Master Stock List
A couple of weeks ago, I wrote Reflect to Perfect: Constantly Improve Your Portfolio that examined my Master Stock List. I made some changes to the list in May 2020 and like to make sure the portfolio and watch list are at its best.
So after writing the article a couple weeks ago, I went back and did change some things. Let’s take a look:
- Exxon Mobil & Royal Dutch Shell – My biggest changes were in the energy space. Energy is currently my largest sector and Exxon my biggest single position. Exxon moved from a Level 1 (highest level) ranking to a Level 2. Also, I’ve completely moved Royal Dutch Shell from the list. Though I will continue holding the stock, my trust in the company has dwindled and I won’t be buying or recommending it for years to come. Energy doesn’t belong at the highest level of my portfolio because it’s too volatile and it’s not defensive enough for my portfolio.
- Level 1 – If you look closely at my Master Stock List below, I’ve now got 4 Level 1 stocks. Since I moved Exxon to a Level 2, I considered moving a Level 2 stock up to Level 1. PepsiCo was considered but they are too similar to Coca Cola. I’m considering moving Colgate-Palmolive (CL) as well but I’m in no hurry at this moment. I might even have 4 stocks identified as Level 1 versus five.
- Banks – I was already hesitant in having any bank in my long-term retirement portfolio and recent events have proven that wise. Like energy, they are too volatile and unpredictable. I’ve removed all banks (JPM, BAC, & WFC) from my list but I’ll hang on to Wells Fargo for now. Again, I’m a buy and hold investor but that doesn’t mean I’ll buy more Wells Fargo. At some point I’ll probably sell it but not anytime soon. I’ll get financial exposure through other stocks (Visa, Aflac, Franklin Resources, etc…).
- Utilities – I removed one utility (Exelon – EXC) and will look more closely at the sector. I want to own a couple and I’ve got some favorites at the moment but there are risks in that sector that need evaluation. A great example of those risks is PG&E in California. They’ve filed bankruptcy twice now (2001 & 2019) for different reasons and that is a concern.
- New Stocks – I’ve added two new companies to the list and actually started a position in one of them. Kroeger (KR) has been added to the Level 3 list. They are a solid, boring consumer defensive company. I’d make them a Level 2 if margins improved (unlikely) or they had less debt. Also, I added (and bought) British American Tobacco (BTI). Again, another Level 3 stock and another big tobacco (PM, MO, & now BTI). My MO and BTI positions will likely be similar in size but my Phillip Morris will be the largest of the three.
The list will always evolve as we look for quality stocks at value prices.
Job Loss
I’ve been preaching to my kids to have a short and long-term savings fund to take care of most emergencies. The short-term savings handles car breakdowns, new tires, and most typical home and car maintenance items. The long-term fund is to handle larger financial emergencies like replacing a home air conditioner, a new roof, or a job loss.
Well, that’s exactly what happened to one of my kids the other day. In a shocking move, she lost her job. Though there were tears, she calmed down and realized she has prepared for just this thing. Thank goodness it didn’t happen in March 2020 when millions lost their job. Though never a good time, we’re hopeful to use this time to prepare for her next stage in life.
The good news is she lives in our city so she can move back in with us. She doesn’t really have to do this but it will buy her more time. Nobody wants to look for a job while in panic mode and she doesn’t have to panic. She has $25,000 in long-term emergency savings that will last her over 2 years since she’s moving in with us.
This has been a good learning experience (it happens to nearly everyone) for both her and her younger sister. I’ll likely never have to preach about saving for short/long-term needs again since this will be something they never forget.
Expenses – Essential vs Discretionary
As I get closer to retirement (4+/- years), it becomes more and more critical that I have command of my expenses. And by command I mean knowing how much I spend so that I know how much I need to retire. In retirement, we all want to at least maintain our standard of living. After all, isn’t that why we save?
So, in 2021 we are making an expense tracking change to help give us critical knowledge. I want know what I need to survive (essential) to maintain my standard of living. Eventually, these numbers will tell me the retirement savings number I need to achieve to minimize the risk of outliving my money.
We are simplifying by reducing the expense categories from 12 down to 10. Eventually, perhaps closer to or actually in retirement, I could reduce discretionary into one category called “discretionary.” I mean, it’s just a fun bucket and as long as I know how much I can spend then who cares where I’m spending my fun money. As long as I’m staying within my discretionary budget.
I’ve talked to many people who are close to retirement and many don’t know what they spend. My question back to them is “How do you know you can retire then?” When you are younger just live below your means and keep your Big 3 expenses (Home, Food, Transportation) to a minimum.
As you evolve through life, kids, college, home repairs, and much more take center stage you need to make some choices. You can’t make choices if you don’t know where your money is going … so track it. And the closer you get to retirement (like me), you need to get more exact on what you spend. Of course, if you win the $50 million lottery then you could probably skip how much you spend on restaurants. 😉
Thanks for reading!
Mr. TLR