Amazon’s taking over the world and the much talked about death of retail

Amazon’s purchase of Whole Foods Market was the headline this Friday and it sent a whole sector of retail into a tailspin as the thought of competing with Amazon had investors worried about the future of the grocery space.

It’s true that Amazon and online shopping in general has had quite an effect on retail as can be seen by the many store closures in the past two years. Companies like Sears, Macy’s, J.C. Penney and many others are closing hundreds of stores this year and will likely continue to do so in the next few years.

There are two reasons for this destruction in retail. The main reason is that more and more shopping has moved online. The e-commerce share of the overall pie has more than doubled in the past decade.

Do note that the number represented in the graph below includes certain things normally not bought online like gas, cars and the number excluding those items is nearer to 15% and continuing to grow.

ecommerce, online sales,e-commerce

Amazon has been the main beneficiary of this movement as evidenced by their stock performance and brick & mortar retailers have struggled to keep up. They’ve only recently started to invest heavily in the online sector but the moat that Amazon has built in that area may be hard to beat this late in the game. In fact Amazon makes up nearly half of the overall e-commerce which is impressive considering the # of online retailers that are out there.  Continue reading “Amazon’s taking over the world and the much talked about death of retail”

My portfolio – June update

The market continued its upward ascent this month and the S&P 500 was up 1.35% since the last portfolio update which can only mean good things for the portfolio.

Q1 earnings season is in the books and the results were quite excellent with the S&P 500 showing 13.9% earnings growth y/y, the highest since Q3 2011. It’s true that a good portion of that was driven by the energy sector which had a pretty easy comparable but even exclusive of that, the growth rate was a solid 9.7%.

According to factset, the expected growth rate for Q2 is 6.6%(down from 8.7% as of March 31 mostly driven by downward revisions in energy) and that bodes well for the stock market. It is good news to finally see growth after a few years of flat earnings. The P/E ratios right now still make the market seem expensive but it sounds like the E part of that equation is finally expanding as well which means good things for investors if it can continue.

Last month’s update showed another 10k+ increase in portfolio size and means that 4 out of the last 6 months have been 10k+ bumps! That’s just amazing to see and shows the impact growth can have on your portfolio once you reach a certain dollar amount.

What’s driving this performance considering my income, not to mention my contributions are way less than 10k per month. It’s the continued growth of the market and some excellent performance from some of my individual stocks.

UNH, one of my biggest holdings continued to rocket this month and was up another 4.22% and is now up over 13% YTD. That combined with a 20% dividend bump this month makes me a happy investor. Apple, another on of my holdings didn’t necessarily kill it this month but is up nearly 30% YTD as well. International shares have been strong performers lately after a few years of middling results that trailed the US markets. One of my main international funds is up 18% YTD and was up over 3% this month.

These are all results that are beating the S&P 500 and have helped my portfolio grow quite a bit over the past year. The constant contributions also certainly help but portfolio growth has been more than 2/3rds of appreciation in these months.

I’m a firm believer in asset allocation and shrewd stock picking being a big part of solid long term results and I’m glad to see the fruits of my labor here. International is a perfect example of having an allocation and sticking to it despite middling results in that area. I kept contributing to my international holdings despite results that lagged the US stocks and am now rewarded with excellent price appreciation as the market finally catches up to the thesis that those stocks and countries were undervalued in relation to their domestic comparable.

Now I’m at a point where other asset classes are below target and am buying those as those are likely undervalued now(or the others are overvalued) against their historical norms. Last month, I was short on bonds and REITs and that will likely be the case again this month due to the strong performance in both the domestic and international markets.

Let’s take a look at my portfolio today and which assets are lagging behind.  Continue reading “My portfolio – June update”

My portfolio – April update

The markets took a brief respite from all the gains as the S&P 500 was down for the first time since October 2016.

It looks like people are still trying to digest the failed(and possibly soon resurrected) healthcare bill and what it means for potential tax reform down the line. Syria added another complication to the risk profile this month leading to a small haircut in US stock values.
I’m actually quite surprised that the market reaction was so muted which leads me to believe that there’s still momentum in the market that wants it to keep going up. The fact that the US 10yr is still only at 2.38%(that’s well up from October but still lean) means that the stock market still seems like the smartest place to keep your money.
Q1 2017 earnings calls are almost here and we’ll start seeing those results within the next couple of weeks.
The current estimated growth rate for Q1 is 8.9% and that would be great to see as it would be a return to consistent growth in a market that has been anemic for many years. That number however is down from a 12.5% growth estimate for Q1 as of December 2016 and shows that the outlook has gotten slightly less rosy in the last few months.
I think it’ll be an interesting batch of results and I’m eager to see where the companies guide for FY 2017 and going into 2018 as the growth projections are pretty optimistic right now as they usually are this time of year. If we see another flat year like we have the past few years then the market might have to take a small pause until growth returns which won’t be great for short-term results.
I do have some cash on the side so I’m always on the look out for some values and could potentially pick something up if the market over-reacts to some short term misses.
I’ve always got money flowing into the market with regular monthly contributions so any short term drops for the overall market don’t worry me and actually benefit those with a long time frame as I can buy in at lower prices which bodes well for long-term returns.
With all that said, let’s take a look at how my portfolio did this month. As a reminder, I was just a few thousand dollars shy of 400k last month so let’s see if I was able to cross that threshold this month.

Continue reading “My portfolio – April update”

My portfolio – March update

Q4 2016 earnings season is pretty much done.

According to factset, 99% of companies have reported and we’re seeing a 4.9% earnings growth rate in Q42016 which is nice and it’s the first time we’ve seen two consecutive quarters of earnings growth since Q42014 and Q12015.

The stock market has seen market large price inflation despite not seeing any substantial earnings growth since 2014.  CY2014 S&P 500 EPS was $118.96 and CY2016 will end up near $119.14.

That means that pretty much all of the price appreciation since 2014 has been driven by P/E expansion. That’s not great to see from a long term investing standpoint as P/E expansion can only go so far and needs to be backed up by E expansion in order to sustain long term results.

I think the 2 months of growth is an excellent start but 2017 really needs to show some growth if investors are to get more comfortable around where the stock market is pricing securities right now. There are certainly some proposed changes from the new administration that might spur earnings but those are still out in the future and it’s unclear how much of that will actually come to fruition.

The truth is that EPS estimates for CY2017 have continued to shrink down from $134.50 in September of last year to $131.28 right now which shows that some of those growth assumptions might be getting pushed off into 2018.

Still, 2017 estimates show 10% growth and would be awesome to see but keep in mind that 2016 projections also called for sizable growth that never actually materialized.

There’s been a lot of comfort around mediocrity in the market the past few years due to low interest rates driving money out of suddenly low yielding alternative investments and into rapidly growing stocks.

It seems like that might change soon due to solid economic headwinds and likely continued interest rate bumps that might make other investments a bit more attractive. It’s hard to say how that will impact the market in the long term but high yielding securities like REITs will likely take a hit in the short term.

I think rising interest rates are a good thing in the long run and there’s also a lot of hope that things on the earnings side will change soon and that the future stock price growth will be driven by earnings growth. That optimism is driving the continued rally in the past few months that has been great for my portfolio. I’m happy to see and I’m hopeful that it will continue and yet I can’t help but shake the feeling that we’re getting too optimistic about something(tax/infrastructure plans) that might have less of an impact than we hope.

I’m a long term investor and short term price appreciation isn’t ideal for me as P/E expansion simply means things are getting more expensive so any additional purchases I make and will continue to make are bought at a premium. If earnings don’t catch up with prices then there’s the real possibility of mediocre long term returns as prices eventually revert to the mean.

I’m not a market timer so I’m staying in the market no matter what and I enjoy seeing my portfolio grow every month but I’m also realistic about what price appreciation without growth means for long term returns.

We’ll start getting Q1 results sometime in April and we’ll see if that 10% growth rate is realistic or if the market is being a bit too optimistic. I think Q1 is too early to make a certain judgement but it’ll be a time where we get more clarity around this administrations healthcare and tax plans as well which should give a clearer view to where this market is heading.

With all that said, it’s portfolio time. I was on my way to 400k last month and the market has continued to grow so let’s see if I’m there this month or if it’ll take another solid month to put me over that milestone. Continue reading “My portfolio – March update”

My portfolio – February update

Earnings season is in full swing and so far results have gone as expected.

According to Factset, 67% of the S&P 500 companies that have reported have beat the mean EPS estimate and 52% have beat the mean revenue estimate. This isn’t a huge surprise as most quarters see companies beat earnings around that clip(67% in EPS beat and 53% revenue beat are the 5-year average for the S&P 500).

The Q4 growth rate now is estimated to be 5% versus an estimate of 3.1% as of December 31st which is good to see as growth is the true engine that drives market appreciation.

Assuming this holds it will also the first time the index will see q/q growth in two consecutive quarters since Q4 ’14 and Q1’15.

For all of 2016, the S&P is expected to see earnings growth of 0.5% and revenue growth of 2.4%. That’s not great in my mind and I’m hoping for a better 2017 if this hot market wants to keep chugging along.

There were a lot of earnings call this last month and a lot of discussion was around policies the new government might implement that will hopefully spur earnings like a new tax policy and fewer regulations for certain industries.

I think the market sees a lot of those as a catalyst for growth but it’s not clear when those will be implemented and if the benefit will really spur 2017 or if it’ll fall more into 2018 results.

As far as expectations go, 82 companies so far have issued guidance for Q1 2017 and 57 of them were negative. This may sound bad but isn’t out of the norm(5-year average is 74% negative) as companies prefer to set expectations lower so they can beat on the back end.

Still, this is a reactive market which has shown how punishing it can be when guidance/performance is lower than expected with companies like UnderArmour, Gilead Sciences and HanesBrands taking huge hits. On the other side, it has also rewarded handsomely those that perform well as seen by the recent surge in companies like Hasbro and Activision.

Overall, analysts are still optimistic about 2017 with projected earnings growth of 10.3% and revenue growth of 5.6%. I’ve mentioned before how analysts are often too optimistic as 2016 projects had us pegged at a 7% growth rate and we ended up close to flat.

It seems like the market still holds out hope that the analysts are right(and/or doesn’t care because there’s no great alternatives) as the S&P has continued to do well in the past month with a 2% increase since the last update.

It’s hard to gauge this market right now and a lot of future performance might depend on 2017 earnings. The market continues to price in pretty aggressive growth compared to what we have experienced in the past few years(no growth) and if that doesn’t materialize then we could be in for some pain.

We’re certainly entering a riskier period in the investment cycle when you consider some of these high valuations. Low interest rates and lack of alternative investments makes it more difficult to analyze these in a historical context but higher valuations generally affect long-term returns negatively.

I have no certainty that the market won’t just keep going up especially if earnings growth materializes so there’s no change to my investment thesis but I do understand people who get worried when they see this type of stock market appreciation without any material growth to support it.

I’ll be watching earnings closely and looking to pick up some values if any emerge. Work is slow right now so I have plenty of time to read earnings releases and follow the market which I quite like doing!

I haven’t been overly active in buying anything as my set it and forget strategy works well in markets like this one where individual values are hard to stomach.

Maybe I’m too conservative these days as a lot of companies I’ve liked and thought about buying have surged after earnings. I could kick myself about missing these opportunities but I feel like I also have a good strategy in place that allows me to benefit from market appreciation while optimizing my risk profile.

The market seems risky to me right now and while I certainly don’t want to exit it because it might keep growing, I’d rather be invested in a way where I’m spreading my risk across a bunch of securities versus just one. Yes if the market tanks then everything will tank in one way or another and I’m potentially missing out on upside by not sticking to certain securities but it’s a risk profile that fits my personality and I’m not all that eager to change it anytime soon.

That doesn’t mean I won’t buy any individual stocks(it is one of my 2017 goals after all) but it’ll have to be a really solid value for me to consider it.

The good news is that my portfolio has continued to grow and I’ve continued to funnel money into my accounts so I’ll take continued appreciation any day if the market gives it to me and hope for improving earnings to make sure it stays that high.

Let’s take a look at the portfolio this month. Continue reading “My portfolio – February update”