I am starting to see significant liability in market indices. For us, the path forward is with owning simple businesses with decent earnings. REITs can be good but mostly are not. Most reits seem to exist to create a king-like lifestyle for their executive. There are a few REITs which produce strong revenue, grow the business at a reasonable rate (I would contend about 5% growth as a reasonable minimum), and also distribute strongly to the owners. You have to dig for them but they exist. There aren't many great values in the financial sector these days but there are a few that produce good earnings, distribute strongly, and scale well. The question with these businesses is their risk and liability. I do not claim to have any special insight into this aspect of the financial sector. It has become clear to me that Warren Buffett has far more insight into these risks than I do so I estimate my ability to analyze financial institution risk to be about average. The point is, by planning for 10~12% lifetime average return you can do very well and carry relatively low risk. The S&P 500 has exploded in the last few years but this expansion is not sustainable. I look forward to watching this play out.
We have a lot of cash, at the moment. Before I left the country for the winter, I placed a few long term limit orders. A few were buy orders. They are designed to purcha two different stocks. They buy a bit if the price goes down to a specific threshold and they buy a lot if the price goes way down into crash territory. None of these correction/crash orders have filled, to date. I also had an account that is 100% comprised of one of our two biggest core holdings. Both distribute well (one around 6% and the other around 8%. I set up a trade (one follows another) to sell the holding on a 3.5% gain and, if the first order fills, buy the second holding on a 2% decline. Oddly, the first order filled in January. We had a day where everything went up an inexplicable amount and I received an email telling me the order had filled. I assumed that account would remain in cash until long after we return home. That wouldn't have been a problem. Just now, I got an email indicating the buy has filled. This was clearly a case of luck triggering our fill. On the other hand, the world is full of negative events that cause people to over react so you can count on a buy trigger happening sooner or later. This is why I don't chase stocks going above my value triggers.
Is this not basically trading and trying to time the market? Maybe I don't understand this part because you've always been buy and hold as long as you believe in the company.
I still consider myself buy and hold, although you may disagree and I wouldn't argue the point. Why sell #2 and buy #1? I mostly stopped DRIPing #2 three years ago. We did pick up quite a bit more in the first week of March, 2020. It was on a half price sale. In fact, the only account that was DRIPing this stock was a locked in account where the distributions would not have been low enough to have required aggregating multiple months before investing in something else efficiently (I pay $7 per trade in this account). Since this account is locked, the #1 core holding makes more sense in this account. It's a minor optimization. At this point, #2 doesn't DRIP at all. It comprises 23% of our stock holdings (down from 26.5%). It will not go up as we sell real estate. It's going to stay there and will likely be the second stock to sell, as we spend down during retirement. That is some years ahead of us, at this point, but those years will go by in a flash. When the current #1 stock took the lead, I considered the idea of trying to keep them balanced but #1 has a bright future while #2 is less clear to me. #2 could do great, I hope it does, but I am less confident. Point being, I don't care about balancing. I try to minimize risk by investing where I feel the best about management and value.
I just realized I did not answer your question. Q: Is this trading and trying to time the market? A: Yes The thought process was, I would like this account with NWH-UN to have either cashor NHF-UN. So, "If I could sell NWH-UN near $14, I would be happy to let it go." From there, a limit sell order at 13.96 was placed and left open for some months. That order filled in january, despite the price history not showing quite that high. I've often bought just a couple of cents outside of the registered trade spread. These trades are obviously executed in the dark pools. I would have been OK with the money sitting in cash when we return from vacation. It would have been rolled into either corporate bonds or, more likely, a GIC. TD Ameritrade has a feature called OFA (one follows another). I used this to set up a buy order that would be submitted if the NWH-UN sell were to fill. (<balance> = 13.96 * <shares> - 6.99 + <cash>) I'd like to have this account full of NHF-UN but it has risen above my value price. So, I entered an OFA llimit order to buy <balance> - 6.99 / <strike> of NHF-UN. The strike price was $14.71. I'm astonished this two part trade executed. NHF-UN is up a tick from the fill price which took place in pre market trading. To be honest, these sort of trades have rarely worked out for me. Somehow, I've had good luck selling near a peak but limited success buying at discount. Whatever the case, I'm pleased with how this worked out. BTW, at my strike price the forward yield of NHF-UN works out to 8.56%. Not bad. Northview REIT is extremely young so not everyone is comfortable with the high dividend but I've known the management team for a decade and have confidence in them. I will also mention I don't plan to sell down this locked account for many years because of this trade. If it had continued with NWH-UN, I would have unlocked it at the first opportunity and transferred the cash into a trading account. NHF-UN will be set to DRIP as soon as we return from winter vacation. I do not log into my bank or investment accounts from Mexico.
I do a couple of things which could be considered gambling, depending on point of view. We would all agree that putting 5 bucks in a machine at the casino is gambling. But, what if you sign up for a free player's club card to get a discount at the restaurant and it comes with a $5 credit at the casino? Is it gambling to put that $5 in a machine and play until it's gone? I would contend, that is not gambling because there is no down side. Are options gambling? They certainly can be and usually are. But, what if the price of a stock you are pursuing is above your value line? You could try to sell a put at your value line. If someone buys it, you will get some money. The two possible outcomes are: 1) you buy the stock at your value line plus receive money for the contracts 2) you receive money for the contracts. Is that gambling? It isn't to me.
I couldn't agree more. If you're happy to buy a stock at $10 and it is at $15 trending down (or up, who cares)...then why not sell $10 puts until you get put the shares? Likewise, if you're happy to sell a stock at $15 and it is at $10 trending up (or down, again, who cares)...then why not sell $15 calls until your shares get called away? Each time your puts or calls expire OTM, you're reducing your cost basis, and in turn raising your ultimate ROI. Obviously just my 2-cents, but like I said, I couldn't agree more.
War in the Ukraine has oddly unaffected the markets. It will. As objective investors, we should be figuring out who the winners and losers will be. To start, any company exporting LNG is going to be at max capacity by Monday afternoon. It's a huge shame that Canada did not build the Energy East pipeline so look to American LNG producers on this one.
I would like to watch Vladimir Putin die in fire, knowing he spent the last two weeks of his life unsuccessfully trying to pry a popcorn husk out from one of his incisors.
See, I do think it has affected the markets, but it hit early. We always hear the saying "buy the rumor, sell the news". Some noob will come in and be like "WHY IS MY STOCK DOWN 15% AFTER GOOD NEWS TODAY!?" and the answer is always people bought it up on the rumor, then they took their profits on the news. To the downside, it would be sell the rumor, buy the news. I do agree there could be more downside possibly, but a war over there doesn't hurt us as a market unless it expands beyond Ukraine. The fear started around Jan 3rd I believe it was (?) when Biden first brought up that we would have a serious response if Putin were to invade Ukraine. Obviously there's other things going on in the market and people can say it was the fed, etc. that made the market go down. At the low a few days ago, we were 15% off the highs. That's a decent dip. I believe a lot of the drop was fear of war personally. It correlated well as war talk on the news would increase. Bounces correlated well when projected timelines passed for the start of invasion. Just my opinion. It's also important to remember war is profitable, especially if you're the biggest producer of military equipment, and safely on the other side of the world. We may feel the sting in the oil market from our warm, comfy houses, but outside of that, the market being down ~15% seems about right to me.
Our portfolio is currently down 0.2% from it's peak in January. Our portfolio is designed to be disconnected from the markets. We have a very small number of distributing, non-growth, companies and a ton of cash. This is the sort of portfolio that seems appropriate for a recently retired person.
My EQT position is up 25% since I bought late Dec and early jan and I think a ton of that is due to the war. It doesn't produce lng per se but is likely supplying gas for lng production.
The Buffett Indicator is a metric that Warren Buffett created to estimate the froth level of the markets. Mr. Buffett defined the indicator as the sum of all market capitalization divided by the GDP. The Wilshire 5000 is an index that is essentially all market capital. It is close enough, infinitely convenient, and updated in near real time. It is an obvious numerator component for use in calculating the Buffett Indicator. It is well possible that Warren Buffett has always used this indicator as part of a composite indicator but he has never specified how to calculate it. So, I have been calling it the WBI (Wilshire Buffett Indicator). Many other private investors use this term, also.
I looked up the Buffet Indicator and I understand a value of 181.3 indicates that the market is overvalued by almost 2:1. Assuming that's accurate, the stocks that have fallen since Jan 1 say (most stocks), are probably still over-valued. If one wants to short some stocks, now might be the time to do it. I only play long positions and my thinking might be to buy into stocks that are spiking due to fears posed by the Russian/Ukraine events. Sell those Russia inspired positions before the conflict cools down and then buy into positions that are deeply negative (i.e. LOW, SHW, NKE, etc) and patiently wait for the turndown to end. Now here's reality. The stocks that are spiking due to Russia have already seen, I think, their biggest gains which occurred during the 1st 3 or so days of the invasion. I'm thinking there is still room to rise, say 5-15% but nothing like the meteoric spikes that OXY saw for instance. The prices on these stocks will likely plummet once serious peace talks happen so there is a risk in buying anything spiking now. So if I buy into Russia driven gains right now, I should think of selling once 5% is gained and absolutely pull the plug if I hit 10%. A 5% gain is a 5% gain. If I used the Buffet Indicator as a guide I would then buy positions that have dropped 30% or more from recent highs (thinking ytd). If the Buffet Indicator was applied to individual stocks, such stocks would probably be indicating a value of 150 or less when I buy. Maybe still overpriced but not as much as they were now or back on 1/1. .
Any time the BI was at 90, stocks were the bargain of the decade. I believe a reasonable level is 120 ~ 155 in more typical market conditions, however, there are other factors. Interest rates, inflation, and growth all factor into this. With interest rates near 0%, the BI is somewhat irrelevant. If interest rates were to remain at 0 for a long time, stock values would soar to near infinite levels. The BI is also an index showing accumulation of wealth. Thomas Piketty (French economist) won a Nobel prize for his book, "r > g". The meaning of this title is that rate of return (r) can remain greater than growth (g) indefinitely. "r > g" is also an indication of concentration of wealth. So, the BI is expected to go up, over time. Peter Lynch had a formula for calculating market froth using P/E ratios. He opined the market PE should be roughly 20 - <inflation>. IMO, this is a slightly better indicator than the WBI but Lynch himself said this doesn't apply to companies, only to the entire market. Different sectors have different PE comfort levels. Still, it gives a good idea of the level of market enthusiasm. I wish to point out that Lynch also ignores the concentration of wealth problem, so the comfortable S&P PE ratio will go up over time. The S&P 500 PE ratio is currently at 34.5, again suggesting a healthy over valuation of the market. So, the market still appears to be pumped up, from my perspective. This is why I have decided against getting into VOO and am remaining with a small group of companies I trust.
