The Long Term Investor

Well.....end of the investing week tomorrow. At the moment the SP500 is UP....by .73%.....for the first four days. tomorrow will be the day that determines UP or DOWN for the week. In SPITE of the averages......I was GREEN again today. Thanks to the tech side of my portfolio........especially.........Amazon. And AGAIN a nice BEAT on the SP500 of .88%.

I have been distracted from the markets lately due to various things going on, including another family member buying a new house.

I saw this statement in a little article today as a heading:

"Invest in companies with a sustainable competitive advantage."

This one sentence is the ESSENCE of what I try to do with my long term portfolio. I would change it to:

"Invest in AMERICAN companies with a sustainable competitive advantage."

"SUSTAINABLE COMPETITIVE ADVANTAGE" is the boiled down essence of my mantra to invest in companies that are.....AMERICAN, HAVE GREAT MANAGEMENT, ICONIC and DOMINANT PRODUCTS, WORLD WIDE MARKETING, etc, etc. You need to have all these factors........in my world......to have that sustainable competitive advantage that makes for a GREAT long term holding.

 

HERE is the GOOD and the BAD.......I dont have anything for the UGLY.....yet. We will see how the markets mature into the day.

Tesla appears poised to electrify S&P 500

https://finance.yahoo.com/news/tesla-appears-poised-electrify-p-042631996.html

(BOLD is my opinion OR what I consider important content)

"Wall Street's most controversial stock may be about to go mainstream.

Tesla Inc appears on the verge of joining the S&P 500, a major accomplishment for Chief Executive Officer Elon Musk that would unleash a flood of new demand for the electric car maker's shares, which have already surged 500% over the past year.

Higher-than-expected second-quarter vehicle deliveries, announced last week, have analysts increasingly confident the company will show a profit in its quarterly report on July 22. That would mark Tesla's first cumulative four-quarter profit, a key hurdle to be added to the S&P 500.

With a market capitalization of about $250 billion, Tesla would be among the most valuable companies ever added to the S&P 500, larger than 95% of the index's existing components. It would have a major impact on investment funds that track the index.

While analysts and investors have recently become more confident of Tesla's addition, an S&P Dow Jones spokeswoman declined to comment about specific changes to the index.

Howard Silverblatt, a senior index analyst at S&P Dow Jones, had to look back to the dot-com era to recall a comparable situation. In 1999, Yahoo surged 64% in five trading days between the announcement that it would be added to the index on Nov. 30 and its inclusion after the close of trading on Dec. 7. Yahoo's market capitalization at the time was about $56 billion.

"The lesson learned from Yahoo was that when you have an up and coming issue that may possibly go into the index, you should already own a little of it," said Silverblatt. "If you had to get into that stock, you were paying a heck of a premium compared to owning it a week earlier."

Funds that attempt to identically track the S&P 500 have at least $4.4 trillion of assets, according to S&P Dow Jones, and those funds would need to buy Tesla shares quickly to avoid errors tracking the index's performance.

Ivan Cajic, head of index & ETF research at Virtu Financial estimates index managers would need to own roughly 25 million shares of Tesla stock, currently worth $34 billion.

"You have all the index funds that have no choice but to include it," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. "That is one reason why it has been so strong here, in anticipation of that."

Additionally, actively managed investment funds that benchmark their performance to the S&P 500 will be forced to decide whether to buy Tesla shares. Such funds manage trillions of dollars in additional assets.

"Even if you don't like Tesla and you think it's overvalued, the fact that it is going into the index would mean trillions of dollars would have some kind of position," said Jim Bianco, head of Bianco Research in Chicago. "As part of their benchmark, portfolio managers would not be able to ignore it."

Up 43% in just the past eight sessions, Tesla is among the most loved - and hated - stocks on Wall Street. It is the U.S. stock market's purest play bet on the rise of renewable energy and the decline of fossil fuels, and Tesla's Model 3 sedan has made major inroads among consumers.

However, short sellers are betting $19 billion that Tesla's shares will fall, the largest short level on record for a U.S. company, in dollars, according to S3 Partners.

Bears point to looming competition from Porsche, General Motors and other longer-established rivals. They are also skeptical of Tesla's corporate governance under Musk, who in 2018 agreed to pay $20 million and step down as chairman to settle fraud charges.

Traders betting Tesla could be added to the S&P 500 have almost certainly contributed to the recent rally. However, Bianco warned that the stock could reverse if Tesla is not added to the S&P 500.

AND

Tesla Shorts to Amass First-Ever $20 Billion Bet Against a Stock

https://www.bloomberg.com/news/arti...ass-first-ever-20-billion-bet-against-a-stock


"Tesla Inc.’s skeptics are undeterred by Elon Musk poking fun at them over the carmaker’s stock surge, with the amount of shares being sold short heading for a milestone.

The Model 3 maker’s stock is poised to be the first to hit a short-interest level of $20 billion, according to research firm S3 Partners. The value of shares that have been sold short has climbed recently to $19.95 billion.

S3 said in a report Thursday that both Tesla and Nikola Corp. shares look like candidates for a short squeeze, referring to when short sellers are forced by a stock’s gain to close their position, which in turn drives the price even higher.

Tesla’s squeeze is more obvious -- its 233% gain this year likely is forcing out short sellers who’ve hit their limit for losses. The potential for a squeeze in Nikola, which is developing fuel-cell and battery-electric semi trucks, has more to do with high borrowing fees, S3 said.

MY COMMENT

BIG BETS on both sides of the fence with this stock. It is NOT going to end well for someone. Obviously the BIG events coming up soon will be earnings on July 22.........AND.........the BIG extrapolation from earnings......inclusion in the SP500. The BIG question for buyers and holders of TESLA is how much of the earnings and SP500 inclusion "stuff" is already baked in........AND........how much of it will ACTUALLY happen?

BUT......regardless..........I did make some buys to bring my one account up to 22 shares and my other account up to 12 shares a few minutes ago. (at about $1388) I had some extra cash in the first account and some auction sales money came into the second account. So now......I wait for earnings and the potential bump up or drop down.

I dont feel particularly at risk with these share amounts. STILL tiny compared to other stock positions in the accounts. The Robin-hood guys are STILL CRAZY.....so lots of potential positive momentum on this stock short term. ALSO the potential for a nice short squeeze. HOPEFULLY I will get a chance to build up an additional cushion over the next few months for the INEVITABLE drop back in share price some time this year.

 

I decided to add the Tesla shares noted in the post above since my 40% profit supports more shares. I still have a nice cushion on my total shares to be able to ride out a nasty correction and probably still have some gain.

My siblings account had about $10,000 in cash left over from funding a mortgage loan to a family member......so I used those funds for the additional 7 shares in that account. In the other account I have about $5000 coming in from an action house that recently sold some minor decor type items for me, so I added 4 shares. All had been boxed up since we downsized about a year ago. SO......free money.......free stock.

Random luck......but I now have about a 7% gain on those new shares. I just looked at the markets for the first time since this morning. LOOKS GOOD to me......but......not sure how much strength is behind the averages today. We need to POWER into the close and lock in a nice gain for the week.

My accounts continue to steadily go UP. ALL are even or above where they were in February 2020. AMAZING.....considering all that has occurred since than. l BET the market action since the low of March 23 is really making some people really nervous.....waiting for the next shoe to drop........worrying about things going too well, etc, etc.

 

"So, would this be a good time for anyone to add to their Telsa shares if they had extra cash? I have been waiting for a dip or notion, lol."

My Comment

Bigmaix......I have no clue. I really dont want to give anyone else investment advice, since I have no idea of anyone else's risk tolerance or situation. OBVIOUSLY......it did not bother me to add more Tesla for myself today. But....I know myself very well. AND....for me this is not a MAJOR investment. I am serious about this stock and expect to make it a long term holding. I am very used to going all in all at once on many different stocks over the years. That is my style and what I believe is proven to be the most accurate way to invest according to the research. I know MOST people probably CAN NOT approach investing like this. When I decide to buy something or make some investing move.....I......just do it.

The other thing for people to keep in mind is that I dont depend on this money for income or retirement. So....that gives me more freedom to do things for the long term even at my.......um........age. I STRONGLY believe in long term stock investing. That is why outside of my.......house and personal property and income annuities......ALL of my assets......100%...... are in stocks and funds all the time and have been for many many many years. It is easy to have guts when you are only dealing with a small percentage of overall money AND when a bad outcome is NOT going to be even slightly life changing.

 

WELL.......that was a heck of a day..........new Tesla shares..........+$156 per share on 7 shares in one account and 4 in the other. My original buy that happened on June 23, 2020 is now UP by 54%. My buy today.........UP by 11.3%. BUT in five or ten years if I look at a chart........am I even gong to be able to see this one little day? No. AND....that does not mean the line on the chart will be heading up, it might be heading down. This is CRAZY. This stock is in a speculative mania being caused by the news articles every day. It reminds me of what Bitcoin was doing during the bitcoin mania a year or two ago. I will not buy more at this point.

For myself and TESLA.....I look at it as a BIG WAVE with HUGE momentum right now. I am willing to ride that wave. I will HOPEFULLY ride that wave as it gets bigger and bigger leading up to earnings on July 22 and after that inclusion in the SP500. When that wave ends.......either with no profit on July 22 or no inclusion in the SP500.....or some other event........I think I have a good PROBABILITY to still be positive and to continue on from there for the long term.

I will say.........in terms of my entire portfolio and the averages........it is IMPOSSIBLE to know how the short to medium term .......6-12 months.......will play out. This is one of those times when you just HOLD ON and ENJOY THE RIDE till it ends. AND.....it always ends. I GUESS we now know what a........V shaped recovery.......looks like. At least for stocks and funds.

As to the general economy.....who knows......there is no reliable data in the slightest. You know, looking back, this sort of investing environment, where there is little reliable data and earnings are TOTALLY OPAQUE and MEANINGLESS is kind of like the first 20 years of my investing life. Back than you had to wait to see what the stock quotes were in the newspaper. Or, you went down to your brokers office and watched the ticker. I remember guys I knew that would go down to Merrill Lynch at lunch time and watch a big, lit up, ticker they had streaming in their lobby. I am sure a lot of young professional investors, traders, quants, and analysts are very MESSED UP right now. The modern tools of investors are sort of in the toilet right now............ie: dont work.

Today was a nice GREEN day BUT the SP500 got me today by .12%. To me the focus of my investing is my ENTIRE portfolio not just Tesla.

 

A very NICE week this week. At week end we are UP 1.76% for the week in the SP500.

SP500 year to date (-1.42%)

DOW year to date (-8.63%)

One more GOOD week and we will see the sP500 POSITIVE for the year again.

 

This little article pretty much sums up how I see the underpinnings of the general markets right now. It ALSO reflects the general NERVOUSNESS that is out there right now among investors. The fact that MOST people that invest in stocks and funds are doing so through a 401K plan MASKS much of the investor paralysis and fear. With 401K plans......in my opinion....people are much less likely to trade or liquidate positions.......regardless.......of fear and unease. These sorts of automatic investment plans hide current market conditions. ALL IN ALL......I consider the behavior and conditions reflected in the markets, and discussed in this article as....POSITIVE.

Behind the Relentless Stock Rally, Waves of Anxiety Are Building

https://finance.yahoo.com/news/behind-relentless-stock-rally-waves-200850122.html

(BOLD is my opinion OR what I consider important content)

"Nerves are fraying underneath the stock market’s technology-fueled rally.

Short bets against the biggest equity exchange-traded fund are stubbornly high and recently ticked up, even after the ETF’s 41% climb from March’s lows. The Cboe Volatility Index -- known as the market’s “fear gauge” -- remains elevated, while investors are piling into products that shield against losses. Meanwhile, a near-record mountain of cash seems stuck on the sidelines. All this as liquidity is in short supply.

While pundits will argue forever whether any of those things are actually bad news for bulls, the stats show caution is bubbling beneath a surge that’s left behind everything but the biggest of tech companies. Heavyweights such as Apple Inc. and Amazon.com Inc. hitting record highs have helped cushion the S&P 500 from a resurgence in coronavirus cases, with the gauge down about 0.2% over the past month. An equally weighted version of the index -- which gives Royal Caribbean Cruises Ltd. as much influence as Microsoft Corp. -- has tumbled roughly 6.4% over that same period.

“It’s been a bull market that really has not been fully embraced,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. “There’s a certain amount of skepticism inherent in investors today, and it makes sense.”

Stubborn Shorts

Skepticism is evident in the still-sizable cohort of holdouts betting against the $278 billion SPDR S&P 500 ETF Trust, ticker SPY. Short interest as a percentage of shares outstanding on SPY -- a rough indicator of bearish bets on the fund -- is currently 5.1%, according to data from IHS Markit Ltd. Short-interest reached a near-record of 7.4% on March 3, and was as low as 1.2% at the beginning of 2020.

There’s “no doubt” that the Fed’s stimulus is driving the run-up in asset prices, which could explain the unloved nature of the rally, according to Penn Mutual Asset Management.

“It’s harder to love a rally if it’s more of a liquidity-driven phenomenon rather than earnings just doing fantastic,” said Mark Heppenstall, the firm’s chief investment officer.

Volatility Jitters

While well below March’s soaring heights, the VIX is still flashing warnings for a stock market fresh off its best quarter since 1998. The measure of implied equity swings remains elevated at about 27, roughly double its February low. The gauge spent all of 2019 below 30.

Rising stocks usually imply a falling VIX, as markets price in good news on the horizon. However, the blistering speed of the equity rebound has upset that relationship, according to Goldman Sachs Group Inc., which estimates that the gap between the gauge and S&P 500 returns is one of the largest on record.

Caution is evident in ETF flows. The $1.2 billion ProShares Ultra VIX Short-Term Futures ETF -- the largest volatility-tracking fund -- posted roughly $263 million in inflows last week for its strongest weekly showing since 2016, and is on track to absorb an additional $159 million this week.

Building a Buffer

The current landscape has sparked interest in so-called buffer ETFs, which cushion holders from a certain percentage of losses in exchange for a cap on gains. It’s a space pioneered by niche issuer Innovator ETFs -- whose funds have attracted over $3 billion since first launching in 2018 -- though competitors have started to launch rival defined-outcome ETFs as demand grows.

“For people who have FOMO right now and they’ve been sitting on the sidelines and missed a 40% bounce, they’re saying, ‘do I get in now or are we back at a top?’” said Bruce Bond, Innovator’s chief executive officer. “It allows them to not have to time the market perfectly, but to get in and participate in the upside.”

So far, the buffer funds have worked as advertised. When stocks bottomed on March 23, the $252 million Innovator S&P 500 Power Buffer ETF was nursing year-to-date losses of 17.5% versus the S&P 500’s 30% tumble. Four months later, the Innovator ETF is up about 1.3% in 2020 while the index is still down 1.4%.

Cash Hoard

And then there’s the near-record levels of cash sitting on the sidelines. U.S. money-market absorbed $1 trillion during the pandemic-fueled turmoil, swelling total assets to an all-time high of roughly $4.8 trillion in late May. That stockpile has started to shrink -- barely. The total sum still sits at about $4.65 trillion, Investment Company Institute data show.

“That money has to come from somewhere, and presumably it’s coming out of risk assets,” said Phil Orlando, chief equity strategist at Federated Hermes. “This extraordinary amount of cash is the one metric you can put your finger on that would suggest you’ve got some concerns.”

Shallow Depth

While massive intervention on the part of the Federal Reserve has largely restored bond market functioning, JPMorgan Chase & Co. warns that equity liquidity levels are far from normal. Market depth for E-mini S&P 500 futures -- the ability to trade without substantially impacting prices -- remains about 60% below levels seen before March’s correction, analysts wrote in a note.

That “unstable equilibrium” could leave stocks exposed should turmoil descend on markets again, they wrote.

“Liquidity conditions have improved considerably, though not fully, and overall functioning has mostly been restored, but markets remain in an unstable equilibrium and vulnerable to shocks,” strategists including Joyce Chang, Nikolaos Panigirtzoglou and Marko Kolanovic wrote in a report."

MY COMMENT

ALL the above is TOTALLY expected and have been discussed in this forum many times over the past few months. Going forward the general markets are going to continue to be very skittish and shallow for a long time......6-12 months. That DOES NOT mean that you should get out or avoid investing. It DOES mean that you should be careful to invest according to your ACTUAL risk tolerance. CERTAIN portions of the investor universe are in a MANIA situation right now........the Robin-hood type day traders. It will not end well for them.

I had not heard of these BUFFER ETF's before. NOT a product I would ever recomend to anyone or use myself. They appear to me......... from just this little bit of information.......to be annuities disguised as an ETF. These products are obviously actuarially designed. In my simple opinion it is CRAZY to invest in the stock markets and agree to limit your returns.

 

The article above peaked my interest in the ETF's that are structured like equity indexed annuities. Here is some info on these products:

Meet the First ‘Structured Outcome’ ETF

https://retirementincomejournal.com/article/meet-the-first-structured-outcome-etf/

"Ever since “buffered” (or “structured” or variable) indexed products appeared in 2010, life insurers have had this growing market virtually to themselves. Starting with AXA’s Structured Capital Strategies, each product has been built on an annuity chassis. In the 2Q2018, category sales reached $2.4 billion, up 12.6% year-over-year.

Now an asset management firm has entered the field. Earlier this month, Innovator Capital Management launched what it claims are the first products of this type to be built on an ETF (exchange-traded fund) chassis. Milliman Financial Risk Management LLC is the subadvisor.

The three Innovator ETFs invest in multiple options on the S&P500. Investors purchasing shares of the ETFs earn gains up to a cap and have limited or buffered exposure to losses, over an outcome period of approximately one year. In the past, the only non-annuities to offer similar performance were structured notes.

This month Innovator rolled out a suite of related ETFs, each with a different range of possible gains or losses:

• Innovator S&P 500 Buffer ETF (Cboe: BJUL). This ETF is designed to track the return of the S&P 500 up to a cap of 10.85% while buffering investors against the first 9% of losses over a one-year “outcome period,” before fees and expenses.
• Innovator S&P 500 Power Buffer ETF (Cboe: PJUL): This ETF is designed to track the return of the S&P 500 up a cap of 8.11% while buffering investors against the first 15% of losses over the outcome period, before fees and expenses.
• Innovator S&P 500 Ultra Buffer ETF (Cboe: UJUL): This ETF is designed to track the return of the S&P 500 up to a cap of 8.77% while buffering investors against 30% of losses (from -5% to -35%) before fees and expenses.

The initial outcome period for PJUL and UJUL runs from August 8, 2018 to June 30, 2019. BJUL was listed on August 29, 2018 and also runs through June 30, 2019. At the conclusion of the outcome period the ETFs will not expire or terminate. Instead, they will roll into a new set of options positions, and the cap and buffer will “reset.” Investors who jump into the funds mid-term will receive adjusted caps and buffers, which can be viewed real-time via a pricing tool on Innovator’s website.

“These types of payouts were originally available as structured notes, and many people are familiar with those products and how they work,” said Bruce Bond, co-founder and CEO of Innovator Capital Management, based in Wheaton, IL. “Our goal is to deliver that type of payout in the most efficient, low-cost way possible, and have it qualify for all the fiduciary accounts.”

Innovator is the ETF sponsor and will be selling the product, Bond told RIJ. “Our first effort will be to work with advisors who are fiduciaries who wouldn’t ordinarily use a structured product or an annuity. They currently have no access to this type of product in ETF form,” he said.

Investors in these products buy shares, just as they would any other ETF. Their investments are applied to the purchase of customized options on the S&P 500 Index. Investors in the ETFs own the options directly and bear the investment risk. The products involve no bond underwriter or insurance company, which makes them cheaper and more transparent than structured notes or annuities.

“When we talk to financial advisors, they often ask, ‘how else can I access structured outcomes? What do we do for the portion of our clients who might not want annuities or structured notes? This gives them a similar strategy in a liquid, transparent manner, and at a lower cost,” added Matt Kaufman, Principal and Senior Director, Product Development at Milliman.

“When you look at the structured outcome marketplace,” he added, “the sales process often involves a major decision about tying up a large portion of someone’s wealth for a considerable period of time, often with relatively low transparency and liquidity during the holding period,” he said.

“We find placing structured outcome strategies in the ETF wrapper provides a more transparent, liquid and accessible option for many people needing to access the growth of the equity markets, in a more defined or risk-managed way.”

Here’s how Innovator describes the ETFs:
“Each Fund will hold a portfolio of custom exchange-traded Flexible exchange options (FLEX options) that have varying strike prices (the price at which the option purchaser may buy or sell the security, at the expiration date), and the same expiration date (approximately one year). The layering of these FLEX Options with varying strike prices provides the mechanism for producing a Fund’s desired outcome (i.e. Cap or buffer). Each Fund intends to roll options components annually, on the last business day of the month associated with each Fund.”

Cboe describes FLEX options as the only listed options that allow users to select option contract terms. The underlying index, option type, exercise date, strike price, and settlement date are all customizable. These options also give investors the opportunity to trade on a larger scale with expanded or eliminated position limits.

Though the defined outcome parameters are set at yearly intervals, the products have all the liquidity associated with owning an ETF. Investors can trade them intra-day, and each ETF’s share price fluctuates based on the performance of the underlying options positions, which in effect should move at some ratio (or delta) relative to the S&P 500. That ratio will be closer to 1:1 as the outcome period draws closer to its conclusion.

“As a result, the upside cap and buffer levels will be different for each investor who buys shares of an Innovator Defined Outcome ETF during the outcome period, but these outcome values can all be known prior to investing,” Kaufman said.

Each of the ETFs has an expense ratio of 79 basis points a year. If the gains on the product were capped at 10% of the S&P500 Index, for instance, the investor would face an effective cap of 9.21%. Assuming that an advisor charges an annual management fee on the market value of the investor’s entire portfolio, that too would reduce an investor’s overall portfolio returns.

Innovator conceived these products at a time when it appeared that the DOL fiduciary rule would soon take effect, and that it would become more difficult for advisors to sell commissioned products to owners of rollover IRAs, which now have a collective value of about $9 trillion. ETFs do not have sales loads or commissions.

In choosing a subadvisor for its new product, Innovator logically picked Milliman, which had worked with Cboe and Standard & Poor’s to create four series of Cboe S&P500 Target Outcome Indexes, which are the benchmarks for the Innovator series. Cboe owns the indexes and licenses them exclusively to Innovator. Terms of the exclusivity were not made public, but other product structures outside of the ETF may be able to build products based on target outcome indexes.

“As the structured annuity, indexed annuity and ETF spaces develop, the appetite for structured outcomes that are built directly into the index methodology may increase,” Kaufman said."

MY COMMENT

(The comment below is NOT aimed at any of the specific products mentioned in the article above. My comments below are GENERAL in nature and not a comment on any specific product or company)

GREAT.......in general...... equity indexed annuities being sold as an ETF that can be traded. I find it interesting that the genesis of this sort of product was the Fiduciary Rule taking effect and making it more difficult for advisors to "sell commissioned products" to IRA owners. These types of products.....in general....... may have some LIMITED appeal to a very specific, narrow, group of investors. My personal opinion......these are generally products designed for SELLING.

 

(The comment below is NOT aimed at any of the specific products mentioned in the article above. My comments below are GENERAL in nature and not a comment on any specific product or company)

HERE are the "negatives" of "SOME" of the sorts of ETF products:

"In buying into these ETFs, investors are giving up two streams of returns, one of which they don’t always notice immediately, Fund holders are forgoing any returns over the cap, as well as the dividend yield. Unlike most index ETFs, defined-income funds track the price of an index only, leaving out the dividends. Moreover, these funds carry above-average management fees."

You will find various statistics depending on the time frame BUT:

"Going back to 1970, 78% of the total return of the S&P 500 Index1 can be attributed to reinvested dividends and the power of compounding"

"SOME OF".........these types of products.......that often DO NOT allow an investor to get the dividend portion of total return........as well as capping the gains.....will apparently........at least in my personal opinion............ result in SEVERE under-performance and the elimination of MUCH of the power of compounding over the long term. In my opinion "SOME" of these are products are specifically designed to be SOLD to people.