No. of Recommendations: 11
Jim has long (and most generously) shared his thoughts on a portfolio
during retirement. In recent years he has suggested a mix of
½ Berkshire and ½ QQQE, to be drawn down for retirement expenses
(perhaps on a quarterly basis) from whichever is larger. QQQE was
selected to avoid single stock risk, i.e. too large a percentage of one's
portfolio in one or more stocks. A simple retirement portfolio,
no-maintenance, relatively automatic. And the beauty of drawing
down from the largest is that temporary price surges are more likely
to be captured.
In the meantime, Berkshire's AAPL holding has increased to about
22% of Berkshire's total market value'a substantial single stock
risk, particularly when one looks at where Apple's products are produced
and where its revenue comes from. That risk was the focus of a recent
article in the Financial Times: 'Apple is a Chinese Company' (subtitle:
'What happens when the SEC auditors and investors wake up?'), 3 May
2023, by Jay Newman (senior portfolio manager at Elliott Management).
Paywalled:
https://www.ft.com/content/bf8e3846-2421-4f91-becf...Some of the points made in the article: Apple long has had a friendly agreement
with the CCP (Chinese Communist Party) regarding the manufacture and sale of
Apple products in China; 'The CCP controls the factories and workforce that make
Apple products, it controls access to China's market, and dominates Apple's global
supply chain'; 'Unwillingly, perhaps, Apple has become a facilitator of surveillance
and (Chinese) government censorship' in many very significant ways; about 20% of
Apple's revenue come from sales in China; at any time the 'friendly arrangement'
could be cancelled, even on a whim; also, U.S. regulators might begin to examine
Apple's arrangements in China more closely, with possible repercussions on U.S.
government regulatory activity and investor behavior.
Considering the ease with which valuations of tech, education, property and other
sectors have been crushed purposefully in China, as well as increasing nationalism
combined with growing conflict with the U.S. particularly in the technology area, it
seems to me that Apple is in a most precarious position. With 22% of Berkshires
total market value in AAPL, a halving (or perhaps a reduction of even 75%) of
Apple's stock price overnight is not difficult to imagine--with a sizeable long-term,
if not permanent, loss for Berkshire and its shareholders. Apple's expansion in
India is slow and will take many years to make any meaningful difference.
If it doesn't make sense to buy QQQ with about 13% in AAPL, then it might not make
sense to buy BRK with 22% in AAPL. If one is concerned, what might be done?
One possibility that I have begun implementing is reducing exposure to BRK from
approximately 50% of the portfolio to between 33% and 25% over time. End point
might look like this:
BRK 1/3, QQQE 1/3, new ETF 1/3;
or BRK ¼, QQQE ½; new ETF ¼.
Which new ETF? After puzzling over this for some time,
Invesco Russell 1000 Dynamic Multifactor ETF (OMFL) and
VanEck Morningstar Wide Moat ETF (MOAT) were chosen
as possibilities. Both are actively managed and have outperformed
BRK.B since OMFL's inception date 2017-11-08; and both have
Morningstar's 5 Star rating.
AAPL is OMFL's largest holding at 5.74% and is one of the 309 OMFL
holdings ranging from AAPL's 5.74% down to TPL's .01%.
As for MOAT, AAPL is not (as in NOT) among the 49 holdings, which
range from META's 3.88% to STT's .97%.
So far, have placed about 1% of portfolio in OMFL and reduced BRK
by the same percentage. Continuing the shift over time.
Of course, another obvious alternative would be to increase the % of QQQE
above 50% to, say, 60% to 66% with BRK at 40% to 33%
As always, your thoughts are welcomed. I particularly appreciate critical
posts with clear explanations of how my reasoning could be improved
And many thanks, Manlobbi.
vez
