Thursday, March 28, 2013

I am updating monthly performance.  Good month in absolute terms but not versus my "benchmark" where I suffered to the tune of -0.70%.  Still taking on water from AAPL and RAX and VALE now, but the div payers are doing well.  I also dropped my equity exposure from 30% to about 10% and that cost about 0.15-0.20%.  Some underperformance also from paying option premium, but I suspect that to be fairly small.

My current equity exposure is about 23% or so because the options have taken me up there following the trend.  I have been selling into it and keeping it from getting too high (which has cost me money, but then hedging always does).

Interesting article on money flow and the implications on stock prices:
VVR has been one of my favorites.  Floating rate senior loans is their investment arena.  I believe in the story, but I am concerned with the hefty premium to NAV.  In addition it is a leveraged fund so it is riskier by nature.  Over half of the 25% return in the last year has been from the premium expansion.  I will be looking for alternative funds to invest in this space.  BKLN is one that I am invested in as well and it trades at parity with NAV.

EVF is a candidate
VTA is also one.

Their fees are slightly higher but they are trading much closer to NAV (net asset value) so one will have a bit more protection if things go sour.  They both have leverage, but it is around the same as VVR.  The leverage part does not scare me so much as the potential for a change in sentiment that could see premiums go away.

Tuesday, March 19, 2013

Good post on dividend stocks.  It identifies some of the companies that I follow and invest in as part of my core portfolio.

Whenever there is weakness in these names, I consider purchasing a bit more.  They are not sexy and in fact can cause a portfolio to underperform in up markets, but they will help in down markets and over time, I think they return is more than fair and protects against inflation.

I want to re-iterate my base thesis which is:

dividend paying stocks are ok as companies benefit from streamlining and take advantage of low interest rates to improve their balance sheets.

long treasury bonds are ok because overall growth will be low and inflation will be kept in check by overcapacity and relatively high unemployment.

cash, hold a percentage for buying opportunities.

Currently, my cash is high because I am a bit ambivalent and can afford to sit out temporarily.  I own a lot of options which will help get me back into the market if we have a surprise rally.

Monday, March 18, 2013

Bought a little on this drop.  As negative as Cyprus actions are, I see it as localized.  So US stocks should be ok.

Tuesday, March 12, 2013

JCP has popped up on "rumors of a potential CEO change".  Whatever.  But I know it's up about 8% since I bought it a few days ago so I am taking my 8% and waiting for another opportunity.  I only wish I was this "in the flow" with BBRY  boy has that stock been volatile.

Good read on the budget battle.

During my brief teaching career at a local University, I stressed to my statistics students to question the data.  This writer is speaking of doing that.  I am conservative enough that I am not a big fan of deficit spending, but I  also believe the government should have some stabilizer effect and help when the market is broken.  This article fits with my view that politicians are using scare tactics on us to get their way.  I don't like that.

As to the conclusion, the only other thing I would add is that the market is an awfully good barometer and our government rates at all time lows does not signal a crisis in credit quality.

Monday, March 11, 2013

While I still believe in the long and mid term story for stocks, I am getting a bit of the trader's itch that we may see a small correction and I want to take advantage of that.  I have brought my stock exposure down to about 10% from around 35%.

That's a BIG move for me.

I do NOT recommend this for investors that are not monitoring the market full time.  But, I have committed to telling you all I do, so I am fulfilling that obligation.  Also, you won't be too surprised when my performance lags dramatically if the market keeps rallying ;)

I accomplished this by buying put options expiring in June.  SPY 150 Puts to be exact.  I have stated that options are "cheap" right now and I think any major moves like this should be done with options.

I expect a small correction, so I would probably go back to 30+% exposure if we get a 2-3% move down or so.  I do not foresee more than that being possible, but again, options are cheap and they offer some protection if I am wrong and we get big moves either way over the next month.

An alternative method to do this could have been to buy TLT which has come down quite a bit from when I sold it around 118.

MHN has taken a bit of a beating so I may buy some more in the MUNI space.  Be a bit careful if you think that muni interest tax immunity will be sacrificed during the budget battle.  I don't think so, and thus I still like MHN.

JNK and HYG are still ok, but I am watching them as if they rally a bit more, then stocks are a better hold and I would reduce my weight in the high yield(junk) sector.

Friday, March 8, 2013

A friend shared this story of an Apple analyst getting as Frank,Tony Montana's mentor would say, "high on his own supply".

This is a good cautionary tale.  Giving financial advice should be very personalized.  But the very nature of most blogs is that there is no analysis of the suitability to one's own situation.  My own goal with my little blurbs is to spark some thought about the investment process, make investors aware of the importance of examining fees and to provide some ideas about risk management.  I hope to accomplish this by speaking about my own experience in the markets and how I am managing my own money.

Be wary, go slow and seek to find ideas that persist over time rather than trying to make a quick buck.

Great unemployment rate number today that I suspect will cause a moving up of the date that QE ends. As such, this can be a mixed message.  Yes, unemployment is lower which is indicative of better economic growth (and thus higher stock prices), but the Fed has been pumping in liquidity and they will end the program which will be negative for stocks.  The ideal scenario for the fed would be for this to be a smooth transition, but it rarely is.

All this means is that it can be a bit jerky, but I expect stocks to remain supported and go up while bond yields should start going up a bit.

Thursday, March 7, 2013

The average P/E ratio - Price divided by expected earnings in the next 12 months - in my portfolio is around 15.  I like to look at the inverse of the number which is an earnings yield of 6.67%.   I then compare the yield to fixed income assets and decide how much I like stocks versus bond/cash alternatives.  Corporate bonds are yielding around 3.7% as measured by the yield of LQD.  I view the 3% I earn for holding stocks as a good premium.  Historically, it's a high number and it supports the view of having an overweight position in stocks.

The S&P has a p/e of about 13 which is even more attractive.  My portfolio yields a bit higher than the S&P and to me accounts for the valuation difference.  Importantly, while I view stocks as good alternatives to bonds and cash, I do not think they are so cheap that there is no risk to holding them.

At these levels there is risk.  Perhaps not over long enough time horizons, but it exists nonetheless.  And that is why I always try to leave myself some cash to buy on dips.  Right now, I am very selective about what I buy.  I am only considering things that have what I believe to be temporary drops in value.   I also try to keep in mind that if something is falling in this market, there is likely a reason and I may just not see it.  Protecting against "falling in love" with a name there are two strategies.  One, cap your exposure.  Come up with a limit in size (shares) that you will not go over no matter how cheap a stock gets.  Two, stop-loss.  I do not advocate trading with a stop loss order in the market, but I do agree that there should be a number that makes you re-evaluate.  So for example, in my JCP idea I think that if we drop below 13 (about 10%) then I would just take my losses and set up for another day.  This view allows me to set how much I can lose on an idea and manage my risk.  I am more likely to do this for my speculative positions than for my core positions.  AAPL is a case in point that I am riding down and will probably come up against my share limit rather than any dollar limit.

Wednesday, March 6, 2013

My overall stock exposure high at around 40%.  Largely, this is driven by the call options that I had purchased increasing in value and becoming more relevant.  For those not familiar with options, call options effectively go with the trend on the upside - they get you more exposed to upside as a stock goes up.  So, as the market has gone up, my exposure has increased from the low 30's to as high as 45%.  As a result, I am able to play around trading selling when we get some rallies and buying when we get small declines.  Normally, you pay for the ability to trade around because there is time premium that declines over time.  Currently, options are very cheap, so the premium one has to pay is quite low.
I continue to like options and am rolling my March SPY 155 calls to April 157.

Hopefully that wasn't too obscure.  Bottom line is that I like the market in here and the options are a cheap way to get that exposure.

Additionally, JCP has been smacked and a lot of bad news has been discounted.  There is value in this brand and while it may continue going down because it is burning through cash, I think it is worth a speculative buy.

QCOM is also worth buying in here (today taking a hit).  I am very bullish on the global expansion of personal handheld computing and they are the principal player and a very well run company.  This can be a core holding for me.  I will probably build a position over the next few weeks.