July 31 SPY still on BUY

July 31, 2016,

WSJ Headline July 30 / 31 ” USA in Weakest Recovery Since 1949 “

Just another brick in the USA stock market’s ” Wall of Worry ” ?

For me, as an investor and trend follower, it’s a significant signal that while SPY may still be in an uptrend, the trail is going to get narrower and flatter from here,  and more dangerous for individual stocks unless they carry attributes tuned to the new reality.

For me, SPY on its own,  won’t do it at this point.  Contains  too many oil dependent names….too many names dependent on higher interest rates for operating margin….too many names  dependent on a weak dollar to generate exports or protect dollar profits  already earned overseas.

For me, instead of SPY I will tilt heavily toward indexes whose components are USA focused.  Instead of SPY, I am attracted to the Russell 2000, IWM,  whose components are are smallish and not as likely to be dependent on foreign activity for profits .  I also like Utilities ( XLU ) and REITS, VNQ, as, generally,  they benefit from low interest rates.

Weak recovery will mean growth stocks possessing the right mix of attributes will provide outsize rewards.  The attributes I favor are #1 the story must make me conclude the stock possess a sustainable competitive advantage as evidenced by #2,  acceptable growth in Revenue coupled with sufficient Cash Flow to impressively  reward investors with dividends, buy backs, debt pay down, and / or  intelligent acquisitions and meaningful R&D investments. And, finally, #3, the chart.  It must  say that this equity in my portfolio will pass the test that 90% plus of stock pickers  fail…beating SPY.

I am only 60% meaningfully invested but  I am willing to go 100% to acquire great stocks  at great prices if somebody in the balcony shouts ” Fire “.and the audience rushes for the exits.  And, me remaining in the theater will still take some courage, with me constantly reminding myself that interest rates  are saying the market is a screaming buy.  That SPY is still above its 200 day moving average is consoling but not as re-assuring as low interest rates, a quiet Janet Yellen and declining DJT poll numbers versus ( ugh ) Hillary.

In terms of holding SPY versus following the model since January 1.

Buy and Hold:  4905 shares x $217.12 =  $ 1, 064, 974 ……6.5% excluding dividends

Model                 4786 shares x $217.12 =   $ 1, 039,136…….3.9% excluding dividends

RMG  mixed Portfolio……………………………………………. .7.1%   excluding dividends


Richard Maurice Gore




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