Year-end Investment Scorecard


I spent some time on Monday at home reviewing our investment portfolio’s 2005 performance and investment goals for 2006.  Our portfolio performed well, in spite of a down year for the Dow 30 index (down six-tenths of one percent for the year) and an inverted Treasury yield curve.  The Dow ended lower for the first time since the 2000-02 bear market.  The S&P 500 ended the year up about 3%, its smallest gain since 1987, and the NASDAQ rose 1.97%, its third consecutive year of gains.  The gains were modest.  Generally, global markets performed better than U.S. markets did.  East Asia and Eastern Europe were especially bright spots in 2005.  The domestic markets might have ended the year on a happier note had the market not reacted negatively to news of an inverted yield curve during the last week of trading in 2005.  "Inverted yield curve" is a term that suddenly rose from obscurity to a term on virtually every investor’s lips.  Essentially, the inverted yield curve indicates that the yield on the benchmark 10-year Treasury note has begun to decrease, indicating the prospect of lower future interest rates.  Lower interest rates may sound enticing to consumers.  However, with the Federal Reserve now in the midst of raising rates, lower interest rates could be a harbinger an economic downturn.  Lower rates are often driven by lower demand fueled by lower capital spending.  Thus, news of the inverted yield curve spooked investors.
 
In 2004 I started investing in companies that recently went public and continued this strategy.  I call my modest IPO portfolio "MIPOX."  My strategy has been to participate in Dutch auction IPOs through W.R. Hambrecht, and if unavailable, buy shares immediately following IPO.  This investing strategy can be risky because companies’ share prices are often volatile following initial public offering (IPO).  Fortunately, the past two years have brought many happy returns.  Here’s a summary of MIPOX’s performance in 2005:
 
Caribou Coffee (CBOU):  -17.68% return since October 2005 IPO
Cogent Technologies (COGT):  -1.42% return since purchase in September 2005
Morningstar (MORN):  +88.89% return since May 2005 IPO
 
Overall, MIPOX’s 2005 performance was 25.38%, compared with a 140% return in 2004 driven largely by gains from Google (GOOG).
 
This year, I have set price targets for my current investments and plan to sell them once they hit those targets.  I have thus far been disappointed with both CBOU and COGT, but I expect them to perform better in 2006.  Regardless, if their share prices fall to a certain level, I will likely sell them off and reinvest if their price continues to fall.  I also have researched some new investments for 2006.  The debut of the New York Stock Exchange (Proposed symbol:  NYX) as a public entity is the investment I am most keen to pursue this year.  Two other IPOs on the horizon that have caught my attention include Tim Hortons, which Wendy’s International will spin off, and Chipotle, a subsidiary of McDonald’s.  I also have my eye on investing in a Chinese technology stock.  Shanda Interactive, an online gaming company whose stock has taken a beating, is one possibility.  I may also consider Baidu.com, the Chinese search engine, if the stock continues to drop.  Lastly, I am looking at some private media or oil investments.  I hope that MIPOX will eventually form the basis of a private equity fund I’m keen to launch over the next decade.
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