Year In Review: 2017 Portfolio Performance

As 2017 wraps up, I want to take a brief moment to review my performance on the year and then talk about what I'm looking for in 2018. While my intent is to keep things short, it's important that I set a common base.  First, all gain/loss percentages discussed are based upon either feedback from my portfolio tracking software or by pulling up tickers on the Morningstar web site's performance tabs for YTD or 2017 numbers on performance.  Numbers I state have the chance of being off a few percentage points compared to reality.  I will be doing various comparisons of my stocks against the performance of the S&P 500, excluding dividends.  Additionally, I'll be comparing the performance against the sectors which the stocks are a part of.  To do this, I'm using Spider (SPDR) ETF index funds, as these ETFs are known to track extremely close to each of their respective sectors.  These sector performances likely include the benefit of dividend yields whereas my stock performances will not include any dividends they paid.  It will not be 100% apples to apples comparisons, but it will be very close and respectable to the purpose of this discussion.  To learn more about these ETFs, please go here.  Below are the ETFs and their sector which will be discussed.

Additionally I'll have a couple ETF/Index funds that will represent specific industries.  Not every industry has solid ETFs to compare against, so I'll only call them out where it seems fitting.

2017 Summarized:
2017 can be summarized with strong growth, extremely low (record breaking even) volatility, and economic recovery around the world.  Everything in the news was politically charged as we've watched the country become more divided, in my opinion, through the commander-in-chief.  Fears also arose from frequent saber rattling between the US and North Korea.  At the same time, there's no doubt that the administration has been eliminating regulations that make it easier for businesses to profit and have recently passed a tax bill likely to significantly lighten the tax burden for US companies.  In the end, earnings grew stronger than expected, the GDP was over 3% for much of the year, and as such, markets kept churning higher - sometimes in spite of the worrying news you'd see taking place.  This is the first year ever, in which the S&P 500 never had a decrease of more than 5% throughout the entire year.  At the same time, interest rates stayed low and consumer confidence has increased along with employment data that has us near full employment with spotty inflation occurring.  It feels like "if you picked a stock and simply held it, you did well," though this clearly wasn't the case for all stocks on an individual basis.

Looking at my own portfolio, it appears I was generally well-positioned in the right segments and the right companies.  I was far from perfect, though.  The one thing I realize, looking back, is how easy it is to get caught up in the near-term action.  The great feeling of watching your stocks jump and starting to get complacent, the worry that quickly took over as soon as things had a couple bad days.  The lack of volatility seems to have made me more sensitive to normal moves in the market and I forgot my overall picture at times.  I also need to do better at ensuring I have cash on hand to expand into new areas if/when needed.  As of right now, my cash position at an acceptable level, but this is due to a recent cash infusion into the portfolio.  I continue to use this method to help me out in these times of needed cash, so I've yet to properly manage my portfolio in terms of selling accordingly.  This will actually be a part of my performance success as it's avoiding selling winners like Home Depot and Honeywell, despite having tripled my investment in both. This is a form of rules violation, though some room can be made for two reasons.  First, it clearly didn't make sense to sell the stocks - they had way too many positive things in front of them and plenty of room to run.  Second, the cash infusions are not brought in because I don't want to sell (though it sure feels that way sometimes), but rather because I have more money set aside that I want to invest through this portfolio and that I feel I can risk losing.  I don't expect this to always be the case, and am certain 2018 won't be that way as life events need that money that is typically set aside.  Whatever you do, though, do not allow the allowances to be considered excuses to not pay attention.  The risk/reward profiles on both of these stocks have gotten much more difficult to accept in terms of the percentage of my current value is actually from initially invested money.  This needs to be taken into account going forward - especially when I doubt we'll see as little volatility in 2018 as we saw in 2017.

2017 Performance

Digging deeper into my portfolio performance, you'll see I outperformed the S&P 500 by over 7%, which is nothing to sneeze at.  Also worth noting is that while you will see that both Apple and the Euorzone index are showing results that underperformed the S&P, this is really the performance in my portfolio from the time that I picked them up.  Whole year performance on both securities is 48.24% and 27.92% respectfully. I came into both later in the year and therefore didn't have a fully year to compete against the S&P or sector/industry numbers.  It could be said that I may have entered into either position late, but I currently don't think that's the case.  It is one of the things we'll be watching as we enter 2018, though.  Just note that neither position is filled yet either, so I'm still looking for buying opportunities.  While Citigroup certainly performed well, it was Home Depot and Honeywell, which did the majority of the lifting in my portfolio, as I stated before.  On Semiconductor also performed exceptionally well, but as a much smaller position in my portfolio, it had a bit less impact.  That said, it was also the first stock that I have moved into a state of "playing with the house's money" as the stock surged in price.  This is one stock where I did become more disciplined in selling some along the way on gains, partly because I've dealt with the pain of how quickly the stock can retreat as well.  Cedar Fair had a slightly rougher year, given weather conditions faced this year, however, I don't expect them to grow at a double-digit pace either.  Keep in mind that this stock also yields over 5%, so overall returns were still very strong in what I consider one of my safer holdings.  Speaking of safety, there's also Pepsico, a consumer packaged goods company - the very definition of safety - still managed to grow over 17%.  Sure, this was less than the S&P 500, but that's absurd performance for a CPG company and they outperformed their own sector by nearly 4.75%.  That's incredibly impressive with a yield of just under 3% to boot.  That leaves us with Ionis Pharmaceuticals.  This stock was probably the hardest for me to own.  In a year lacking volatility, this stock was full of it.  Early on in the year, there was a lot of downside pressure due to concerns around the safety profile of the stock.  Then it soared when people realized how much Spinraza was getting sold, only to see the stock get beat back down again when the next quarter's sales weren't as high as they expected and a rival started seeing positive phase 3 results for a drug that competes with Inotersen - and it's believed that the competitor has a better drug.  There aren't a lot of people out there that seem to believe in Ionis.  While I believe in their large pipeline, I'd be lying if I said I didn't have my own concerns.  But while I'm concerned, I also recognize that the stock is over 10% short and if anything goes well in the first half of 2018, there's significant upside potential.  Inotersen is the big factor here, given that the company owns it outright at this time.  Volanesorsen is owned by their subsidiary, but should gain decent benefits from that as well.  If this falls apart, the stock may need to go.  In short, not a great year for Ionis, but it wasn't bad enough to count them out just yet.

A Look Into 2018:
The market ran a lot in 2017 and we didn't get much for pain experienced for it.  At the same time, we don't have everyone jumping in blindly, feeling like they can't lose - at least not in the stock market.  Cryptocurrencies like Bitcoin and anything that is related to blockchain technology might be a whole other discussion, though.  Everywhere you look you have people declaring that the market is too hot, or that it's over valued and it's going to crash.  There seems to be too much skepticism in the market to draw fear of a crash.  Additionally, if you look at what companies are saying (both backwards-looking earnings results as well as current demand forcasts, which are a little more forward-looking), you'd believe we have a lot of runway in front of us.  And to me, I think there is plenty of runway yet.  The whole world is starting to grow again, in sync with each other.  That's not something that typically will last only a handful of months.  

While I do believe that the market's general direction for 2018 continues to be up, it becomes much less likely that it goes without pitfalls.  It's not natural for such low volatility, so I believe we'll likely see a return to it at some point during the year.  I also wouldn't be surprised to see a 10%-20% pullback in the year.  While I do see more risk in the US markets in 2018, I do believe there are areas of continued strength.  The first area is the banks and industrials as interest rate hikes, global economic growth, and US tax benefits culminate in higher earnings results through the year.  The next theme I see continuing is automation, AI, and Business intelligence.  This includes automated driving, more sensors and sensor data to predict events and companies looking to better understand how they can serve the needs of customers.  This is a major way that wage inflation has been avoided so far and will likely continue.  Finally, the stay at home entertainment theme is still going strong.  This covers a wide gambit of things such as home retailers for those buying and selling homes or just making their home a place to be, to video games, home movies and television, content, take home food or delivery servicing, and anything else that might be related that we don't realize.  

A final thing I believe needs consideration is that there are more global opportunities than we've seen historically.  While some of this can be covered by global companies based in the US, there may be other opportunities that we used to pass up when the global economy wasn't as strong.  I've already started diversifying myself with the addition of the EZU, but "should I diversify more" remains my ongoing question.

With 2018 just around the corner, there's not much time to look back and be happy about what was achieved in 2017.  There's a new year ahead and odds are it's going to be different than this one was.  I think it's important to be ready to shift accordingly, as themes may be changing - the biotech sector as an area of profitable speculation, in particular.  Good luck, great health, and happiness to all of  you as we embark on this next journey.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.