Adjectives Are Irrelevant

My wife and I recently helped her parents close on their house which they have owned for the past 50 years.  I should clarify here that my wife did most of the work dealing with lawyers, real estate agents, scheduling and gathering of papers and information.  I helped by providing backup and support as needed and playing chauffeur.  In the end, the entire process of listing, selling and closing on the house had many twists and turns, drama and many lessons learned.

As I attempted to summarize the key takeaways from our experience, I realized that there was just simply too much material to cram into one post.  So, over the next couple weeks I will be posting various topics on lessons learned.  Some posts, such as todays, will not be directly related to stock, finances or even estates; but others most definitely will.

But first, a little background and some of my own personal (unique) observations about the greatest generation.

Many folks who were born in or around the 1930’s experienced financial and economic hardship that many people had never experienced before or perhaps will ever again.  Living through the Depression made a lasting impact on people and families which shaped the way they look at life, jobs, belongings and finances.  As a result, many people of that generation seem to look for stability.  They want to hold on to and save everything.

You know the old sayings “To save it for a rainy day” or “you never know when you will need it”.

And yes, based on my parents and my wife’s parents, sometimes this behavior can verge on being hoarders.  As a result, it is extremely difficult to downsize.  In their eyes, everything is extremely important and valuable.

To quote another saying.  “Waste not, want not.”

Don’t get me wrong, this hold mentality can serve people well.  For instance.  The house they lived in for over 50 years was completely paid off free and clear of any liens.  Sort of, more on this later.  But suffice it to say, having a house free and clear of any payments when you retire is a blessing.

But holding on to everything can lead to clutter and to not being able to take care of everything properly.

Take this picture for example.

The dolls actually look a lot better in this photo than they did in the dark, damp, mildewed basement.  It was truly a scene straight out of a horror movie.  To my mother in law, these are not old dolls.  These are not dirty moldy dolls. Or even old dirty moldy dolls.  These are dolls which must be saved for another day.

My wife was asking me about them on the way back home.  “Why would somebody save old dolls like than in damp dirty basement”.  There was no value in it.  It did not make sense to her.

That is when I said:  “Obviously, adjectives are irrelevant.”

They were dolls.  They were memories.  They were valuable.  And needed.  Perhaps not needed anymore but in my mother in laws mind someday they may be.  So they were kept.

Unfortunately, they ended up being kept as clutter.  And the funny thing about clutter is that even though it exists, it doesn’t command our attention and then gets old, mildewed or even broken.

And loses value.

The moral of this story, if there is one, and I believe there is, is that one needs to be focused on what is truly valuable.  And keep it in good condition.   It deserves our attention, and ultimately others as well.

I believe Steve Jobs once said the trick to being focused is the ability to say no.

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully.”

Otherwise, I believe you end up with clutter, by saying yes to “save everything”, and losing focus on what is truly important.

And when you do say no to something, sell it, donate it, or give it to somebody else who will use it.


Not Every Stock Is Crashing, However . . .

During a market correction, your number one priority is to protect capital.  So most investors should limit their exposer to this downward trend.

Some, cash out and wait.  This is perfectly acceptable.  Cash is king and it takes money to make money.

Some, play the inverse trend to “balance” their portfolio or “hedge” the market.

Some rely on stop loses to limit their losses to help “keep” their strongest stocks.  These, in theory are the stocks in their portfolio which hold up better than the rest and are worth keeping.

Some, also look for new stocks to watch.  These new stocks are ones most likely not in their current portfolio but are holding up well in this terrible market.  Often, according to IBD, stocks holding up well in a market in correction are first to break out once the market rebounds.

Going back more than three years and not including the current correction, the Nasdaq has had corrections of about 19%, 18%, 10% (rounded up) and 11%.

The deeper corrections lasted six to 10 weeks, while the shallower corrections ran four to six weeks.  Traditionally a correction is defined as a pullback of 10% or more, and a bear market 20% or more.  The current correction has burned through a lot of capital in just two weeks. The quick decline might suggest that the battle between the bears and the bulls has further to go. Volatility is likely to remain for a while.

Yet, the individual investor should not get locked into a prediction. Stay flexible and be ready to buy a stock if a follow-through day develops.

A follow-through day involves a big index gain in rising volume on the fourth day or later of an attempted rally.

Friday’s action constituted Day 1 of an attempted rally. The indexes have to stay above their intraday lows in order for the count to continue.

So I ran a screen looking for stocks which have fallen less than the three major indexes, have positive EPS and Sales ratios, and are finding support and or above the common trend lines (20, 50, 200 MDA).

And came up with this list of stocks.

Ticker Company Sector Industry Market Cap P/E Price
COLM Columbia Sportswear Company Consumer Goods Textile – Apparel Clothing 5.42B 27.5 76.7
CUDA Barracuda Networks, Inc. Technology Communication Equipment 1.48B 98.71 27.54
EL The Estee Lauder Companies Inc. Consumer Goods Personal Products 49.68B 36.43 134.75
EZPW EZCORP, Inc. Financial Credit Services 742.84M 18.87 13.15
FTNT Fortinet, Inc. Technology Application Software 8.26B 97.16 46.54
GFN General Finance Corporation Services Rental & Leasing Services 194.18M 7.4
INST Instructure, Inc. Technology Application Software 1.10B 36.75
INVA Innoviva, Inc. Technology Application Software 1.72B 19.51 15.43
KTEC Key Technology, Inc. Industrial Goods Diversified Machinery 172.63M 42.83 26.64
MBUU Malibu Boats, Inc. Consumer Goods Recreational Goods, Other 703.07M 20 33.4
MC Moelis & Company Financial Asset Management 2.83B 24.9 52.05
NEWR New Relic, Inc. Technology Business Software & Services 3.58B 64.38
PERY Perry Ellis International, Inc. Consumer Goods Textile – Apparel Clothing 417.00M 15.48 26.21
SKX Skechers U.S.A., Inc. Consumer Goods Textile – Apparel Footwear & Accessories 6.57B 25.41 41.06
TSG The Stars Group Inc. Services Gaming Activities 3.75B 19.9 25.45
WING Wingstop Inc. Services Restaurants 1.32B 62.62 45.15

These are not necessarily stocks to buy right now.  After all, the market is still in correction.  However, this correction will not last forever (watch for a confirmation follow-thru signal or for price trends to close above moving averages signaling a potential return to a bull market).  When the market does reverse back up, there will be bargains out there to purchase.  So it is prudent to build and maintain your watch lists to be ready for a recovery.

Sometimes Disruption Isn’t Good

President Trump was elected because he could be disruptive and transform the economy, healthcare, immigration and the way government works – or doesn’t – depending on your point of view.

The short optimistic answer and interpretation I have for this is with change comes opportunity. How can one expect to change, to make things better if you keep operating and performing the same way as you always have?
You need to try something different and yes, sometimes shake things up a bit.

And that is what Trump does exceptionally well.

Of course, I think he also does this to keep opponents off-balance and gain an upper hand in negotiations and making deals, but that is another matter entirely.

Unfortunately, when you shake things up a bit, sometimes you can shoot yourself in the foot and undo all your good intentions.

This too, tends to be another thing Trump does exceptionally well.

This time he has had the help of congress and politically and ideologically charged policies and agendas to help him.

Trump and the GOP just passed sweeping tax reform legislation. This is supposed to, in addition to repatriating overseas cash, boost business’s ability to grow profits, hire more people, and boost the economy.

Tax reform is expected to add about .3% to the GDP this coming year.

The last time the government shutdown was in 2013 over funding for the Affordable Care act. A politically charged agenda on both sides. It lasted 16 days and cut an estimated .3% from the 4th quarter GDP.

This time the government is shut down over another politically charged and divisive agenda for both sides of congress; immigration reform.

Not only would an extended shut down be bad for millions of people and the economy but the repercussions from this could have a huge impact on the GDP for years to come. Some studies have estimated that slashing immigration and recruiting / replacing with more educated and trained workers would decrease GDP by 2 percent over the long term and cost 4.6 million jobs.

There are many opposing policy and legislative forces at play here, not only with the shut down, but also with any possible changes in immigration reform legislation. And I don’t think anybody really knows what the end result(s) will be but right now, I see the potential for more harm than good.
References for this post:

IBD – This shutdown may be worse for the economy
NBCNEWS – Slash Immigration, and GDP Is the Victim


Investing With Style

A few months ago I posted about whether or not to move my previous employer 401K to an individual IRA.  I opted to move it all, roll-over, to an individual IRA.

For me, the advantages definitely outweighed the disadvantages.  Here are the biggest advantages as I see it.

  1. A one stop shop to view and manage all my investments.
  2. Greater selection of investments.  I now have over 2,000 ETFs, 12,000 mutual funds to choose from and that is not including individual stocks.

BTW, did you know there are more mutual funds and ETF’s than there are stocks?  True.

I now had much more power over how to invest my retirement funds.  But with such great power, comes even greater responsibility.

The first question I had to answer was; how to go about choosing my investments?  To do this I started with my first rule of investing; protect capital.  I translated that into keeping costs to a minimum.  When trading ETFs and Mutual Funds there are basically two costs involved;

  1. The commission
  2. The expense ratio

The commission is what you pay your broker for the transaction.

The expense ratio is how much the fund or ETF charges as a service fee to investors.

Obviously the lower these two are the more money you have available to work with.

Looking over the screens my online broker offers, the first thing that jumped out at me was commission free ETF’s.  So that was my first selection criteria.

  • That narrowed my choices down to 296 from 2105.

My next criteria was funds with below average expense ratios, as compared to the industry .70% average.

  • That narrowed my choices even further, down to 130.

That was the easy part.  Now what do I do?

Ultimately I am looking for a wide diversity throughout my retirement investment funds.  For this I turned to a framework or investment model which helps categorize investment strategies.

The Morningstar Style Box is a nine-square grid that provides a graphical representation of the “investment style” of stocks, ETFs’ and mutual funds.

The grid classifies securities according to market capitalization (the vertical axis) and growth and value factors (the horizontal axis).

Understanding how different types of stocks behave is crucial for building a diversified, style-controlled portfolio of stocks, ETF’s or mutual funds. The Morningstar Style Box helps investors construct portfolios based on the characteristics and style factors of all the stocks and funds a portfolio includes.

Since my first two search criteria limited my choices to ETF’s, I am going to limit my description of the style box to how it relates to ETF’s.  The Morningstar style box classification of an ETF is based on the asset-weighted market caps (for the vertical axis) and value-growth scores (for the horizontal axis) of all the stocks in the portfolio.  This is important to remember because I want to keep my overall investments as diversified as possible.  It could be possible to select different ETF’s, in different style boxes and have quite a bit of overlap not only in sectors but also in individual stocks.  This is because each ETF is comprised of many stocks.  It is possible to have duplication between ETF’s.  Fortunately many online trading platforms and fund prospectus make it fairly easy to track concentrations and overlap.

Here is a perfect example of one such ETF.

Even though the ETF is firmly classified as a Large Cap Growth ETF, it does have a small amount stocks classified as Mid Cap Growth.  One can also see the sector concentrations and even the top 10 stocks.  (partially hidden in this screen shot).

On a very simplistic level, I was shooting for at least one ETF in each box.  I did have some personal investing ideas that I wanted to incorporate into my over-all portfolio.  Namely at least one of the following,

  • Growth and or Momentum trends
  • Dividends
  • Value
  • Blend
  • International and Emerging Markets
  • And some sector specific ETF’s such as Financial, Health (pharmacological, Biotech) and Energy.

In the end, I do have at least one ETF in each style box and since I already knew I was going to have overlap in sectors, I concentrated on eliminating, as much as possible, duplicate stocks based on each ETF’s top ten holdings.

The result?

13 no commission ETF’s with an average .326% expense ratio.

Out of 130 “top 10” holdings, I have 8 duplicate stocks.

Now that is Investing with Style.

Have You Ever Invested Because Of A Text or Tweet?

Have You Ever Invested Because Of A Text or Tweet?

I have, albeit with a little bit extra research.

Last month my daughter texted me out of the blue about an apparel brand called Supreme.  I think she was originally fishing for additional Christmas gift ideas, but it is interesting that she thought to include me knowing that I am always looking for the “next big thing” in investments.

I liked the Supreme Brand, the Investment Company, and CG (the investment company) also pays out a fairly nice dividend.

So, I took a nibble and bought the stock.

So far, I can’t complain.  CG has advanced 6.29%.

Have you ever bought stock based on a tweet or text?