Year End Wrap-Up, Rebalancing and Review

This has been a difficult year for many including myself with investing. I have witnessed my capital decrease 1.75% even with dividends and options premiums. I was unable to call the bottom in oil and took a huge loss on Kinder Morgan and Cummins. I'm lucky I still have a pair of pants on! My passive dividend income has increased throughout this whole fiasco though and that was the purpose-a safe reliable income stream. Now as I approach retirement I must decrease risk. I am going to stay clear of speculation and barely investment grade companies bordering on junk credit ratings(KMI). I am reviewing my portfolio for companies with lower credit ratings (there won't be many) and will work to swap them out. I also do not intend to put any more capital to work in 2016 in stocks. I am considering I-bonds and municipals. I currently hold T, JNJ, PG, PEG, AAPL, BA, F, GE, GILD, KHC, OHI, XOM. I also hold an iShares fund and a health care fund, I use options once or twice a month, selling puts and calls.

Have a Merry Christmas, Happy Kwanza, Happy Festivus or whatever else you may celebrate! Take care of your health as it pre empts everything else-spend time with people you like and doing things to help others. Keep a gratitude list and read/edit it often.

September Update

My philosophy is to not follow the herd - please see below to determine what the herd is focused on right now;

I am bargain hunting. Here is a quote that may help;

My strategy is simple, watch for %ticker% to make a 52 week low and begin to accumulate shares when it moves 5% off it's 52 week low. Then hold until it begins to make a new 52 week highs and begin to sell when it falls 5% from the new 52 week high. If you accumulate say 1,000 shares at $65 / share ($65,000 investment) you will receive about $4,600 / year dividend (at current 4.6% yield) income for the next few years. Then if you sell at say $110 you would have a $45,000 capital gain. Thats a 70% gain in capital plus you get $4,600 per year while you wait.

Timing the market is a risky business but the above is worth considering.

August Update

Stocks of interest are;


RAI Reynolds American, tobacco, PPS 86.16, PE 16.1, Div Yield 3.08%, est 1 yr eps growth 16.8%, payout ratio 18.46%, DGR 8.29%

F Ford, auto manufacturer, PPS 14.80, PE 16.1, Div Yield 4.05%, est 1 yr eps growth 14.93%, payout ratio 31.67%, DGR 24.57%

DOW Dow Chemical, chemicals and materials, PPS 45.50, PE 13.0, Div Yield 3.61%, est 1 yr eps growth 14.02%, payout ratio 49.82%, DGR 22.87%

July Update

Stocks of interest are;

 CMI (Cummins), manufacturer of diesel/nat gas engines, 130.50/share, PE 13.96, div yield 3% (after dividend raise), est 3 yr eps growth 11.23%, payout ratio 32%, DGR 20-25%-source yahoo finance. sold put option on 7/16.

COP (Conoco Phillips), oil E and P, 57.95/share, PE 14.4, div yield 5% (just raised).

GE(General Electric), manufacturer medical equipment, jet engines, 27.04.share, forward PE 17.45, div yield 3.5%, est 5 yr eps growth 7.96%

GILD (Gilead Sciences), biopharmaceutical, 118.85/share, forward PE 10.75, div yield 1.5%, est 5 yr eps growth 20.6%

Jason Zweig

"The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists."- Jason Zweig

April - May Activity

Welcome back. These last few weeks I have sold a covered call on CAT trying to protect against downside after I picked it up at around 81/share. Turns out all the estimates claiming losses into 2016 didn't matter, shares still gained. I made a minimal amount and left money on the table. Still I went with the lower risk and higher probability scenario. That was the correct risk exposure for me.
I was lucky on KRFT and GE. KRFT and Heinz merged to form a huge food staples conglomerate and my shares took off. GE is selling off their financial arm which was met with a $3/share boost. Just goes to show patience + owning solid companies with wide moats + luck = investing success.
Picked up some CELG on solid growth and buyout rumors.


We are entering May and the 'sell in May and go away' segment of the year, where money will be even more scared than usual. Lots of people with their finger on the sell button. I am thinking stop losses on stocks that are not major income producers.

March Activity

I have no transactions to report except for dividends hitting the account. In the month of February about $468 in dividends was reinvested.

Here is a great video from the Oracle of Omaha. He speaks about Ted Williams, the strike zone and investing. It is excellent.

https://www.youtube.com/watch?v=_5VQPIeZhMc

Back from long absence - Recent Activity

Hi again! Sorry for the disappearing act. It has been tough to get here and post due to life. I am finding that the closer I get to semi retirement the less time I have to sit and compose some investing thoughts. The funny part is investing gets more important as time goes on yet I pay less attention to it! That might be a good thing since that means less trading for me and like many, I tend to overtrade.

We are getting to the point where playing defense with our capital is paramount-for 2 reasons. First, the market is near an all time high and second, as I mentioned, semi retirement is just a few years off. Semi retirement for me means that I leave my current position which pays well but also has many serious obligations, and take up something either part time or something with many fewer responsibilities thus requiring less time on my part. This is BADLY needed-to deal with my and my Mother's dilapidated houses, to give more time to my aging parent, to deal with my kids and their needs and to get me back some sanity.

ANYWAY.....investing. Quite a ride these last 6 months. Several dips in the Fall 2014, still the Ukraine problem, Greece deciding they have had enough austerity and a huge oil beating. I was and am still overwweight energy and picked up more CVX at 104. I am still in the red on CVX but not COP or KMI. Picked up CAT on a put option at 83, immediately sold a 3-20 covered call at 85, we'll see if it goes but decent dividend. Been in and out of GILD, still hold 50 shares, they just initiated a 1.6% divy! AAPL still my best holding, up 60%. Picked up more GE recently. Each of these transactions could easily be an entire blog post in itself to explain the reasoning behind it. Finally thinking of putting stop losses on all holdings.


Thanks for stopping by. Happy 2015 and I wish you a great and prosperous year!

August Activity

Due to the catalysts at work now and in the near future, I have decided to lighten up the portfolio and go to cash with some holdings. The most obvious candidates to me were the lower yielding blue chips where I was at or near cost basis or in the red. I sold ED, MCD, KO and PG. I am interested in picking up PG and possibly KO again after the correction which I believe is coming, but at a lower cost basis. We have lots of macro events in the hopper, any one of which can escalate and trigger a pullback. Take your pick-Russia/Ukraine, Iraq air strikes, Fed easing ending in October, Israel and Hamas, mid term elections, Europe entering recession again etc.

I am 1/3 in cash. This is a good time for covered calls.

July addendum

Here is a link to an informative blog which you might enjoy;



http://seekingalpha.com/instablog/5038891-interesting-times/3076305-interesting-times-for-all-commodities-and-investments-chapter-73

Earnings week this week-about 1/3 of the S+P reports earnings. Between that and the turmoil with a passenger plane being shot down and mid east problems we could be in for a rough ride this week.

July Activity - Good Deals Scarce

Even after the feds announced plans to end bond purchases in October, the market still went higher. Personally I was hoping for a pullback so at least I could sell some puts. I did sell one on DE strike $85 a few weeks ago. But it is difficult to spot a good deal now. VLO recently took a big hit but refineries are unpredictable and risky. I plan to hold cash this summer and save each month for the inevitable pullback. I'll be looking for deep value and put selling on businesses I have been watching-OHI, HCP, ED, possibly PFE, TGT or WMT although retailers face stiff online headwinds.

Here is a quote from Tim (see sidebar) that sums it all up in a way anyone, myself included, can understand;

On a relative basis, I'd think about it this way. There are plenty of companies that you can identify as growing north of 10% over the medium term. The trickier part, particularly here in 2014, is finding a company trading at a discount to fair value so you can benefit from P/E expansion as well. 

Thanks for stopping by..

June Activity - Morningstar rocks

Recently picked up some KMI at 33.25, sold and bought back a put on Con Ed with the intent to sell another put at 52.50, August expiration. AAPL is splitting 7 for 1 today and the share price has been shooting up in anticipation. I believe it will be at 92 and change pershare on Monday which should invite more retail investors to buy, putting even more upward pressure on the stock.

Morningstar.com offers the following valuable info for free:

After putting in a stock symbol go to the performance tab then click expanded view. Average the dividend yield for the past 10 years. If you are thinking of buying, try to get a yield higher than this 10 year average.

Click on Industry Peers after entering a stock symbol, then find Fair Value Estimate. This is Morningstar's fair value for that stock.

May Activity - goodbye ARNA

Well, I couldn't take the pain anymore of watching my portfolio get dragged down. After ARNA missed estimates by .02 the stock plummeted some 12%-this after a month of TV advertising and another accumulation on my part. This is the only stock I've owned that has consistently been a solid nonstop loser. My emotions got the better of me and I dumped the stock. It will be a long time before I do that again-invest my hard earned money in a speculation. It is a relief and almost worth the loss in dollars to be rid of it.At least I derived no income from it in the form of dividends-my dividend income stays the same.

Onto bigger and better things. I am about to have CSCO called away and that is ok with me. I am going to take the funds and look closely at a few on my watchlist-KMI, ED, OHI. I am looking forward this next few weeks and will post when changes are made.

April Reading and Research

I plan to read Morningstar, S&P outlook and Valueline regularly from now on for buy and sell ideas. A useful book that is now on my wish list is Paul Wagner's "The Duly Diligent Stock Investor"

http://www.amazon.com/dp/0615708714/ref=wl_it_dp_o_pC_nS_ttl?_encoding=UTF8&colid=3RZ0426V93W98&coliid=IK6JLANKC97AG


The classic investment texts are great (Jeremy Siegel, Ben Graham) but here is a concise book that just tells you how to methodically put together a watch list and then evaluate the list to narrow down the companies. I really want to read this book.

Thanks for stopping by... 

April Activity - trading advice

Picked up some AT+T at 32.50, sold a put for 32 which expired, collected premium. Here's some trading advice, your mileage may vary on this but for me it works....

•  Don't buy at the open, but it is ok to sell at the open. Price action is too weird with the opening frenzy.
• Use a limit order when purchasing stocks that trade with low volume, have big news that affects price, have a big spread between bid and ask price and that you definitely know you want to purchase at that specific price. If you use a market order you will get whatever price is in effect at the moment the transaction occurs-it could be not what you think given the conditions listed above.
• Sell a put option if there is a stock you'd like to own at a specific price but would be ok if you lost the opportunity because the price went up before it hit the strike price. You'd then collect a premium anyway.
• Sell a covered call if there is a stock you already own that you would be ok with selling if it hits a certain price but that you also would not mind continuing to own if it does not. Again, you collect a premium if it never hits the strike price. 
• Use a limit order when selling stocks that trade with low volume, have big news that affects price, have a big spread between bid and ask price and that you definitely know you want to sell at that specific price. If you use a market order you will get whatever price is in effect at the moment the transaction occurs-it could be not what you think.
• Use a market order on stocks with high trading volume, high liquidity, low bid/ask spread (these conditions are the opposite of those listed in the 2nd list entry above) and when you are absolutely positive you want the buy or sell transaction to occur at or within a few cents of the current price.
• Generally, find any excuse you can to not trade; a huge mistake especially for beginners is to overtrade, churn their portfolio and pay excessive transaction fees. Let time do the work-you are getting paid to wait if you are an investor collecting dividends on large cap stocks. I have gotten impatient, traded when I should not have and lost money as a result. If your companies are solid, the current price is irrelevant unless you are a swing trader.

February Activity

The dip we just experienced in the stock market may not be over. The 2008 pullback lasted over a year. I recently added to CVX, JNJ and COP-too soon (but still at fair value). Now I wait. If the pullback continues I will continue adding slowly; these additions just keep increasing my income! Is JNJ or CVX going to cut their dividend? No flipping way! That is why I own them. It doesn't matter how much the market pulls back. It would take an apocalypse to cause the likes of JNJ to cut their dividend.

Buy stocks that pay you for holding them. 

It doesn't take alot of skill to buy XOM at a good value and then do nothing.

Year End Wrap-Up, Rebalancing and Review

This year has been a decent year for investments in the stock market. Most notably our yearly dividend income has gone from around $1500 to about $2210. This is an increase of $710 and if this rate is sustained for the next 4 years, I will have attained $5000 of yearly dividend income at age 55 - $1000 more than I had set as a goal last year at this time. The plan which was layed out is being executed and it is WORKING. Now it is a matter of continuing to execute the plan. Merry Christmas and Happy New Year - see you next year!

November Activity and AAPL

I have been in and out of AAPL for about a year. I recently purchased 10 shares at 525 and immediately sold a put to get 10 more at 500 which lowered my cost basis to 515. I'm glad I did. AAPL appears to be breaking out even before the China Mobil announcement which will bring some 700 million more customers and another bump in share price. Then there's the holiday sales which played into my buy decision.

This is an amazing deal at a time when the market is at all time highs and even fair deals are getting difficult to find. STRONG BUY.

Other recent action-purchased 100 CAT@84, immediately sold covered call @86, CAT lowered guidance, sold at 84.20, collected premium on call. Sold put on DE@82.50.

Happy Thanksgiving to all!

October Activity and Investing Goals

October activity has been limited to reopening a small position in CVX at $118/share. AAPL has some serious positive momentum into the holiday season; I may reopen a position there.

What are your specific investing goals? Are they changing every day, depending on what happened that day? Or do you know that some parts of your life will not change and invest with that in mind?

Some people cannot define their goals beyond "I want to be rich". It is hard to make a specific detailed plan based on such a general goal. In my case, I want to generate safe stable income when I retire for myself but more for my family. I would like to generate $20k in dividend income from companies that have never cut their dividend. I don't believe this is realistic so I will get as close as possible. This means growing the portfolio fairly quickly but without too much risk since I do want to sleep well at night. I will be 51 in a month and have a few years of work left. By specifying what exactly you are trying to do by investing, you are now more able to take the specific GOALS and use them to come up with a PLAN. Without doing this, you are kind of like a day trader....gee, I hope I make some money today in the market. But by doing this, you will understand that market variations need not create a panic and rush to the exit door; you will have clear thinking and a cogent plan to implement with your holdings regardless of pullbacks or dips, in fact you will view dips as rare opportunities to increase your high quality holding which you have worked hard to acquire and collect at bargain prices all along. To summarize;

My Goal-generate $20k/yr income in retirement by investing in companies with a safe and growing dividend. At 4% yield, this would require a portfolio value of 500k. This is not realistic, therefore I will get as close as possible while minimizing risk.

MY Plan-Research and acquire stock in companies with a history of growing earnings and dividends. Companies on the CCC list are good candidates.
Establish a core of 5 companies that are not to be sold unless there is a fundamental change in their business such as a dividend cut or several years of missed earnings. These 5 companies are the anchor of the portfolio.
Add 10 or so businesses that follow the rules I have defined earlier regarding payout ratio, pe ratio, dividend yield and other metrics. One or 2 of these may be faster growers, smaller in size or market cap, younger in age, lesser dollar value per share (~$10 or so), with more rapidly growing earnings and dividends.
Specific buying and selling rules are available upon request.

What is your goal? What is your plan? Comments welcome!

September Activity - volatility

We are looking at a volatile time period with Syria, Bernanke successor rumors and bond buyback tapering. I intend to do as little as possible to my portfolio. A portfolio is like a bar of soap-the more you handle it, the smaller it gets. This would be a great time to reread and refine the business plan/mission statement you wrote for your investments -

I close with the following discourse lifted from the pages of an SA article by one of my favorites, Todd Johnson;

Five stocks CAT, KO, MCD, PG, XOM  that have performed very well over the last thirty years were examined and found to have performed well over the last thirty years.

The question I'd like to have the answer to is: how did five typical stocks that had performed well over the thirty years ending thirty years ago perform in the next thirty years?

Might they have included Polaroid Land, NCR, GM, and other blue chips? 
 
 
 
@Victor ... >>> Might they have included Polaroid Land, NCR, GM, and other blue chips? <<<

I have studied this extensively! Those companies were not dividend growth companies, they were simply companies that paid a dividend. That's a huge difference!

I focus on the dividend growth, and it's the dividend growth that will provide the clues as to whether a company is in financial trouble or not.

When you have a company raising the dividend 7 to 9 percent every year, the cash has to be in the bank.

When a company that used to pay a 7 to 9 percent increase every year, drops to 3 to 4 percent and the payout ratio rises, there's your caution sign! Time to monitor.

If the dividend growth goes lower or the company freezes the dividend, then it's time to sell. The company may not go under, but I won't give them a chance to either.

Maintain the historical dividend growth patterns or it's time to move on. It's as simple as that.

I have the success formula that NEVER fails.

High Quality + High Current Yield + High Growth of Yield = High Total Return.

If one of the criteria to that formula is missing, time to consider selling.