May is a Week Away

April 25th, 2015

April 25, 2015

Here I sit, Saturday afternoon,  at peace with  my year to date Wall Street performance ,  but nervously speculating on the NFL College Draft which starts Thursday evening. The source of my anxiety is the New York Giants and whom they will  chose with their number 9  first round pick.

For me, my preoccupation with the NFL draft is the ” Go Away “. phase of  “Play Till  May, Then Go Away ”  and I want to thank Wall Street for allowing me to sell 70% of my holdings into strength this week..

I am happy to say I’ve out performed SPY from November 1 until now by a score of 5.76% to 4.41%.  Of the 5.76% total profit , 85.5% is  in my pocket and waiting to be re-deployed.  My year runs from November 1 till May 1 and re-starts November 1, unless there are compelling reasons to be invested between May  1 and October 31.

I’ve seen the first two weeks of May wipe out a big chunk  of my year to date winnings more than once, so, this year I’d rather take the risk of losing a bit of the upside instead of  half my winnings in just a few days,  with me in full financial and emotional  retreat.. ….even though I do believe strongly this market is headed higher due to macro factors such as relatively low interest rates compared to earnings yields.

While the  concept of ” Play till May ” is based on fear, this year it has allowed me calmly  to rebuild my cash reserve to allow me to purchase  at attractive prices should the opportunity arise after May 1..  If I am wrong. all I’ve lost is some opportunity  profit and I’ll re-enter the market after May 15 if conditions are as compellingly positive as they have been until now..

So, at this point, I am alert to a buy point.  I am not a seller.

Now, all I need is for the Giants to draft that tackle from Iowa and someone on Wall Street’s crowded  balcony to stand up and  shout ….FIRE !

 

Richard Maurice Gore

 

DISCLAIMER:  I do not offer or sell advice, accept deposits, commissions or fees or make any offer to “run” your money or act in your behalf. I  am unlicensed.  What I do, entirely at your risk, is allow you to peek over my shoulder to see how I go about attempting to earn a living using my own liquid financial assets.  These Posts are primarily for me to follow how my thoughts are evolving into strategies that win for me.  I still have a lot to learn !    RMG

 

 

Disclaimer

April 19th, 2015

April 19, 2015

I have been advised to incorporate a ” disclaimer”  in my Posts to protect myself against capricious lawsuits based on people saying they lost money relying on my advice..

I reviewed the ” boiler plate ” it has been suggested I use and I have decided that I can use plain English sufficiently well to thoroughly denigrate my reputation for reasonable financial thought and analysis.  By the same token, it has been suggested I can protect myself best by suggesting you place yourself in the hands of a registered financial adviser.   I’m not about to do that because the whole point of this blog is to encourage you to learn to be your own adviser.

I do not offer or sell advice, accept deposits or make any offer to ” run ” your money or advise you.  What I do, at your own risk, is allow you to peek over my shoulder and see how I go about attempting to earn a living using my own liquid financial assets.  These posts are primarily for me to follow how my thoughts are evolving into strategies that win for me. I still have a lot to learn.

To save time and ink, at the end of every Post I will refer you to the Archive containing the above

Richard Maurice Gore

Bank Robbers, Inc

April 7th, 2015

April 6, 2015

There are three parts to my evaluation of a company for  an investment  of up to 5% of my liquid assets.

Management is the key determinant in each step of my evaluation..

A )  The Past  –  The creation of a competitive  product or service by  managing  resources in a sufficiently skillful manner as  to give the product a fighting chance to sustain and enhance  its market success.

B )  The Recent Past  … The  management of existing  resources by the current  CEO and his team to maximize revenue, operating margins, net income and cash flow.

In either ( A) or ( A & B ) Lots of data to mine…..No problem…..But first……

C ) The  Discovery Phase … This is where I visualize myself showing up at the headquarters of Bank Robbers, Inc and asking the CEO and his team …how much cash did we get ? what’s my share ?,  and what is  this years target ?

The Discovery Phase …is where my entire evaluation  could begin  and  could  end….  very quickly.

Since my staff of analysts is me, it is imperative  I  make quick  decisions about  whether an equity deserves an in depth evaluation effort by me.  For instance, just yesterday,  I read that Meg Whitman, CEO of Hewlitt Packard has a severance package of $51,000,000.  On that basis, I wouldn’t  want her as my employee and I would have minimal confidence in any Board that would grant an employee that benefit. So,.. I cross HPQ off my evaluation list.  My eyes and  ears are on duty 24 / 7 to uncover  evaluation candidates.

I don’t return to Parts A and B until I successfully complete  a Discovery phase analysis..

I want to know ( 1 ) how much cash is being generated in relation to the market price of the equity…. and ( 2 ),  how the  CEO and his team are  allocating all the cash being  generated.

a) Are they making  capital expenditures to improve or sustain the competitiveness of the product ?… Why ?

b) Are they using this cash to make an  acquisition or enter a new business.?… Why ?

c) Are they indulging  in an orgy of dead end expenses which do nothing to increase intrinsic value ?

d) Will they pay down debt ?

e) Will they pay dividends ?

f) Will they buy back shares?

But even before I ask these questions  I want  to determine how much cash is being generated in relation to the market price of the stock. The ratio of Price to Cash Flow  ( P / CF ) tells me how many years of cash generation  it will take the company to  pay back my entire investment. I have come to the conclusion that this is the magic piece of information that allows Warren Buffet in the blink of an eye to  decide whether he should pursue or cut bait on the possibilities of a potential  investment.

Using trailing twelve month data, I can give you  a quick comparison between Apple and say….  Amazon.

According to “Morningstar”  data, Apple  generated $11.76 cash per share during the past 12 months . Divide that into Apple’s current price, $125.32 and you come up with a multiple of price to cash flow of 10.65 times.  It will take Apple……10.65 years for cash being  generated to cover my entire investment of $125.32 per  share.

On the other hand, Amazon  generated $14.81 cash per share,…. but the price of Amazon is $372.25 per share, resulting in a multiple of 25.14 years of cash required to payback my investment.  Then,  when you consider that Amazon’s capital expenses ( to further Jeff Bezos’ visions ?  ) are $4.22 per share, it creates a price to “free cash flow”  multiple of  88.21 years of cash generation to repay my Amazon investment…This is versus a price to “free cash flow ” multiple of  12.63 years  for Apple.  ( Operating Cash Flow minus Capital Expenses  = ” Free Cash Flow”  )

Since I am searching for great stocks at great prices, I will invest my evaluation time in Apple.

Now lets talk about ” Shareholder Yield “ which  has three components;

1) Dividend Yield percentage , plus…..

2) Net Buyback Yield percentage, ( one years difference of the number of shares outstanding divided by the market cap of the company. )  Buybacks give you a bigger slice of the pie providing they take place when stock is undervalued and provided the buyback is not paid for by increasing corporate debt. Add this yield  to the dividend yield  percentage,  or subtract it if the Company has created net additional new shares.

3) Net Debt Paydown Yield  percentage …Net changes in short and long term borrowing divided by the market cap of the company.  Add this incremental percentage to the sum of ( 1 ) and ( 2 ) to arrive at ” Shareholder Yield % “…..or subtract it from Shareholder Yield if the company has added net debt.

To make a long story short, I am looking to “invest” in companies which generate sufficient cash and possess sufficient shareholder sensitivity to establish an attractive Shareholder Yield . Morningstar uses terms such as  “exemplary” and “standard” to rate a CEO and his team in terms of skill in managing resources for the benefit of shareholders..

It has always been my belief that a CEO, and his team  that short changes  its employees will short change it’s customers and short change its shareholders and anyone else it sees as an obstacle to its perceived dreams and / or entitlements.  Its a ” me first ” attitude that usually considers employees lucky to have a job  and share holders as ” them “..

You can say  what you want about ” activist ” investors such as  Carl Icahn, but I believe  we need big time investors such as Icahn  to hold self serving CEO’s and their compliant Boards accountable.

Thank goodness there are plenty of companies who think in terms of ” we “.  You just need to find  them.

Richard Maurice Gore

 

 

 

 

 

Good News…..But

April 1st, 2015

April 1, 2015

Not to rub it in, but the December 31, 2011 SPY trade ended the quarter still on a buy signal ( 815 days / ahead 75.65% )

I’m not gloating,  because I’m not in this trade.  I use it and the fact that interest rates are low as the basis  of my continued belief that the FED is trying to create the “wealth effect”  ( consumer spending is 70% of GDP ) via the stock market.  To me, it means its OK to purchase any stock which makes sense in terms of its bottom up internals and the theme of the general market …..which is to avoid stocks whose price needs to fight the dollar ( energy, commodities, exporters ). By default that means to purchase  stocks which do business and make their profits in the US of A.

Since November 3, 2014  SPY has advanced  only 1.95% reflecting all the pushing and pulling going on within the S&P 500 Index.

Here are some other USA Index ETFs and results since November 3.  It seems the result hinges on whether the index contains big cap names which export or manufacture foreign currency profits which will shrink income statements  when translated against the dollar.

MDY ( Mid Caps ) …+6.80%,  OEF ( top 100 S&P)…..+0.25 %, VTI ( entire stock market- lots of small caps ) …2.85%,  IJR ( S&P bottom 600 small caps )….5.81%. and , as mentioned above , SPY 1.95% ( the top 500 USA stocks )

In contrast , here are a couple of individual stocks which have a USA focus, no overseas manufacturing, minimal exports, and don’t need a return from commodity like products…….CVS ( 18.74% ),   UNH ( 23.81%, DLTR ( 33.52% ), HD ( 17.73% ).

I’ll be back at you when I complete researching and writing my blog on managements which are sensitive to shareholder needs.

Bye….Richard Maurice Gore

 

 

 

The Great Delineator -” Management “

March 24th, 2015

March 23,2015

Strange,…. when I was President and CEO of Saati North America, I  never thought of myself as a ” Manager “.

I think my aversion to that label dates back to 1956 at Iona College, New Rochelle, NY  when I was discussing with some classmates which major to choose.  I recall someone mentioning Management, and I recall another classmate saying it didn’t seem intellectually deep enough to him.  To him, management seemed nothing more than common sense.  I suppose on some subliminal level I agreed, so I decided to follow Adam Smith into Political Economy…..and major in Economics.

Now, as an investor, and no longer a manager,  I have a much better idea of what a manager should be, a much higher opinion of the job I did as a manager , and a much lower opinion of some of the CEO managers and their compliant  teams whose work I encounter almost everyday in doing bottom up analysis for potential investments.

To dispose of me as a manager,  and  voir dire my qualifications to express both my opinion of myself and others as managers , I believe I need to relate a little bit of my experience as a manager.  What follows is not a resume’ and , for sure, I am not at all interested in having a job.

As of January 1, 1987  I liquidated my interest in the fabric  importing company I owned  and became an employee of Saati,  ( Italy’s largest  industrial weaver ). I signed  a long term employment contract that gave me unlimited authority and responsibility for the profit of the USA  subsidiary, Majestech.  To me, unlimited authority meant nothing except  use in breaking ties…rare.

If anyone asked me to describe my job , I could easily have said  ” motivational engineer  /  consensus builder “. I was surrounded by in place managers whom I had  hired and  respected.  I saw myself as an outside the box thinker……probably a radical in how companies should operate and interface with their employees, customers, suppliers and shareholders ( in this case , shareholder…Dr Carlo Novarese , President of the world wide Saati Group. ).

I saw my job as  selling  ideas to the management team and adopting their ideas on how we could create a delineated image of ourselves versus our competition and have a hell of a good time, and lots of laughs,  doing it.  Every employee, manager or hourly, was  to be able to articulate to anyone why our company was different,  a great place to work,  and why we were a great source for products and implementation ideas.

I had to be able to go to Italy, quarterly,  and demonstrate via an annual ” Accomplishment  Portfolio ” that we deserved maximum shareholder support in terms of strategy and product development.  We did the same with other  suppliers and we lost no opportunity to demonstrate to our bankers that we knew how they ran their business and would only bring them bankable transactions.

Every employee of the USA subsidiary participated in a monthly ” Sales Bonus Pool ” based on sales growth and the perception that it wasn’t only our Field Representatives who sold.  We considered everyone who had an  opposite number at our  Swiss, German and Japanese competitors to be in sales.  Our  mission was to outperform the competition in any area where the customer could draw a positive or negative conclusion about us. This  individual and collective  effort to impress and delineate   was considered  a sale and it included the switchboard operators,  warehouse employees ,  accounts receivable employees etc. ..

The monthly sales bonus check for hourly employees could be as high as the monthly lease payment for  a BMW 325i.  This was in addition to a 401K plan, pension plan, medical plan and 100% tuition refund plan.  That’s right, we had full time employees  wrapping packages who were in line to receive a liberal arts or  accounting degree from one of the local colleges.

By now, you are probably thinking that it was easy to do this because we were selling a product with a highly delineated competitive advantage. Wrong.  In fact,  we were importing a product which was in reality a set of specs that any of our competitors could probably deliver, and maybe at a much lower price if they set their mind to it.  In fact, we were importing a commodity like product.  What we did ( as a management team ) was surround it with a  portfolio of excellent  peripheral products which made it part of a  system whose other components we either manufactured or bought on exclusive and favorable terms.  We spent time on  the factory floor of IBM, Revlon, and Champion Knitwear showing them and others, how to use our portfolio successfully. We  had a steady  stream of visitors to our ” in house ” lab including ATT and Northern Telcom..

Long story short,  the net worth of the USA subsidiary grew at a compound annual rate of 25% plus during the 13 years I had direct control of sales, operations and the budget.  Its only now, when looking back and remembering  the words of Hall of Fame NFL Coach, Bill Parcells……

” You  are what your record says you are “,….. that  I allow myself  to smile.

All the above is to set the stage for my next post ….How I find public companies with exemplary managements who use their prosperity to push ahead and simultaneously reward employees and shareholders .  Those are the companies I want to own.

 

Richard Maurice Gore

 

 

 

Market Tremors

March 14th, 2015

March 15, 2015

As of  Monday,  March 2, we were breezing along with the  December 30, 2011 SPY trade 803 days old, ahead 74.37% and everything rosy.

SPY ( a basket of the S & P 500 stocks trading as one stock ) representing the USA stock market, and the USA economy ,was 5.07% ahead since  Nov 1.,  ( half way to May ), with all engines humming.

Then, came the whispers about the Fed  intending to raise interest rates in June.  Since the price of money (  interest yield  ) competes with the price of equities ( earnings yield ) for new money. there should be no doubt whatsoever that investors perceptions of what happens to interest rates is the  major underpinning for this market.   Trouble is,  its really easy to over simplify this issue .  The Fed is at zero !  Which  interest rate percentage,   relative to earnings yield percentage, will be the tipping point, and how fast it will get there, will be the real drivers for equity re-valuation.

What is happening now is equivalent to jet  passengers enjoying the reverie of cruising soundlessly at  30,000 feet suddenly feeling a bit of  wind turbulence.  Grab an an armrest and squeeze !  Now ….. silence.   Hear anything ?,  Feel  anything ?  OK,  back to serenity ! Whew !

Last week you could have had $1 million invested in stocks but still close Friday with a profit or loss of just $ 159 for the week.!   ( In fact,  SPY did close down 1% for the week ( $10,000 loss  on a $ million ).  My portfolio would have closed down only $159 for the week.  Why the different result ?  Read on .

By Friday, the Monday whisper about a June interest rate rise was undercut by economic data sufficiently weak to give rise to the thought the Fed would never consider  a June interest rate hike after digesting the weak data released. Bad news to the rescue ! Whew !

It seems Europe is starting to react positively to the stimulus package.  That means not as much new European money will be arriving at our shores and the EURO will find a bottom.   And, that is good for  the USA.  Nobody ever said the Dollar needed to crush the EURO and the YEN.  We want stable currency rates that allow for measured investment and sales planning. !  We want balance, not a tilt !

At present the dollar is still strong enough to drastically shrink the size of profits that are needed to contribute  profits on the global income statements of USA companies doing business overseas.  My reaction is to give a wide berth to USA equities  that rely on exports or profits generated in overseas markets.  Since SPY contains our largest companies, you can assume that  the still strong dollar creates headwinds for their profits.

My reaction is to choose USA stock  indexes such as IJR which contain small cap companies and are less likely to export or manufacture overseas. Since November 1,” IJR”  ( I Shares Small Cap 600 Index ) is ahead 4.41% while SPY  ( I Shares S&P 500 Big Cap Index  ) is ahead 2.01%.  The almost 2.5%  difference  shows what can happen over a short time frame ( say one quarter ) when you just sit with SPY versus  working through the logic of finding an alternative and acting on it. Hopefully I will be back in SPY with a profit from IJR  in my purse by the time the logic changes.

Conversely,  I am investing in European and Japanese stocks able to export because of the  strong dollar.  I am investing via index funds which hedge the strong dollar risk out of portfolio profits .  Examples are HEDJ ( Wisdom  Tree Europe Hedged Equity ETF ) , up 15.8%  and DXJ  ( Wisdom Tree Japan Hedged Equity ETF  )  up 0.75% since November 1.

At this point, my only exposure to SPY is the May 15 , $199 SPY Put which I sold on March 4 for $2.27.  If  it expires worthless May 15 , my profit will be $2.27 per share…..approximately 6.84% per annum. Not exactly money market rates.  The risk….SPY gets assigned to me at its current 200 day moving average level..$199. I’m prepared to own SPY at $199 and then write more Puts.

I am 60 % invested and ready to purchase more shares of  companies I already  own such as AAPL , CVS,  UNH, UA, DIS,  TWX, GLW, BX, SWHC, DLTR, ORLY ….if prices weaken – ( because I’ve done my ” internals ”  homework ) ….( Or ),

More shares of the following Sector ETFs :  FBT, ITA, XLV, HEDJ,  XHB, QQEW,  DXJ, if prices weaken, because logic tells me that these positions should prosper given the present macro economic conditions. These positions are not as ” iron clad ” as my equity positions because Sector conditions  can change much more quickly.

This is where I say ” I’ll be back.”

Richard Maurice Gore

 

 

Oil versus Apple

February 26th, 2015

February 26, 2015

So, with oil selling in the low $50 range and representing 8% of SPY, where are the headwinds ?

Just as I indicated in my post of November 21, 2014 ” Who is Afraid of the Big Black Swan ” ,  the equity market is still the only logical place to put money.  Our 10 year Treasury is yielding less than 2% thanks to the demand arising out of even lower interest rates in Europe and Japan.

Full employment and a healthy housing market are goals of the Fed and it doesn’t pay to fight the Fed.

Since November Spy has advanced almost 5%, well on its way to creating the wealth effect for the American consumer who represents 70% of GDP. And, as expected,  the American  consumer is awakening , the brainpower of  American ingenuity is meeting every challenge to the point where you may be driving an Apple car sooner than you think !

I’m ignoring all ” FIRE ” ! calls until I see bond interest yields  competing with earnings yields.  Everything else is noise.

All that remains to be accomplished is an invigorated housing market.

And the housing market is  where there is a bit of a problem to be overcome.

People are not buying because they are able to sell their existing housing

We are back to 20% down payments and,  banks are sticky with their credit.  Who can blame them.  Would you lend someone at 3.5% for 30 years when you don’t know what your cost of money will be a few years from now.  Banks are not walking their ” come on in ” talk.

And, it seems to me rental construction will revive before residential construction.  Why ?  the amount of student loans outstanding has created a formidable obstacle to capital formation for use as a down payment by couples in their twenties and thirties.

My post of December 26 ,2011 put forth a suggestion to solve this problem.  My idea was to allow early withdrawals from 401K type plans without penalty if the money goes toward a housing down payment.

Who loses on this ?…….  Brokers and wealth managers.    Certainly, the five too big Banks won’t fight  the idea of all those mortgage securities being created.  But  not so fast.  The biggies first want remove the ” push out ” provision of  Dodd- Frank legislation which removes FDIC protection for the biggies on  activities  involving swaps….credit insurance gambling   ( gambling ? …trust me, 40 to 1 leverage is gambling ).  Selling and trading portfolios of mortgages is where its at for the biggies, and you can include Morgan Stanley , Deutche Bank,and  UBS  as wanting to be in the ” tranche “game with Citi, JP Morgan Chase and Goldman.

So, it looks as if  renting rather than owning will be driving housing for awhile.

Until then, equities look like the way to go.  Looking back only a couple of years, I am amazed at how my methodology  of selecting stocks has changed. I have always heard that Warren Buffett needs to ask only a few questions before he knows whether or not he wants to buy a company. I do believe I have narrowed in on that answer but, I won’t pass it along until its been rigorously road tested by me.  That,  and everything involving a concept called ” shareholder yield ” as opposed to earnings yield and dividend yield.

I’ll be back.

Richard Maurice Gore

 

 

 

 

 

Half Way There

January 31st, 2015

January 31, 2015

If you take ” Play till May ” seriously, as I do,  you are forced to keep a double set of  ” performance measurement” books…

Annual – January 1, to December 31….and

Annual -November 1, to October 31.  With January in the books, we are halfway to May with SPY  down 2.96% since November 1.

If you are an average investor,  and would heed the advice of  Warren Buffett ( Berkshire Hathaway ) and John Bogle ( Vanguard ), don’t let SPY’s negative performance ( since November ) throw you because even the very best analysts  have an ongoing  problem keeping pace with SPY’s results.  No need to read further.  Just keep investing in SPY through the ups and downs… and your reward ( down the road ) could be significant.

For those of you still reading,  you are entering my domain,…. the domain of pride and hubris, risking your savings to challenge the ” Buy and Hold ” results of SPY,  (  An ETF  basket of stocks  representing the USA’s largest capitalization equities ) .

In previous posts, I have argued my belief that it  doesn’t take much expertise or work to beat SPY ” Buy and Hold ” via trend trading.  And, back testing to the year 2000 has shown that this is true with SPY being involved in only six trades  ( five of them winners )   The one trading  loss was for 5.82%.  My methodology for trend trading SPY is explained in previous posts.

The latest such trade dates to December 31, 2011.  It has been an open trade for 774 days and has resulted in a gain of 280% while SPY  ” Buy and Hold ” has gained 91.3% for the same period.   Do I have your attention ?

Are you part of that trade ?  I’m not, although I intend to get in sync with it at my first opportunity to do so,  ( a buy signal at a month end following a sell signal at a previous month end).  It seems to me that the only way to gain from this situation is to assume the investment climate for equities is benign until the SELL signal appears at some month end down the road.  If the December 30, 2011 trade sets the trading climate…it says nothing about the  trading weather.

The trading  weather… head windy and tail windy for SPY, is  based on a whole lot of factors.   SPY contains equities that benefit from low oil prices and equities that suffer from low oil prices. SPY contains equities that benefit from a strong dollar and those that suffer from a strong dollar. SPY contains equities that benefit from low interest rates and equities which see low interest rates as a problem. Lately, there has been an unusual amount  of pushing and pulling inside SPY,  giving rise to the notion that this is a market for individual stocks, not  Indexes,  and could best be described as a stock picker’s market.

I have been selecting equities  I believe will  benefit from a strong dollar, low interest rates and low oil prices.  And, so far, I must be doing something right because my equity portfolio  ( based on ” smart ” criteria and current conditions )  is ahead 5.4% since November 1, while SPY is down 2.96%.

But I’m not taking any bows because stock picking is only half the battle.  Knowing when to sell is just as important.  Just ask Cinderella about her late exit from the ball !  And, maybe that is one of the virtues of trend trading SPY.  It may be like watching grass grow but it doesn’t require the daily attention of 25 different equities, each with its own daily story.   Under the circumstances , to reduce the specific risk of holding individual equities I’m working on trigger strategies to follow when considering the sale of an individual equity.

In terms of selling everything on a SELL signal , in addition to the trend trading SELL signal, I’ve decided that knowing when the market is priced  too exuberantly could be a very good DEW line against a Bear attack ( not necessarily Russian ) .  And, what I am focusing on is the divergence between equity yields and bond yields.   Recently,  the equity / bond yield divergence is widening…. an indication that investors are still afraid of equities and are buying more bonds irrespective of the lower yields bonds offer.  To me, this is a good sign because it  means there are a lot of dollars in bonds still waiting to be convinced its safe to buy equities.  Once the divergence narrows to the point where it seems the market is saying its just as safe to buy equities as bonds,  I’ll be checking my canary very carefully and very often.

As for selling an individual equity….my primary warning sign is when the equity  begins to slip relative to SPY’s (November till now ) performance.  Your portfolio  can’t outperform SPY if your portfolio is chock full of equities which are lagging SPY.  This means staying on top of strength relative to SPY and then finding answers for a negative divergence  which could quite possibly result in a sale.  More work, more small losses  and more commissions to erode the overall result.  The positive offset to this is the internal growth of unrealized profits in your portfolio and how that result compares to the unrealized profit in your SPY holding.The equities currently in my portfolio are  SWHC, GLW, CVS, LUV, BX, NOC, UNH, ANTM, JBLU, DIS, HXL, DLTR, ORLY, DAL, AAPL, ALL, ALK, GD, TWX, RTN,, UA, TASR, NTES, PCYC, NOVO….all purchased since November 1, all outperforming SPY since November 1..

I am treating SPY as a bond substitute, writing Puts in exchange for a premium and an opportunity to take delivery of SPY  at prices ranging from $199 to $190 instead of the $205 I would have paid to purchase SPY with no premium to me  ( 7 % to 10% per annum ).

Hope this gets you thinking about your portfolio and how it compares to SPY from November 1 and from January 1. …Richard Maurice Gore

 

 

 

Keys to the Kingdom

January 1st, 2015

 

January 1, 2015

When it comes to New Years Resolutions ,  the words of my 8th grade teacher, Sister Monica, always point me toward more effort.

Master Gore,  remember….” Good, Better, Best, Never let it Rest, till your Good is Better and your Better is your Best “.

With this in mind, and with her admonition to avoid  becoming  an idler, I now refocus for a better performance in 2015’s stock market.

But before that, I do hereby resolve to change ” Ready, Fire, Aim ” …….into ” Ready, Aim, Fire “.  And for me, that isn’t easy !

Before I “pull the trigger “, each and every time I need to ask my self the following questions:

Question # 1.  Should I be investing in this market, or not.

Answer: For me –

A1 – Is VTI above its 200 day moving average as of the last day of last month ?  If ” yes ” proceed ( 10 years, 5 trades, all winners )

A2- Follow the Money.  Water is always wanting to flow lower.  Money is always wanting to flow toward the highest risk and inflation adjusted return. Example: Is money leaving Russia ?  Yes .  What is happening to its stock market, its currency and the bond yields on its debt Negative Action.  Is money flooding into the USA .  YES !  What is happening to the USA’s stock market, its currency and the yields on its 10 year debt. Couldn’t be better!

A3-  What is the differential between the earnings yield on 10 year Treasuries and the Stock Market’s earnings yield….2.3% versus 5% plus . Very positive for equities.

A4- Where are we in the calendar year….November 1 to April 30 ( generally, full speed ahead ). May 1 – October 31 ( caution sharp curves  ahead )

 

Question 2 – If I am to invest, should it be in Index ETFs, Sector ETFs or Individual Stocks or all  three to some degree.  The answer depends on my risk / reward tolerance and how much time I can spare to follow my  investments….bearing in mind that the amount of time I spend may sometimes carry an inverse correlation to a positive  result.

For me….I prefer a blend as follows:

Index ETFs  (    40%  )

Sector ETFs  (    10%  )

Fixed Income ETFs  ( 10% )

Individual Equities   ( 40% )

Sectors need to be ahead of SPY and answer  the question …WHY ?  Examples

IYT ( Dow Transport Index )  Cheaper Fuel,

XLU ( Utilities ) Cheaper fuel,

VNQ ( REITS ) lower interest rates equal lower borrowing expenses  ,

FBT ( BIOTEC ) Rx for Empty pharma pipelines,

XLV  ( Health Care )  Do you actually  believe the Lobbyists will allow the profit to be drained from Obamacare ?

XLK ( Technology ), the Cloud, mobile devices, etc. ,

XLF ( Finance ) With the “push out” voided from the Omnibus Bill, and housing needing more of a jump start, the Big Five Too Bigs will be back with more collateral debt games and  not so much leverage,… at first.

Not VDE ( Energy )   For the moment I believe supply has the upper hand.

Question 3….What about Equities ? 

For me ? I’m only interested in USA equities doing business principally in the USA.  The strong dollar will have a negative impact on USA companies competing overseas.  I like DFS, TWX, DIS, RTN, HCA, CVS, UA, LUV, DAL, and UNH until they get overvalued ( in my opinion ).

Question 4. What about other equities. if I’m too busy or too lazy

Unless I believe I can outperform SPY what is the point ?  So my search starts with equities which are already outperforming SPY  and which conform to smart criteria such as

1) the ratio of price to free cash flow,

2) growing revenues based on an organic competitive advantage ( I don’t like companies that grow only by acquisition because to me it means that the original advantage has hit a ceiling ),

3 )very little or no debt ( I don’t like buybacks or dividends financed by borrowing ),

4) the ability to hold or raise prices in the face of competition,

5) sustainable and growing operating margins,

6) very reasonable cap ex requirements,

7) shareholder friendly managements with skin in the game.

A good place to start ?  I am continuing to cherry pick candidates  from PKW  which is an ETF focusing on holding equities embodying the attributes such as enumerated above  Or, if I’m too busy, or too lazy, I can simply purchase PKW and know it will give SPY a very good run for the money.

 

Happy hunting in 2015. !

Richard Maurice Gore

 

 

 

 

 

 

 

 

 

 

 

 

2014 Sum Up – 2015 Changes

December 28th, 2014

Sunday, December 28, 2014

If you made only one trade during the past twelve months – – bought SPY,   December 31, 2013, and held until now, you would be ahead 13.4% for 2014.

You would have received 5.82 times  the return of a 10 year Treasury Note ( @ 2.3% ),  and with $500,000  invested your investment would have earned $67,000,  which is 1.25 times the annual median income for USA households ( $53,891 ).  Capitalism at work.

But, there is no guarantee Buy and Hold will work during 2015.  The writer’s 200 day / month end trading strategy had no opportunity to be used during 2014.

Looking forward, all I can say is that the general environment for USA stocks focused on doing business in the USA…couldn’t be better !

I intend to respect the  “Play till May”  proverb unless I see a continuance of the conditions  I see now.  I have already switched my record keeping to a November 1 / October 31 basis with a review April 30.

Also, I intend to invest only half my financial capital in the 200 day / month end SPY timing model…if the opportunity to do  so arises.  Otherwise , I’ll do my best to be long SPY when I believe it makes sense to do so…or be writing SPY – Puts with the hope of earning a premium and obtaining a lower  SPY entry point.

I am really satisfied with the performance of my hand selected portfolio of individual ” smart criteria ” equities which have outperformed SPY from November 3, until today. SPY is up 3.1% while my portfolio is up 5.7%.

Portfolio has varying amounts of BX,  DIS, DFS, CVS, UNH, GLW, SNE, NOC,  LUV, RTN , NOV,  SWHC, DAL, HCA, AAPL,  MU, TWX

Have a Happy and Prosperous New Year

Richard Maurice Gore