Net worth- 1st of 120 in the new decade

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January 28, 2020
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We are already a month into the new year, which means it is time for net worth updates. It will be my first NW update for the new decade and I am making some changes in how I present the numbers. Without further ado, here we go:

Jan2020_NW.png

And the key numbers are:
  • Liquid Net worth/Debt Ratio: 1.502
  • Cash balance/Two year living expense: 1.07

And here’s the story behind the numbers:

  • Big increase in checking account, a temporary anomaly, as I cashed out of my 1-year CD term limit. Still working on a better home for this extra cash. I am not convinced signing up for yet another 1-year CD is a good idea at present.
  • Markets were rocking upwards for better part of the month, until the rally fizzled in the last few days. Even then the portfolio gains are non-trivial upwards of 2.5 % for both the non-retirement and retirement investment accounts.
  • The new year 401K contributions are on track, with company matching. The max contributions for 2020 have increased to $19,500 from $19,000 for 2019.
  • Its early in the season for housing markets, and as such housing stats are flat for the month.
  • Steady progress towards mortgage pay-down efforts. The goal has been to pay additional principal equal matching the monthly mortgage payment.
  • Credit card expense rose for the month, driven by some medical expenses.
  • Net worth inched moderately upwards. If the trend continues and I fully expect it will, I should not have any troubles reaching my stated goal of 75 % by year end.

Investment Updates

About two weeks back, in my article on self-retrospection, I expressed a desire to have a healthy cash buffer, waiting for opportune moments to invest. I did not anticipate that opportunity would present itself so soon. In the last few days, the market rally has fizzled, in part due to worries surrounding the coronavirus threat. As of this writing, more than 2000 folks mostly in China have been infected and about 56 are dead.

The market weakness has offered me an opportunity to add to my current holdings for Boeing, ticker BA, which now represents 5 % of my active-portfolio. I also initiated new position in B&G Foods, ticker BGS, and Fiat Chrysler Automobilies, ticker FCAU.

Below are the metrics for these companies and my cost basis for the purchase.

Equity_Purchase_Summary_Jan2020.png

These 3 purchase represent an example of how human-judgement, for better or worse, plays a role in stock selection. In several of my past posts I have outlined general criterion for stock purchase that I look for.  My ideal stocks are those with consistent gross margin >30 % and ROE > 20 % and are trading at a significant discount to my estimates for intrinsic value. Neither of the 3 purchases meet these criterion.  How do I therefore justify my purchases. Lets dig further.

Thesis for BA: Boeing along with Airbus represent duopoly, dominating 99 % of the large airplane market. Boeing stocks have taken a beating in the last year, falling from a peak closing price of $440.62, reached on 2/25/2019 to the 52 week bottom price of $302.72 reached in the past week. The massive drop in share price is the result of ongoing 737 Max crisis and the impact the crises is having on Boeing business. In the quarter leading upto the crisis, Boeing recorded ROIC of over 100 % and ROE of over 900 %. Clearly the business has been significantly impacted and the results are becoming apparent in the deteriorating fundamental metrics.

The stock is a classic contrarian value long-term hold for me. The situation that BA finds itself under, echos the crisis faced by BP in 2010 with Oil spills and Chipotle (CMG) in 2017 with the e-coli scare. I invested in both BP and CMG following the crisis, my timing was off in terms of stock hitting the bottom but in both these cases, the stock recovered and moved beyond the price at the start of the crisis. I am drawing lessons from these experiences and piling onto BA stocks at every opportune moment. I do not know where the bottom will be but am fairly confident that the crisis has finite lifetime and BA share price should recover back to pre-crisis levels in the near future.

Thesis for BGS: B&G foods was put on my radar by a good colleague of mine with whom I have been bouncing off my thought process in investing  for some time now. I must admit that I have not done my due diligence on this stock yet to justify a significant position in my portfolio. What attracted me to the stock was, it is a simple business, the company manufactures, sells and distributes shelf-stable and frozen foods across the USA. Its been in the business for over a century, founded in 1889 and has a healthy share holder’s yield of over 6 % and positive free cash flow margin. My idea in initiating a small stake in the company is to motivate myself to study the stock further and then decide whether I want to increase my stake or call it quits.

Thesis for FCAU: Fiat Chrysler Automobiles checks all the metrics that I look for to investing in a company in terms of valuation. The stock is trading at an EV/EBIT multiple of 3.2, dividend yield of over 5 % with a relatively strong balance sheet to cover interest and dividend payments. The firm is owner of several brand name vehicles, including FIAT, Jeep, Maserati, Chrysler and RAM. The stock has struggled in the last two years, reaching its 52-week nadir price of $12.27 in Oct of last year. The firm is currently in the midst of merger deal with Peugot maker Groupe, ticker PSA and the uncertainty surrounding this merger is impacting the stock. The sell off in the past week has created a good entry point for me and I am willing to sit back and enjoy 5 % dividend yield while the company sorts through its merger deal with PSA.

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Personal Finance, Value Investing
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