A flattish-to-positive September is never a bad thing; this one yielded + 0.3% for the portfolio, but by the end of the month markets were beginning to show increased volatility. At the start of October this has been confirmed with price swings increasingly holding promise of lower prices to come in the near future. Bad for the balance in the short-term but good for the dividend income in the long-term. But first, September:
Looking at my various holdings’ price changes it was my US and Swiss companies that brought home what little bacon there was. Dollar strength on the back of hopes of rising rates seems to be the theme of the moment and Berkshire, IBM, JP Morgan, Altria, and Reynolds all chipped in with positive returns (in Sterling terms) for the month. Novartis and Roche also made positive contributions.
Berkshire is up 16.51% in US dollars so far this year and looks well positioned for a rise in rates and the on-going steady US recovery. Unfortunately it is currently selling at a Price/Book of 1.4 which is around its historical fair value and so not particularly attractive for further purchases. Nevertheless, Buffett’s famous elephant gun is fully loaded with a large bag of ammunition at his side (est. $55 billion). Any distress in the markets over coming months will hopefully see further deployment of capital for the long-term benefits of Berkshire, its shareholders and the Gates Foundation. Kellogg, Campbell Soup, General Mills, Deere, Henkel, Cummins? Whatever the next acquisition turns out to be, it will seem obvious and perfectly logical to everyone with the benefit of hindsight. In the meantime we will have to make do with guessing while watching the occasional foray into utility bolt-ons and car dealerships etc. Although, the plan to rename the retailer as Berkshire Hathaway Automotive might provide a sign of things to come in the roll-out of the under utilised Berkshire Hathaway brand.
Other holdings that moved up over the month included two that I have been adding to, namely IBM and JP Morgan. This is something that I definitely do not want to see. I am aiming for about 5% of my portfolio in each company and so, while I am striving for this, I would like to see prices falling not rising. IBM will hopefully continue flat-lining for a while yet while I buy a few more (and they buy back at the same time) but JP Morgan seems to be on people’s radars due to the rising rate chatter. I wish I had started buying this six months before I did.
Most of my British companies fell over the month, with noteworthy events including Obama shooting Pfizer’s fox (AstraZeneca) by announcing that companies would no longer avoid tax on US earnings by means of internal loans, dividends and swaps to restructure themselves under foreign ownership. AstraZeneca’s takeover premium wasn’t the only one outside the US to take a hit as a result.
Ed Miliband used the platform of his Labour party conference speech to announce that he would collect a windfall tax from the profits of UK tobacco companies to pay for an increase in spending on the NHS. Coming almost a year after he damaged Centrica with similar talk (price freezes), this has left me looking nervously at the rest of my portfolio wondering what might be next in his sights. Pharmaceuticals?
But to return to the wider market, it will be interesting to see what October brings. I am not superstitious, but October does have previous. I will be hoping for lower JP Morgan prices.
Disclosure: Long BRK.B, JPM, IBM, MO, RAI, AZN, ROG, NOVN, BATS, IMT.
Disclaimer: This post is not a recommendation to either buy or sell. Please consult your investment advisor.