Year End Wrap-up, Rebalancing and Review

It is that time of year to step back and reflect on many things. One of the most predominant thoughts I have is how lucky I am to be in this situation in life-personal, family, health, career and financial is all good. This blog has allowed me to centralize and organize my financial and investing philosophies and methods. Here is an attempt to begin to record what those thoughts are.


I am 50 years old with a wife and 2 kids. I want to invest so that I receive income and growth in the portfolio. Growth will become less important and income will become more important as the years go by. I am still in the accumulation phase of investing but will transition to more of a distribution phase later. In order to measure the progress, I will be posting the portfolio holdings, current values and exact income produced soon. To use a baseball analogy, I am too old to really risk thousands 'swinging for the fences' and buying startups and penny stocks. I just would rather put my bat on the ball and just put the ball in play. A grounder to the infield will work! Hell, I would be satisfied with a foul tip. So I believe in getting small, steady, reliable gains in the form of dividends and also some low risk covered calls or puts. I do have one or two growth plays-these are the riskiest equities I own-ARNA, F, and in and out of GLW. To sum it up;

I want to invest in low risk companies with a track record of safe and growing dividends. Criteria that are required include:
1. PE ratio of 15 or less upon purchase
2. Minimum 3% dividend yield (unless it is a growth play)
3. Minimum 5% 5 yr dividend growth rate (unless it is a utility or a telecom)
4. At least 20% off its 52 week high
5. Market cap $500M minimum
6. Payout ratio 75% maximum

I receive approximately $1500 a year in dividends from my portfolio. My goal is to grow the income to at least $4k by the time I am 55. At 55 I would like to semi-retire. For a better description of my plans and interests, see my profile.


What else do I need to do? Learn. I desperately need to learn more valuation techniques and I need to seriously learn options. I am seriously considering starting an investing library. I read constantly but a methodical approach would work better than scattered reading. Time is the biggest constraint-there are not enough hours in the day to learn and produce all that is desired so choices have to be made.


That's it! Simple. The best it gets. Happy holidays, Merry Christmas and a profitable New Year to everyone. Oh yeah, health and happiness too!

Fiscal cliff approaching

With the fiscal cliff approaching, there appears to be 2 possibilities to think about.

1. No agreement is reached and we lose the Bush era tax cuts.
2. An agreement is reached that involves tax hikes and/or government spending cuts.

Both options have negative consequences for the stock market. In a downward headed market, generally we want to keep cash on hand and use covered calls on stocks we wouldn't mind selling anyway. Even in a major pullback, absolutely do not sell core dividend paying blue chips-ride it out. The tax consequences are not known yet but on small portfolios < 100k it won't make a huge difference. Stocks to watch-LINE, LNCO, GLW, F, COP, PSX, CVX, INTC, ARNA.

Cash secured puts

To my surprise, 2 of my 3 puts executed. I picked up some ATT at 35/share and some GLW at 11.75/share. It did not occur like I thought it would though...they executed on the last day of the option before it would have expired worthless, at a price lower than my strike price. In other words, I bought the stocks at a price higher than they were actually selling for! Live and learn-although GLW is now in the green for me thanks to a 7% pop, next time I will be more cautious. And since ATT is sitting there getting 5+% as a long term dividend growth stock, I feel that waiting for it to come back is not such a bad deal.

Market correction-canary in the coal mine?

Hi and welcome back. The re-election of Obama has occurred and we are witnessing a pullback that is not unexpected. The fiscal cliff approaches but is it just a harbinger of greater tribulations to come? The market has lost 5% since 11/5. Increasing tax rates on the wealthy will probably trigger the big money to sell, causing more lowering of share prices. A recession is likely in 2013 some say. Those with significant exposure to stocks could consider raising cash by selling some of their holdings in momentum, housing and industrials. I will be leaving my core holdings as they are. My intent is to never sell them unless there is a change in the company fundamentals. The others such as F, GLW, ARNA will be considered for covered calls or will br a sell at the right price.

Other assett classes

We don't want to neglect the fact that stocks are not the only investment choice. Many other options exist-plain savings accounts, CD's, bonds, real estate, precious metals and gems, collectibles, and even basic materials such as basic metals and lumber. I own several I-bonds and CD's. Corporate and municipal bonds are interesting. What are your investment choices? Why?

Valuation

Another technique used in valuation is the chart-my weakest area. Supposedly if the 200 day moving average and the 50 day moving average are both above the current stock price, this is a favorable buy condition. Its just one condition though. If another is that the earnings are about to disappear because the company manufactures pet rocks, then it doesn't matter about the moving averages-don't buy! As with any stock purchase decision, research is most important and money is made or lost on the buy side more than the sell side.

Arena Pharmaceuticals

ARNA is my most speculative holding and what a roller coaster its been. They have a new obesity drug recently approved by the FDA. Up 6.71% today, I hope it dips so I can buy more. Its about to break through to higher levels and I have a covered call on it for $11. Its going to get called away, but why get off now? Lets see how high it can go.

Valuation, valuation, valuation

I will post early and often about this topic. How to value a company? A common, fast and easy indicator is PE ratio. It is the price we pay for a dollars worth of earnings in a share of company stock. If PE=12, we are paying $12 for $1 worth of earnings-and earnings mean everything especially earnings growth, past and projected future. We want this number low, preferrably below 15. Why pay more for a company's ability to make money and return value to shareholders? Its like buying when there is a sale-waiting for a dip in the share price while the earnings are still the same. This is only the tip of the valuations iceberg. Please post your thoughts on other factors affecting valuation.

AT+T - buy or sell after the dip?

Seeking Alpha has a few articles on att's recent 6% dip. Is it a buy now or will there be a further beating? I have a cash secured put in, strike price 35 for Nov 17. Split the difference, get paid to wait either way!

Welcome to jcinvestor

Hi and welcome to my investing blog. I am a dividend growth investor with a small portfolio-my intent is to share my experiences with anyone who is interested. Thanks for viewing..