 CDN and ~$1,474,168 USD

Total:  ~$1,391,837 CDN and  ~$3,757,649 USD

March 2023

Core Accounts:  ~$747,355 CDN and ~$2,385,759 USD

Side Accounts:  ~$628,335 CDN and ~$1,532,785 USD

Total:  ~$1,375,690 CDN and  ~$3,918,544 USD

NOTE: The above values exclude investments in several tax-efficient accounts for which I do not disclose details.

Although the companies within the FFJ Portfolio do not fundamentally change from one month to another, the share price of many holdings fluctuates wildly. This is why it is foolish to try and gauge whether a company is a worthwhile investment solely from its share price.

Investors must analyze financial statements as part of a company analysis. Investment decisions based on a company's share price relative to the 52-week low/high, 50-day and 200-day moving averages are asinine. I have lost count of the number of times people have asked me if it is an opportune time to invest in a company simply because the share price has dropped significantly.

I am inclined to acquire shares in great companies when they temporarily fall out of favour with the broad investment community. This can happen even when the company performs admirably but the results fall short of the consensus outlook.

I remain cautiously optimistic that the Canadian and US economies will slip into a recession within the next few quarters. While a recession would create hardship for many, it would hopefully lead to the demise of many companies that should not be in business. Ridding industries of unprofitable or marginally profitable companies increases the likelihood that well-managed strong companies can generate superior returns.

Take Carvana (CVNA), for example, which claims to operate an e-commerce platform for buying and selling used cars in the United States.

How bad is CVNA? REALLY BAD!

• One of the majority shareholders has a criminal record.
• The company is known to sell vehicles that have been reported stolen. Here is a recently reported incident.
• In FY2022, CVNA generated ~$13.6B in revenue, a net loss of ~$1.6B, and ~$1.836B in negative free cash flow.
• Moody's and S&P Global assign Ca and CC ratings to the company's domestic unsecured long-term debt and the outlook is negative. These ratings define CVNA as being a company where default is imminent with little prospect for recovery. CVNA, however, is still in business!

Were CVNA not in business, I suspect a good portion of its ~$12.8B and ~$13.6B FY2021 and FY2022 revenue could have been divvied amongst reputable industry participants!

Next, we have the recent demise of Silicon Valley Bank (SIVB), Signature Bank (SBNY), and Credit Suisse; these banks were poorly managed and should have failed much earlier.

Anybody who spent time analyzing the financial statements and proxy statements of these companies should have readily seen multiple 'red flags'. Investors who merely looked at share price behaviour deserve to have incurred losses.

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

Note: Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. I encourage you to make all investment decisions through research and due diligence. You should also consult your financial advisor where appropriate.

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.