How to Measure Your Stocks – A Simple Technical

We all have investments in both taxable and tax deferred accounts. Many people however are unsure exactly how to measure whether their stock or fund is doing well or not. Professional investors have dozens of tools by which to judge performance, I’ll just show you a simple one.

This measurement is to compare your investment to the S&P 500 Index, commonly referred to as “the market”. The S&P 500 is made up of the 500 largest companies listed on the NYSE or NASDAQ stock exchange. When you hear comments like a stock or fund “beat” the market, it normally refers to its performance against the S&P 500.

One simple and common measurement to judge the performance of your stocks is to compare it to the overall market, and then look at a comparison to its own “moving average”. I like to use both a 50 day and 200 day MA (moving average). The moving average quickly shows growth or decline over a longer period of time.

 We’ll look at two stock charts. The first chart is for one of my favorite holdings, Kroger (KR). It is almost the perfect stock from a “technical” point of view. In stock lingo, “technicals” refer to the analysis techniques from a chart. “Fundamentals” by comparison refers to looking at a stocks PE, beta, PEG ratio, last earnings report and so forth. Yahoo Finance has a simple easy to use chart capability.

 Kroger

 

 

 

 

 

 

This chart shows Kroger’s has substantially outperformed the market over the 12 months. In addition it has consistently stayed above its 50 day and 200 day moving average, the price keeps going up in a nice smooth, consistent way. Also notice that the gap is widening between the 50 and 200 day MA, the rate of growth is increasing. In the last 12 months the S&P has gone up 9.64%, and Kroger has gone up 82%.

 The next stock is Goldman Sachs (GS). I bought GS on August 7th at $183.90, just after the 50 day MA crossed above the 200 day MA, it looked like the stock was on the rebound and would outperform the market. Last week they reported disappointing earnings and the stock has slid down every day since. It finally crossed the 200 day MA and I sold it this morning for small loss. Part of my decision to sell was that almost all of the big banks and financial services companies are reporting weaker than expected earnings and the entire sector looks in trouble for at least the 1st half of 2015. I also own a position in Morgan Stanley (MS), it too dropped but only below the 50 day MA, not the 200 day.

Goldman

 

 

 

 

 

 

Comparing your investments to the market and their own moving averages will help you determine if you have chosen the right investments in your accounts. In a future post I’ll give you a few more things to look for.

 

 

Retirement Planning – A Safe Fixed Income Investing Strategy

Planning for retirement income is one of the most important jobs you’ll ever have. If you are like most investors you have a great “rear-view mirror, but very poor headlights”.

Summary

  • Many retirees need income from their investments to supplement Social Security and pensions
  • Fixed Income to many mean just buying bonds and bond funds (ETF’s)
  • Given the poor outlook for bonds during rising interest rate cycles many investors are looking for other methods of “Fixed Income” investing
  • A conservative stock portfolio with income producing stocks might look pretty attractive
  • There are tips for choosing these income producing stocks

Situation

Today’s retirees can’t rely on the traditional methods for securing income during their retirement, mostly bonds. As I’ve written before, current bond holders are going to face a huge shock when interest rates start to rise in the next 6-9 months. Many of you will think, oh good, interest rates are rising! However as they do your current bonds (or funds) will drop substantially in principle value. What good will it do to have a bond fund pay you 3%annually, drop by 15-20% in value? Just to be clear, some day it will pay handsomely for a retiree to buy bonds, when they yield 6-8%, but not now as they rise to that level.

What to do

The “Fixed Income” stock dividend theory says that you develop a stock portfolio of reliable companies with secure dividends that will pay you “bond level or better yields and just hold onto those investments. In this case you also have the possibility of capital appreciation over the years and dividend growth. Bonds do not have any possibility of dividend growth. For example, you buy a basket of blue-chip dividend growth stocks for $1,000,000 and they average 3% yield, or $30,000 a year in dividends. If, over a period of years your blue-chip stocks follow the average market return of 6% (or more) your $1,000,000 will grow by $60,000/yr compounded. Furthermore, many of these companies increase their dividend every year so the $30,000/yr also grows.

Tips for Choosing Income Stocks

  • It is relatively easy to research on line and find blue-chip companies that have a solid history of both dividend payments and growth.
  • Look for a large dividend supported out of free cash flow, not borrowing. Determine what % of free cash goes to support the dividend.
  • Choose stocks with growth potential
  • Here are some examples of dividend growth over the last 5 years:
    • McDonalds 14%
    • General Mills 12.5%
    • Phillip Morris 12%
  • Get help from sources like Morningstar or a web site I like http://www.dividendyieldhunter.com/

Here is an example of how this works:

I bought Altria (MO) the cigarette company in early 2014, it is a blue-chip stock with a long history of dividends increases. I bought it $34/share with at the time a $.48/quarter dividend or 5.6% yield. Today the stock trades for $51/share with a $52 dividend. Therefore, I’m up 50% on the value of my investment and the dividend has increased by almost 10%. Therefore my current dividend yield on my purchase price is over 6%. During this same time frame the S&P 500 up a shade less than 6%.

Mo

The US Dollar is Very Strong – A Simple Way to Play It

The US dollar has become the strongest currency in the world for a lot of good reasons. A strong dollar benefits such things as international travel and imported goods and materials. Our dollar strength is primarily due to the fact that the US economy is the stronger than South America, Europe, Asia and Emerging Markets. As our Fed (central bank) is ending our Qualitative Easing, places like Europe’s ECB is just talking about starting theirs to boost the economy. The Russian Ruble has all but collapsed and inflation is already running at 10%. UUP Dollar

 So how can you invest in something to take advantage of this situation? One simple way is to invest in the PowerShares DB US Dollar Bullish ETF “UUP”. Behind the scenes this stock index is made up of long futures contracts. These contracts are long (betting the price will go up) the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. The UUP can be easily bought and sold just like any other stock. It has plenty of liquidity, trading over a million shares per day on average so there is no problem buying or selling.

 

Building a High Yielding Retirement Portfolio – Part 5 MLP’s

In my previous posting I discussed the need to include high-yielding securities in a retirement portfolio, in Part 2 I reviewed Preferred Stocks, in Part 3 BDC’s, in Part 4 REIT’s. In this article we’ll discuss MLP’s (Master Limited Partnerships).

A MLP is a partnership that generates income from real estate, natural resources and commodities. MLP’s are a major factor in the transportation and storage of oil and natural gas. MLP’s, similar to REIT’s and BDC’s pay little or no corporate income tax and must distribute at least 90 percent of taxable income as dividends or return of capital to investors. This results in many cases in both capital growth and high-yields. When you buy stock (units) in an MLP you become a “partner” in that MLP. The distributions are not taxed when you receive them, instead, they are considered reductions in the investment’s cost (return of capital), and you don’t have a tax liability until you sell the MLP. Your income from the MLP is reported to you on a K-1 each year.

If you are looking to get into the booming energy market and don’t want to worry about the volatility of oil and low prices of natural gas, the MLP’s that provide the pipelines and storage facilities might be your best choice. You see, these MLP’s charge for distribution and storage they aren’t effected by the price of the commodity. I’ll also warn you that like all other high-yielding investments that are subject to the volatility of changing interest rates. Many of these were heavily sold earlier this year as the talk of Fed tapering surfaced and the 10 year bond yield jumped overnight. Once interest rates calm down these can be great investments.

Here are some of my favorite MLPs you might consider:
UBS E-TRACS 2x Leveraged Long Alerian MLP (MLPC)  9+% yield
Linn Co (LNCO)   9% yield
Magellan Midstream Partners (MMP)   3.6% yield (stock is up 50% this year alone)

Check out the performance of MLPL in the past year. Not only has it out performed the S&P 500 index, but it also delivered > 9% dividend yield.

Capture

By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.

Building a High Yielding Retirement Portfolio – Part 4 REIT’s

In my previous posting I discussed the need to include high-yielding securities in a retirement portfolio, in Part 2 I reviewed Preferred Stocks, in Part 3 BDC’s. In this article we’ll discuss REIT’s (Real Estate Investment Trusts).

A REIT is a company that owns and operates income generating real estate. REITs can own commercial properties from office and apartment buildings to hospitals, retirement homes, warehouses, hotels, shopping centers, hotels and timberlands. REITs are also a major factor in financing housing. REIT, similar to BDC’s pay little or no corporate income tax and must distribute at least 90 percent of taxable income as dividends to investors. This results in many cases in both capital growth and high-yields.

There are a lot of different types of REIT’s, agency and non-agency etc., I won’t get into all of these here. I’ll also warn you that like all other high-yielding investments that are subject to the volatility of changing interest rates. Many of these were heavily sold earlier this year as the talk of Fed tapering surfaced and the 10 year bond yield jumped overnight. Once interest rates calm down these can be great investments.

Here are some of my favorite REIT’s you might consider:

  • W P Carey (WPC)  5% yield
  • Hospitality Properties Trust (HPT)   6.50% yield
  • American Capital Agency (AGNC)   13% yield

Check out the performance of W.P. Carey in the past year. Not only has it out performed the S&P 500 index, but it also delivered > 5% dividend yield.

REIT-1

By allocating a portion of your portfolio to some of these ultra-high-yielding investments you’ll be able to improve your cash flow while waiting for the next Facebook or Apple investment to come along. In future posts we’ll discuss the pros and cons of these investments and some helpful tips.

 

 

You might own more Microsoft, Apple, Google and Exxon than you think

Many investors are looking for well diversified investment portfolios and most own the S&P 500 index in their retirement accounts. Investors should however beware that standard S&P funds or ETF’s like SPY are market cap weighted, meaning that the bigger a company is (its market cap) the more of its shares are in the index. For example, recently Apple was 4+% of the SPY, however Apple is only 1 of 500 companies in the index. Today the top 10 (of 500) companies in the SPY account for over 18% of the index. This may not be the diversification you are looking for.

Here is a great tool from Finviz.com that displays the cap weighting of the S&P Index.

SP Map

There are other choices for the S&P 500 that are market weighted, like the Guggenheim S&P 500 Equal Weight ETF (RSP). This ETF has been around for over 10 years and is a very safe investment. Whereas half of SPY’s total capitalization is made up of mega-cap stocks (companies with market values in excess of $200 billion), these giants only make up 11 percent of RSP’s line-up.

Here is a comparison of the holdings between the two ETF’s.

SP vs RSP

Also the RSP has consistently outperformed the SPY (S&P 500 index), see below.

SP chart-1