Simply amazing. A picture (chart) is worth a thousand words.
Simply amazing. A picture (chart) is worth a thousand words.
My ebook, Event Driven Investing, is being offered at a heavily discounted promotional price this week. As with every promotion, the main goal is to increase awareness and boost sales, but I have a secondary reason that is just as important.
My book is sold via Amazon’s market place and is currently available to any device that is Kindle reader compatible (iPhone, iPad and Droid devices included). Currently the ebook has one review posted and it’s at one measly star. The lowest of the low. The person posting claims the book can be read in a 10 minute time frame and I apparently repeat the same thing over and over.
Since I can’t give the book away for free, and honestly, I don’t want to give it away for free, I’ve dropped the price 99 cents for Monday and Tuesday, then $1.99 from Wednesday at 8am to Saturday at 8am (all times Pacific Standard Time). This reduces your obligation and risk as a buyer of the book.
I encourage you to purchase my ebook during this promotion. Once you’ve read part or all of its contents, I encourage you again to write a review based on the material you’ve absorbed.
Thank you for your continued support.
Originally appeared in the July, 2012 edition of the newsletter.
The current state of the market should influence your investment stance. Since 2000 we’ve been living in the midst of a bear market. The hope of a reversal of this bearish trend that seemed possible in the latter part of 2007 completely fell apart in 2008. What can we as investors learn from this period in history to better prepare ourselves for the short-term and long-term?
A theme seen throughout the market since the downturn is a greater desire for stocks that exude an aurora of safety and stability. What companies are providing products and services that will be demanded even in bad economic times? Food, drug, energy and discount retail companies have been a place many investors run when the markets become choppy.
A perfect example of a ‘safe’ stock is Altria (MO), which is the U.S. company for Phillip Morris cigarettes and other tobacco related products. MO and other similar companies have done quite well in the midst of market fluctuations. The reason for this is twofold. First, the business model is very solid. Demand does not fluctuate by much in either good or bad times. Second, the dividend payout is large, consistent and grows from time to time. In a market where volatility sometimes seems like the norm, being assured a dividend yield is very comforting for investors.
For companies such as MO that offer rock solid business models and dividends, the idea of buy and hold can be a viable alternative in a bear market. The investment is working for you through dividend distributions and the business model ensures that market dips will only temporarily hold the price down.
Buy and hold though for over 20 years now has been seen to be the rational model for the common investor. Since the early 80’s until ’00, buy and hold worked pretty darn well. Unless the company was a disaster, it likely appreciated because the direction of the market when rising (or falling) is a very powerful force in lifting stock prices up or down.
This all changed in ’00, but we could not fully understand the implications of this shift until after the market collapsed in late 2008. While markets corrected significantly in ’00, the setback was not seen as the start of a long-term bear market. The correction was perceived as being more industry specific, since the brunt of the blow was felt throughout technology companies.
Given our current historical perspective, investors should realize that investing in growth stocks is not a bad thing, even though many investors may shun the thought given current market conditions. For those that do venture into stocks that depend on significant company growth to become successful, buy and hold cannot be currently looked at as a viable strategy. Until we break into a new long-term bull market, the risk associated with the buy and hold strategy for this investment class outweighs the possible returns.
A volatile and weak economy plays havoc with most growth stocks. It’s more difficult to grow in a time of economic contraction or weak economic growth and a greater share of investors see such companies as not being worth the implied risk. Therefore, growth investors must understand the need to place clear exit points for their growth positions. It is equally important to set rules for exiting a position that has realized a profit.
A few easy and popular rules traders use when entering into positions are as follows:
No matter where you stand as an investor, it is important to understand how your investing strategy fits (or doesn’t fit) in with the market environment. Make sure to not lose focus of the micro and macro picture.
On Thursday, May 14, 2010 the Dow Jones Industrial Average dropped by almost 10%, then quickly recovered. By analyzing the past 80 years of Dow Jones data we see that these sort of drops are occurring more frequently and may signal an increasing trend in market volatility.
If you ever find yourself looking for a stock to invest in and are drawing a blank, consider listening to some music. If you put something on that’s pop or country, you will soon start coming across brand references. This might sounds a little far fetched, but the companies behind the brands named in a song can be very profitable and stable investments.
You have an interesting situation when a company name or brand is woven into a song. Assuming the lyrics are placing the brand in a positive light, the usage must be associated with a positive image of whatever product or service is being referenced. Secondly, a strong recognition factor must be in play. Songs that need to have a wide appeal need to reference items that a broad scope of people can relate to. Thus, you’ll typically come across brands that have strong recognition and a positive perception amongst the population.
Let’s take a look at a couple of examples…
In November of 2010 country singer Jason Aldean released an album titled My Kinda Party. One of the tracks on the album is titled, “I ain’t ready to quit.” The song starts with the lyrics…
There’s something about lightnin’ up a Marlboro Red
That nicotine rush into my head
And a taste of Southern Comfort on my lips
Tells me I ain’t ready to quit
In a short burst of lyrics you have two brands that are produced by two public companies. The maker of Marlboro a few years ago actually split into two companies; Philip Morris (PM) and Altria (MO). The two aforementioned companies are seen as being very stable with a strong dividend yield. It’s not uncommon to hear analysts recommending either company for more conservative portfolio allocations.
Southern Comfort is a brand produced by Brown-Forman Corporation (BF). I’m not very familiar with the company, but ‘sin stocks’ are typically seen as a more stable and recession resistant investments than other stocks. The company has a beta of .74, which implies less volatility than the overall market and has a dividend yield of 1.7%. Over a 5 year period the stock is up nearly 30% (Not factoring in dividend yield.).
I like girls that wear Abercrombie and Fitch
I’d take her if I had one wish
But she’s been gone since that summer,
since that summer
In all honestly, until I heard that song, I never had heard of this clothing brand called Abercrombie and Fitch. Amazingly enough, ANF did not pay for the brand placement in the song. Their non-investment yielded them a hit song that contained their brand in the chorus, which was being sung by 3 young guys that a lot of young girls craved. You can bet those girls bought more ANF clothing because of that song.
If you look back at ANF’s stock performance since June of ’99 until July 6th of 2011 you’ll see that the stock is up nearly 80% and the S&P 500 is up about 0% (Not factoring in dividend yield on either stock.)
Amazing, isn’t it? It’s not uncommon to run across an ever-day song with a not so shabby brand or company referenced. Remember the next time you’re listening to your favorite songs to keep your mind open not only for pleasure, but investment ideas. You never know what brand/company will be referenced and where that will lead you in terms of a potential investment.
If you have any good brand or company references from a song you’ve come across, feel free to share them with the group below in the comments section.
Investments that pay dividends are attractive to people for a number of reasons. Passive income is usually a preferred item in the minds of most investors. Whether it is passive income you see or not, as an investor, you need to not let yourself get lost in looking for the company with the highest dividend yield.
It might seem counter-intuitive, but going for a high yielding company is not always the best play as an investment. I do not mean to make an argument here about how high yielding stocks are inherently riskier than X class of stock. My argument hinges on the fact that some companies have a historical track record of dividend growth, while others do not.
Dividend growth is extremely important to any investor that is drawn to a stock/fund because of its yield. This is especially true for long-term inventors. A track record of dividend growth can lead to very large regular distributions of passive income (dividend income).
For example, a company that you likely have a product of in your house is Pepsi (PEP). It’s an international company, has great brand recognition and makes drinks and snacks that are enjoyed by people of every walk of life.
From a quick glance at PEP’s historical performance you will see that they have a strong history of paying quarterly dividends. With a second look you’ll see that they also have been steadily increasing their quarterly payout amount for over 20 years.
For the sake of this example, let’s look at the last 5 years. In the last 5 years PEP’s dividend has grown annually by an average of 12.77%. If that trend continues, you’re effective yield based on your initial buy-in price is going to become very large. Think about this…If PEP’s dividend growth rate holds, a 3% dividend yield (around what PEP currently yields) will turn into a near 10% yield based off your initial purchase price in a matter of 10 years. This is what building wealth is all about.
If you plan to hold a stock for a number of years and a dividend payment is one factor that you’re being drawn toward, make sure to consider the historical growth shown in the stock’s dividend payment. Even a company that has a larger dividend yield may not be superior in the long-run to a company that has shown a commitment to growing its dividend distribution.
Disclosure: No Position
If you missed it this weekend, I’m linking to Barron’s mid-year roundtable article from this past weekend’s edition. I feel that this year’s group discussion at mid-year is particularly helpful, since we’re currently down from where we started at in the beginning of the year. Therefore, this could potentially be a window of opportunity for your portfolio to finish the year strong. A little guidance from a few market experts might help, too.
For those unfamiliar, the Barron’s roundtable is an annual event, which brings a number of notable investors together to discuss what they see in the year ahead and what stocks, funds, commodities and other investments they are bullish or bearish on. The mid-year meeting provides greater insights into what has changed or remained the same from their forecasts from January.
I find this annual roundtable group very helpful for the individual investor. For one, it helps investors get a sense of what the ‘pros’ are thinking about and what they are attracted to. Secondly, it’s a point at which you can start branching off in your research. By this I mean that you may come across ideas that lead you to consider other related investments.
Comprehensive lifestyle changes including a better diet and more exercise can lead not only to a better physique, but also to swift and dramatic changes at the genetic level, U.S. researchers said on Monday…READ MORE.
My Take: I’ve linked to the story above not only because it’s very interesting and can have profound implications if true, but because your quest to be a successful investor should not harm your health and/or life. If external stimuli have such an impact on us that it can cause certain genes to activate or deactivate, then you seriously need to consider how the management of your portfolio is effecting your own self.
I don’t talk about this topic all that much because the management of my investments is not all that stressful to me. I’ve lost a lot in a day and I’ve made a lot in a day, yet at the end of the day nothing was final. I try my best to keep things in perspective. Any investor that has been in the game long enough has stories where they’ve lost of a lot or where they’ve made a lot. No one is immune.
If your nerves do not allow yourself to relax and not get too carried away with a large change in portfolio value, I would not necessarily advise that you give up on self-directed investing. I would recommend that you stay out of individual stocks and gravitate toward fund investing. Basic exchange traded funds (ETFs) exist that mirror broad based indexes, such as the S&P 500 and the Dow.
When you invest in a broad based index that is made to represent a large swath of the economy you are really betting that economic development will be positive in the future. When investing in these funds you can rest assured that one corrupt accountant, a dry well, or a plant shut down is not going to derail your portfolio. It would take an event or a series of events MUCH greater than any of those events.
The bottom line is that you should put your health before your portfolio. If investing is causing your to lose sleep or some other negative problem, then try what I recommend above. Matching the market is not a bad thing at all…historically it has been a pretty consistent path to steady wealth creation.
Hype surrounds a hot offering, such as LinkedIn, and the details of the ensuing months are covered more episodically. Folks move on to the next hot IPO — last week, a Russian Internet company, Yandex (“The Russian Google“), grabbed headlines with a hot offering. Its shares soared 40% on opening day…READ MORE.
My Take: The linked article does a great job of giving a brief real world example of market hype and what happens when the ‘tide turns.’ I like how the author points out that post-IPO inside investors are locked into their positions for 6 months. Being that the insiders often control a sizable amount of shares outstanding, the stock can certainly bet set for a dip once these investors have the ability to sell their shares.
The main takeaway I get from reading such an article is if you’re going to invest in areas where there is a lot of media buzz or the company/sector is seen as trendy, then you need to have a clear exit strategy. This doesn’t mean you need to completely exit the position, but can you set price points in which you sell part of your position? You don’t have to be either 100% right or wrong to be a successful investor.
In my last post I briefly discussed Jensen’s Alpha and used a real world example to examine if an investment was actually outperforming the market. The key in model was not only looking at stock return vs market return, but considering how much additional or less risk was taken on to achieve the stock’s return. This is a VERY important factor that most individual investors overlook. Risk matters.
I’m stressing that risk matters because I often frequent sites that promote annual subscriptions to trading services or newsletters. In their pitches they often hype how you are going to be able to double or triple your money in the next X months by subscribing. Most of the time they do not include a guide to their past performance and they most certainly never provide any hard performance measurements like Jensen’s Alpha.
I am of the opinion that if you’re intrusting someone with your money, whether it’s directly through an adviser’s services or loosely through some form of stock picking newsletter, you should be able to get a clear sense of how the investments they’ve selected in the past X months or X years have performed against the market.
The reason I am so adamant about the importance of including a measure of risk taken to achieve the return is twofold. First, many investors have no quantitative idea of how much risk above or below the market they’re taking with their portfolio holdings. Putting a number to risk in relation to the overall market can tell an investor a lot about what he or she is putting on the line. If they are already risk adverse to the market in general and their portfolio is showing 50% more risk than the market, then they need to be aware of this fact.
Secondly, quoting better returns than the market without divulging the risk profile of the portfolio is a convenient way to make yourself look good. If I took on 70% more risk than the market to beat the market by 10%, then I have a pretty good indication that I’m not actually the all-star investor that some may think. With such risk, it would not be out of the question for the investments to rapidly turn course and be 10% below the market within a matter of days.
If you’re confiding in a service or a person for your investments, ask them how much risk is being taken compared to the market the next time performance is discussed. If you have your own portfolio, make a habit to regularly measure your performance against the market and the amount of risk taken.
For more information, watch my video blogs below: