Rx for Stock Market Anxiety

May 27,2015

Just know this…..and relax.

The earnings yield of the US stock Market is presently 4.88%   ( as represented by the S&P 500 Index,  whose basket of  500 equities  trade as the  symbol  ” SPY “, ( $103.09 / $2,110.93 )….  while the earning yield of the 10 year Treasury Bond is 2.18%.  Which would you rather have ….a guaranteed fix rate of return for 10 years of 2.18% ( not accounting for inflation )  or the variable dividend growth  and unlimited  growth in value of America’s 500 largest companies. ??!!

And, it seems as though foreign money has resumed its flow toward the USA.  Where does this money go on arrival ?  To purchase bonds which will make the bond market even less competitive with stocks ?,… into fine art ? ,…… how about expensive real estate ?  Any money invested in the stock market will  just be further fuel for the market.  Of course we need to be wary of extremes because there are plenty of USA stocks which can be hurt by a dollar mania.  The trick is to know where to be in the market.  I believe SPY will continue its flatter  upward trend hiding all the pushing and pulling going on inside among its 500 names based on strong dollar / low oil.

Respecting ” Play till May “, I’m still on alert looking for any news which can be sold to the market as a genuine  “Black Swan “.  The difference this time ( for me ) is not having market anxiety. I believe, when the dust settles , anything the market does will have benefited me.  Here is how I’m set up.

a ) One third in cash a)  looking for a proper entry point.

b) One third in marriage equities ( buy and hold and buy more on dips ). These equities have some sort of sustainable competitive advantage, growing revenue, growing net profit, growing free cash flow and a beneficent attitude toward shareholders  as evidenced by, dividends, buy backs, and debt ( if any )  pay down.  In this market adding additional funds requires an earnings profile not threatened by a strong dollar. And finally a chart flight profile indicating a smooth flight at a higher altitude than SPY.  ( Beating SPY is the  challenge for  every analyst )  At present, for me, these equities include AAPL, GILD, ANTM and BX.

c)  One third invested in the possibility that equity prices will temporarily head lower giving me a proper entry point by having equities assigned to me via PUTS.  I want to be forced to purchase these equities in return for a premium paid to me by the successful PUT purchaser.

Examples:

GILD – June $107 assignment price. At a premium  to me from the purchaser of $ 1.31  = 14.69% per annum premium for my patience.

AAPL – June $130 at $1.74 premium to me = 16.06% per annum for my patience.

SPY – July $200 at $1.53 premium to me = 9.18% per annum for my patience.

This means I hope to own these equities, but not at present prices, and I want to get paid for not being the  “impulser”. which, truly,I am!

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 on 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 for me to follow how my thoughts are evolving into strategies that win for me.  I still have a lot to learn !

RMG

 

 

 

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