Tom Konrad CFA
I guide my sister through the stock market, she guides me through the mountains.
Once a year, I give my sister stock trading advice.
Managing money is not her thing, so any more often and she’d likely lose interest, and not do anything. With that constraint, I wait until there are a large number of stocks I think she should trade, and send he a list of trades, along with quantities and limit prices for her to enter “good ’til canceled.”
Last May, I told her to buy 10 green stocks, and wrote about the picks here. It’s been one of my most popular articles. Even better, the picks have done spectacularly well. As of Friday, February 8th, my sister had a 35% total return in nine months. Readers who bought the stocks listed in the article with the suggested allocations had a 32% return over the same period. Meanwhile, the S&P 500 has gained 16.6% and the Powershares Wilderhill Clean Energy ETF (NYSE:PBW) has gained only 8.6%. I’ll explain the differences between my sister’s returns and those of readers below.
Last week, I gave her my recommendations for 2013. I told her to sell two of her holdings and to buy seven other stocks. I’ll also discuss the sells below, and I’ll write about the buys in a follow-up article.
Many Happy Returns
Since I told her to enter limit orders, not all of my sister’s trades executed. The red bars in the chart above represent her actual allocations to particular stocks. In contrast, the blue bars are the target allocations I told readers to use. The yellow bars are the returns my sister would have achieved if her orders had executed at the limit prices I gave her. Some of her orders did not execute because her broker (USAA) does not accept trades for Toronto-listed stocks, others did not execute because the limit prices were never met. I did not know that USAA would not let her trade Canadian stocks when I gave her my recommendations.
The green bars represent the total return from the closing price on May 22nd, the day the article was published.
One other difference is that I told my sister to buy Exide Technologies (NASD:XIDE) while I told readers to buy Waterfurnace Renewable Energy (TSX:WFI / OTC:WFIFF.) This is because, after I sent the email to my sister, I decided Waterfurnace was a better pick for her conservative portfolio, since it pays a healthy dividend, while Exide is more of a turnaround play. In the end, that made little difference, since she left a “0″ off the quantity when she was entering her limit order for Exide, and ended up owning only a trivial amount of the stock. If I’d told her to buy Waterfurnace, she wouldn’t have gotten any of it, since it trades in Toronto. Readers would have done better with Exide in these first nine months (with more risk), but that’s just hindsight.
I told her to sell Potlatch Corp (NYSE:PCH) at $44, and the order executed on Friday. I like Potlatch because this timber REIT is a leader in sustainable forestry, but the price rise has dropped the annual yield from 4.2% last May to 2.8% today. I consider that a bit low for a non-preferred dividend in a low-growth stock.
I also told her to sell LSB Industries (NYSE:LXU) at $42. The order has not executed yet. If it does not execute, I’m not particularly worried. As I said when I included it in my article Six More Clean Energy Stocks for 2013, the main reason I’m getting out of this stock is that it has become a bit less green since the company bought a working shale gas interest as a hedge against its exposure to the price of natural gas. I think the stock will probably rise a bit more this year, but it’s no longer nearly as undervalued as it was last May, or even when I wrote about it at the start of January. [Update: This order has now executed. Since LXU has fallen below $40, the sell is looking like a good call.]
Because I’m trying to build up her stock portfolio one year at a time, I have a bias towards having her hold stocks that she already owns, so I would not have told her to sell any of the other stocks in the list, even the ones she ended up not buying. In my personal portfolio, I’ve sold covered calls on ABB Group (NYSE:ABB), as well as on Potlatch and LSB. The calls on PCH and LSB look likely to be exercised and take me out of my positions unless the stocks decline before the options expire.
I’m holding on to all my other positions in the list.
My sister told me she’d be keeping me on as an advisor for another year. I probably should have warned her that past performance is not a guarantee of future results. It would be too much to expect to beat the market by over 15% for two years running. Fortunately, I’m quite optimistic about the potential for clean energy stocks in 2013, and I suspect even matching the PBW’s returns this year will allow me to comfortably keep my “job” as her unpaid, informal, once-a-year advisor. Perhaps more importantly, she’ll keep me from getting lost when we go on our annual backpacking trip next fall.
I also told her to buy seven stocks not already in her portfolio. Stay tuned for an updated article this week. [Or, since this is a reprint, you can see an earlier version here.]
Disclosure: Long ABB, WM, PCH, WFIFF, NFYEF, LXU, AMRC, MXWL, WNDEF, KNDI, XIDE.
This article was first published on the author’s Forbes.com blog, Green Stocks on February 12th.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.