Chowder

Estrategia Referentes
103

Sobre cómo sigue la construcción de la cartera de su hijo y los próximos movimientos:

"There is always an objective, always a mission, and it changes from year to year. I was done with building out my son’s portfolio and this year the focus was on building up.

The objective, the mission for 2017 was to bring all 1/4 sized positions up to 1/2 size. That mission has finally been accomplished.I had stated earlier this year that 2018 was going to be the year of the Core, where I build all of his Core holdings to full position. I want these companies, companies I have higher conviction with, to be twice as large as other companies, at a minimum. Therefore I will be ignoring valuations and when it comes time to add, I’ll add one buy at a time. The next purchase is due to be made the first of next month.

At the present time, these are his Core holdings and their position status.

Overweight positions:JNJ … PM … D … GIS … KO … KHC … ADP

The following companies are Full positions:O … VZ … PEP … SO … CL … PG … KMB

The objective has already been achieved with those companies.

Here are the companies that need work.3/4 sized positions:MMM … VFC … T

1/2 sized positions:XOM

I will build those up to full positions before I look at any other companies in his portfolio unless some compelling situation pops up.I have a very sophisticated and complex strategy for adding to these companies above. I am buying the highest yield first. … Ha!So T is the next purchase and then I’ll move on to XOM.Simplicity at its best."

104

Para hacernos una idea de lo que considera 1 posición o 1/2 en función de la edad u objetivos alcanzados.

"With younger folks a full position might be $4k and for older folks $40k. If a young person sees their position grow to $12k it’s a triple sized position but still small in relation to where it will end up at some point years from now. Do you trim at $315 only to buy more at $615 years from now? I don’t think so. A young person just needs to stop adding and build their other positions to catch up to LMT and up to where at some point a $12k position is actually a 1/2 sized position instead of being overweight.

As portfolio values rise, the amount that represents a full position rises. At one point $2k was a full position for my son and after everything was built to those levels, we raised it to $3k and now sits at $4k. In 2018 we are raising the full position status to $6k and now LMT isn’t as overweight as it once was.

We continue to build up where older folks may need to protect what they already have.Older folks who don’t have the benefit of time may need to trim back and take profits. I get that. I’ve done that. I just don’t want to see young folks trimming shares they will only have to repurchase later and probably at much higher prices."

105

COMO CONSTRUIR UNA CARTERA:

"Young people, here is how I manage my son’s portfolio and the portfolio of other young folks that have asked for help. I try to come up with a balance between growth and income. The older folks are more income oriented in how I set up their portfolios.

I break the portfolios down into 3 sectors, using the Morningstar model. The sectors are defined as Defensive, Sensitive and Cyclical. I want 50% of the portfolio in the Defensive sector and 25% each in Sensitive and Cyclical. The model calls for 50-25-25.Defensive positions include consumer staples, utilities and healthcare.Sensitive (to the economy) positions include industrial, energy and technology.Cyclical positions include consumer discretionary, financial’s and REIT’s.

Most of my son’s Core holdings are Defensive. The goal is to have all Core and Defensive holdings at a full position or more, other positions just a 1/2 sized position. These 1/2 sized positions have to grow into full positions hence the term growth. … Ha!When investing small amounts of money as you build your positions, you don’t know where price performance is going to come from. It was unexpected that CAT and DE would perform as well as they have the past year and a half, but then who expected DIS or SCG to show negative returns over the same time frame. So I don’t try to guess, I only try to insure that all positions are properly sized so that when that surprising price explosion that CAT and DE have provided, it helps impact performance and makes up for those who haven’t performed as well.I will place V or MA in a young folks portfolio for growth, but I recommend against it in an older folks portfolio because it lacks income.

So know your goals.Now here comes the important part, straighten up!Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.I try to manage an equity portfolio based on the asset allocation concept among the equities to be owned. I look at how I want a portfolio established, where I want our income replacement to come from. When I consider a risk vs reward ratio, while trying to be reasonably conservative, I look to set up the portfolio with a sector weighting of Defensive 50%, Sensitive 25% and Cyclical 25%. (More defensive for older folks!)Where I see articles and comments asking, who should I buy next, SBUX, BDX or V, what we have is people trying to predict who is going to perform better in the near future and that is not a question I ask myself in managing a portfolio. I look at my sector allocations to see who is lacking the proper weightings, and if it’s discretionary, I buy SBUX. If I can use a little more defense, I buy BDX. If I can use some financial exposure it’s V. I’m not chasing results, I’m focusing on proper sector allocations and will patiently wait for the market to come to me since I don’t know where the best returns are coming from next year or the year after.

Thus, I focus on companies and sectors being properly sized and get paid to wait via the dividend stream.If cash is available, and I can use all 3 then I’d buy all 3 but in talking about folks like my son, who can only buy one company at a time, I have to make choices.If for some reason I needed to upgrade all 3 sectors and only had the cash to make one purchase, I’d go with defense first and add to BDX as long as it was reasonably valued. If BDX had a valuation so high I was unwilling to pay it, then I would look to see who had the best forward guidance on earnings. This company, if not purchased now, might see its valuations rise due to good performance and I’d rather be on board when it does. Most people would select the best valued company and the definition of best value meaning best discount. Best discount under current market conditions means company performance is lacking. If a company is under-performing, it’s price isn’t going anywhere soon and I can come back to this later, so I do not necessarily jump on what appears to be the best value available, as price does not determine future value of a company and I’m looking forward.Always an objective, always a mission, stick with the plan."

106

La cartera de su hijo. (publicada 12 sept). Ya se puso antes, pero lo vuelvo a pegar para poder seguir bien la explicación de cómo construir cartera (según Chowder). Recordad, actualmente (para su hijo) considera posición completa 4K (y va a aumentar a 6K).

Defensive:Staples … 36.8%
Utilities … 10.8% (includes telecom)
Healthcare … 10.1%
Total … 57.7%

Cyclical:Discretionary … 11.9%
Financials … 2.6%
REIT’s … 4.9%
Total … 19.4%

Sensitive:Industrials … 14.5%
Energy … 4.3%
Technology … 1.5%
Total … 20.3%

HOLDINGS …The following are considered overweight positions:

*JNJ … 3.7%
LMT … 3.7%
MCD … 3.6%
*PM … 3.5%
*D … 3.1%
MO … 3.1%
*GIS … 2.8%
SYY … 2.8%
*KO … 2.7%
*KHC … 2.7%
*ADP … 2.6%
The following are considered in full position range:

*O … 2.5%
*VZ … 2.5%
*PEP … 2.4%
*SO … 2.4%
HCN … 2.3%
*CL … 2.2%
*PG … 2.2%
CVX … 2.2%
*KMB … 2.1%

The following are considered in the 3/4 sized position range:

AMGN … 1.8%
UL … 1.6%
ABT … 1.5%
*MMM … 1.5%
*VFC … 1.5%
*T … 1.5%

The following are considered in the 1/2 sized position range:

DG … 1.4%
DUK … 1.4%
MKC … 1.4%
NSC … 1.4%
MA … 1.3%
SBUX … 1.3%
V … 1.3%
CAT … 1.2%
LOW … 1.2%
NKE … 1.2%
TAP … 1.2%
UNP … 1.2%
*XOM … 1.2%
CAH … 1.1%
CBRL … 1.1%
COST … 1.1%
GPC … 1.1%
HRL … 1.1%
SNA … 1.1%
BDX … 1.0%
CVS … 1.0%
IBM … 1.0%
SWK … 1.0%
TGT … 1.0%
DEO … 0.9%
KMI … 0.9%

The following are considered in the 1/4 sized position range:

DE … 0.9%
HD … 0.8%
CDK … 0.5% (spinoff from ADP)
HYH … 0.1% (spin off from KMB)

107

3 libros recomendados:

  1. Dividends Still Don’t Lie by Kelley Wright.
  2. The Ultimate Dividend Playbook by Josh Peters (Libro del que ya nos habló Vash en su hilo de presentación).
  3. The Introduction and first 4 chapters of The Single Best Investment are a must annual review in my opinion. People have a tendency to wander off the reservation and that review should help to re-focus
108

Otra perla que tanto me cuesta interiorizar: Promediar al alza los ganadores.

"Every one of us has positions that are doing well and some that aren’t. I ignore those who aren’t, they are not worth my time and effort. I focus on my winners. Who do I own that is up 50%, 80%, 100% or more? I want more of that company, not less. It’s a winner! Why would I want to limit my exposure to winners that are giving me most of my positive return? Why is it so hard for people to average up on a position already up 60%? I don’t get it! Yet, they will buy more of a loser in an effort to prevent themselves from having to admit they screwed up.

Folks, if you are going to manage an equity portfolio you gotta get your mind right. Ya gotta focus on what is important and what is important is detaching yourself from the result. You just have to manage the position, the rest is up to the market, not you. Stick with quality, invest small until you have some proven winners, and then build on to your winners. The losers can wallow around in the mud until they either improve or I sell them. It’s as easy as that!"

109

O is a Core position in every portfolio I manage and a must own by any person I help in managing their portfolio. No exceptions! It is the only REIT that is considered Core in my son’s portfolio.

I have no interest in STOR but do have a position in NNN in my personal portfolio and I plan to add to it the end of this month as I think it is a nice compliment to O.I have O as one of the largest positions in many of the older folk portfolios I work with.

Any company that advertises itself as The Monthly Dividend Company is going to do everything they can to protect that dividend. They screw that up, they lose a decades old mission statement.If we are playing Cramer’s are you diversified, O is always, always one of those 5 as is JNJ. I consider D as one of those but have no objection if someone prefers another utility as long as a utility is one of the 5. I do not support any other REIT over O.O, NNN and HCN are my top choices for REIT coverage but O is da man!

110

"New investors, listen up.

When I discuss Defensive positions, it has nothing to do with how much a company saw its price draw down during the last recession. Defensive has nothing to do with share price. Defensive has everything to do with whether a company can sell it’s product or service regardless of economic conditions. Those revenues are what will help generate the dividend, and it’s the dividend you want protected during recessionary times.

A company like O and MMM for example have recessionary resistant aspects to their business and that is why I am willing to consider them Core holdings even though they are not listed in the Defensive sector. O had one hell of a draw down during the last recession but that dividend was as solid as gold because their occupancy rates stood so high. Other REIT’s saw their dividend in jeopardy because they couldn’t maintain a certain level of revenues.

Defensive has to do with the dividend, not the share price. After all, this is called the “dividend growth income” strategy and part of that strategy is trying to determine where the safest dividends come from. There are many exceptions of non-defensive companies having a safe dividend, MMM and O just being a couple, but most of the dividend cuts that came in the last recession were from companies outside what I refer to as the Defensive sector. So keep that in mind newbies, and perhaps that will provide some peace of mind as we go along while most around us are scattering on ideas how to protect their portfolios. … Ha!"

111

">>> If you are working with a $3M portfolio, for example, $25k positions gets you 120 different stocks <<<

This is the part I’ve been having a difficult time to get people to relate to. I’m working with multi-million dollar portfolios that have up to 90 positions, that have $10k per month in dividends coming in and that money has to go to work somewhere.

It is where I expect my son’s portfolio to be one day as well and it’s why I constantly build share count but I’m doing so with small lots of cash, $1k at a time, and I will continue to build each of his positions up over time without being concerned about valuations. I’m not percentage hunting, I’m dollar hunting in order to create more dollars to invest.

The objective is to build positions of size and I see where some positions will reach $100k each at some point and those that do will have my Core designation. Who do you own that would allow you to feel comfortable holding that size position? That’s what I now face elsewhere and JNJ is one of those. O is one of those. D is one of those, and if I didn’t build some companies to $100K in size, instead of owning 90 companies I have to buy 290 in order to have smaller amounts invested in each and I’m not going to do that."

112

Nueva nota sobre PROMEDIAR AL ALZA. A raíz de los buenos resultados de JNJ y su subida hoy.

"New investors take note.

Some people will say they don’t have rules they simply buy good companies and don’t worry about it but then turn around and say they won’t buy unless it’s on a pull back. That’s one of the most strict rules I’ve seen, especially for those who say they don’t have rules. They do! They buy on weakness.

I have been pounding the table for a number of years now on paying attention to the “condition of the market.” I was told it appeared I had changed my strategy from what I was doing back in 2010-2012, the Chowder Rule years, but it wasn’t my strategy that changed, it was the tactics being used based on the condition of the market.

In a bull market, which we are still in, if all you are going to do is buy weakness, you are going to end up with a portfolio full of under-performing companies, and by under-performing I mean they are facing headwinds and are probably the companies showing red in most peoples portfolios. Companies like SJM, HRL, NKE, TGT, IBM, GILD and many others.

Several years ago I started showing people that I have another way to enter positions based on a bull market. I look for companies that beat on earnings, revenues and raise expectations. These are companies doing better than expected and I assume you new investors would want to own companies doing better than expected.

You know what the more experienced investors have done? They have avoided buying these companies because of their strict rules about valuations. They hadn’t made the mental adjustment that if a company is doing better than expected then whatever you think the value is, it’s going to rise because the company is performing better than expected. They have failed to build these companies up in size because they allowed the word value stop them from doing so.

We can’t even agree on how to classify a company like CVS and T. We can’t even come up with a common definition of what a Core holding is or what the definition of Defensive is, so how do we expect to come up with a definition of value?What they mean is price because they couldn’t see the value of paying up for companies doing better than expected.

Newbies, don’t get all wrapped up in this concept of value that many people can’t even define. Pick out some good companies to own and invest small. Build out to the number of holdings you wish to own, then start building them up in size.

When I look at my son’s portfolio, I look to see who is profitable, and that’s who I add to. I add to winners. If he has a loser, it stays small. I am not going to throw good money after bad. If or when the loser turns profitable, or comes out with a catalyst that indicates it might, it’s at that time when I’ll add to losing positions. Don’t get fancy, keep it simple, and don’t get wrapped up over cheap prices. You get what you pay for in the long run.When market conditions change, the tactics will change, but until then we’re still in a bull."

113

Un poco de psicología.

Como ejemplo del tipo que describe me podéis tomar a mí aguantando mis Telefónicas desde 2011 (en lugar de venderlas y haber cambiado de empresa).

"Market psychology … listen up folks, especially those of you who are new to managing an equity portfolio.

There was research done by Amos Tversky and Daniel Kahneman that showed most investors are risk-avoiders in handling gains, but risk-takers in handling losses. Now think about that concept for a minute and when you are thinking clearly you will see that most people sell winners too soon and hold losers too long. There is something about our psychological makeup that doesn’t allow us to admit mistakes very easily. We hang on to losers in an attempt to show we were right all along when we actually weren’t.

You will see people all the time telling you that they don’t like a company for one reason or the other, and this is the part that kills me, there are better opportunities elsewhere. … Really? … Then why are they still holding their losers? A new company starts out even and there are better opportunities elsewhere, but apparently not good enough for them to take their loss and pursue those better opportunities. Does that scan?

These folks are protecting their psyche and not their portfolio according to Dr Steenbarger, and I would have to agree with that.

As an income investor who doesn’t pay much attention to capital gains because I trust they will be there in the long run, my focus is on building income. As long as that dividend growth stays intact, it’s just a matter of time before share price catches up. I look at a company like TGT with its 4.1% yield and its 50 consecutive years of raising the dividend and I think as long as they are able to continue increasing the dividend, the share price is going to catch up eventually. It may take a few years, I don’t know, but what I think is a high probability play is that they have to be doing better than what a lot of people expected them to do if they are able to continue raising that dividend, so that’s what I focus on.

I look at IBM with its 4.1% dividend with its 22 years of consecutive dividend increases and I can’t help but think that is going to continue and allow them to become an Aristocrat. I know people want to harp on the 22 qtrs in a row of lower revenues but I’m looking forward, not backward. Can you imagine what IBM does when it starts growing revenues? People won’t buy because it’ll be too expensive by then for them to take a position.

As an income investor those 4.1% yields and growing dividend rates have an impact on the amount of dollars entering our accounts, dollars that can be reinvested elsewhere. Where some sell one thing to buy another, they give up an income stream to buy another income stream while I keep both income streams. The difference is, I don’t worry about share price and they do. It’s not the share price that is my focus, it’s the income stream and income will keep you in your winners a lot easier than price movement will. So far the share price crowd hasn’t been hit with a meaningful correction. Their anxiety level is going to be much higher than mine because our income flows will not be taking a hit with share prices.

To me, the greater risk is price worry. The peace of mind is the income flows.I’ve said it many times folks, you can get growth and income during some market environments but at some point they go in opposite directions and you can not achieve both. You better know what your priority is because growth and income will require different tactics going forward.

Think about it!Me? There’s nothing to think about, it’s income all the way! And boy that puppy continues to grow nicely."

114

"People define risks in many ways, and there are too many risks in investing for me to be able to overcome them all and insure that none come my way. Most people define price volatility as a major risk, and young people, you’re going to learn that’s one risk you are going to have to ignore. You can not control price volatility. You can not maintain the capital gains you may show in a bull market when the market turns and corrects unless you go to all cash, and by the time you realize that might be a good idea, much of the gains will have been taken away.

If you want to benefit from the long-term gains that stocks do provide, putting up with price volatility is the toll you have to pay. … Get your mind right!

There are only two risks that I had to overcome based on my personality and risk tolerance level. One is that, as a long term investor, I don’t want any of my companies to go bankrupt. I’ve held a handful of those over the years and that wasn’t any fun. The other major risk to me is not having enough income to live off of in retirement, and it is that number one risk to me that started off the article above.

How much do you need? … When do you need it? … How sure are you that it will be there?Those 3 questions pretty much are centered around what I consider to be the most important risks to take on.

By focusing on companies with high financial strength ratings, I minimize the possibility of companies going bankrupt. My initial purchase of a company usually requires a BBB+ or better rating according to S&P and with this rating as a baseline, it does allow room for a company I own to drop 2 ratings and still be investment grade. As a long-term investor, who wants to buy, hold and build positions over the long term, I know that some of the companies we own are going to face headwinds at some point and it may cause their ratings to drop. The higher the rating, the longer the period for me to be patient in the event I don’t want to give up on a company too soon.

As to how much do I need, and when do I need it, it’s the income flows of every portfolio that I monitor and not the portfolio value. I do not report how much a portfolio is up or down quarter over quarter or year over year. It’s the income results that reported, as it’s the income that has priority in answering the 3 most important questions about investing. How much did the income grow this year? That’s our number one concern.

How much do you need? … When do you need it? … How sure are you that it will be there?I gave a couple of examples above on why I thought IBM and TGT were good investments for our portfolio. … How much do you need? … These companies have been terrific income producers for us, both yielding above 4%. I don’t have minimum yield requirements in selecting companies for most of our portfolios, if I did V and MA certainly wouldn’t be in the portfolios. But when I can get a 4% yield on an A rated company with a long history of raising the dividend, I’m all over it. That’s a good investment in managing the risks of greatest concern to me. Income and safety. I don’t have to be concerned with IBM or TGT going bankrupt, not even close at this time. And the dividend is solid for both, they both have announced raises, and they both are generating more than 2 times the income the S&P 500 Index would. This is why I consider them good investments for reaching our long-term objective of having enough when the time comes. We can’t spend percentage, we spend dollars, and both of these companies are generating generous amounts of dollars in the form of dividend yields which then gets reinvested elsewhere to generate more income dollars.

Everything you own can’t be your top total return producer. You don’t know which of your companies are going to produce the greater total return over the next year or two. There isn’t much that most of you can do in building those positions if price does indeed start to take off because most of you won’t pay the higher price to keep adding.

I can manage for income a lot easier than I can manage to obtain … and maintain … portfolio value. The bull market provides us with a false sense of security where we think we can continue to duplicate the success of the previous 6-7 years. As we move forward, annualized rate of return is going to be more difficult to achieve, but I can continue to get high single digit income growth, even low double digit income growth in declining markets, and I can maintain that growth through all market conditions.How much has your income grown year over year? That’s the risk that concerns me most.Food for thought folks!"

115

Nuevo hilo de Chowder en S.Alpha.

https://seekingalpha.com/instablog/728729-chowder/5058558-young-people-think-smart

 

116

Psicología. Cómo preparar una cartera esperando la próxima recesión.

"New investors listen up.

There was considerable chatter in the last comment stream about capital gains and what people like to call total return investing. Some folks wanted to brag about their gains, others brought them up because they happened to fit the narrative at the time. There is nothing wrong with capital gains, they are fun to look at, I enjoy them myself, but until those gains are realized, they are fantasy numbers. If you don’t take those profits, the market will, so your gains often times are temporary.

How do you stick with a long-term strategy if your fantasy number keeps fluctuating up and down? I lost 50% of my portfolio twice during recessions and during the last one I saw 30% to 40% of my capital gains disappear. … What do you do?

I screwed up during the first two recessions because I locked those losses in. I didn’t learn the first time, I had to make the same mistake twice. I’m trying to help you get your mind right where you don’t make those same mistakes.

The first thing I had to do was to detach myself from the percentage gains. When you become attached to the results, and the results don’t go your way, and trust me they won’t at some point, then you lose confidence, feel like a failure, and withdraw from the market. Whether the share price goes up or down has nothing, absolutely nothing to do with you or me. My job is to simply select companies that are financially sound enough to hang on during recessionary times, continue to pay and raise the dividend, and then see it’s price rebound to new highs once the economy turns around. That’s my job, to select those types of companies. It’s not my job to direct share price so I ignore it, both to the upside and the downside.

When you research a company, I feel sure that most of you at least take a peek at the company’s cash flows. Companies can fudge earnings numbers through a myriad of accounting tricks but companies can’t fudge cash flows. And when you see where a company has increased their cash flows quarter over quarter, year over year, and has a long record of increasing cash flows, I’m sure that has to instill some level of confidence in you that it’s a good investment. I’m sure you’d have to agree that even if the company’s share price is down 30% from where you bought it, that with a cash flow history like I just described, it indicates that in time that company has no choice but to eventually rebound and head higher.

The key to long-term investing, and learning how to accept the pain of price volatility is to stay focused on the cash flows, and the cash flows I’m talking about are your dividends. Dividends are real money, not fantasy numbers. Dividends are cash flows that show up in your account month after month after month and are to be used for further investment. The only thing I track in the spiral notebook is our monthly and quarterly cash flows and when I see them continuing to grow quarter over quarter and year over year, it helps me deal with the same pain you folks feel but I’m just dealing with it better than most because I got my mind right. It’s time for you to do the same.Unless you are trading, it’s the dividend stupid! Focus on your cash flows.

117

Sobre KO:

“Let’s talk about perennial haters, the companies that most say to avoid, they are past their prime, have no growth potential and they always close with, there are better opportunities elsewhere.
I’m talking about KO. You’ve heard all the excuses in the world for not owning KO, and I have always ignored the comments as I don’t think they understand the importance that a company like KO can play within a portfolio.
About a year ago KO was offering a yield above 3.4% I told people they should git some. I also stated at the time I had a limit order in to buy even more if the yield got to 3.6% but the order never hit.
A yield of 3.4% on a dividend as safe as that offered by KO is nothing to sneeze at folks! KO hit a low of $38.90 last November and in less than one year has rebounded 18.3% off that low. Is that a respectable enough of a return for a company not expected to grow?
It isn’t what you buy folks, it’s how you manage it, and although I don’t care what the total return numbers are for KO because the shares are not for sale, but my son is up 80% on his position and it’s a position that isn’t supposed to grow much. If you can’t help me, don’t hurt me and so far KO has stayed far away from hurting me.
Those of you who think everything you buy is going to do what you want it to do are nuts. It ain’t gonna happen, and when it doesn’t, I’ll take a KO all day long.
Young folks! … It’s that slow steady growth that will help you perform well in the long run, and anytime you can get a yield of 3.4% or better on KO, you git some. Fund managers won’t let the price drop low enough for you to get yields north of 4% on KO unless the end of the world is coming for them. People don’t sell KO because they won’t continue being one of the leading beverage companies, they sell KO to chase something else. I prefer to hang on to KO and then buy that something else as well.
Think about it.”

118

Me encanta este breve párrafo:

“I said it earlier today, worth repeating again, the best investments usually are the ones where the market comes to you as opposed to you chasing the market. The market can’t come to me and benefit me if I haven’t built my positions up in size. Ya gotta think like a grunt and do the ground work, get yourself positioned in advance.”

119

“let me give you a general idea of how I have portfolios set up. All new investors are on dividend reinvestment. Once they get about 8 years in and finally have some dividends coming in, I then have only the Core holdings set up for dividend reinvestment and the rest are collected in cash and combined with the monthly contributions to buy the next man up.Portfolios where no cash contributions are being made on a regular basis only have Core positions set up for dividend reinvestment, another reason to be very selective on who you consider Core”

120

"I read some commentary yesterday on market valuations and again, those with longer term views confirm my thoughts. Equities do no have any competition from fixed income assets, the yields are way to low. The greatest threat to this bull market is the Fed. If they allow rates to rise where fixed income assets become competitive, hold on to your socks, they’ll be the only thing not dropping down. … Ha!

Current valuations seem high to people because they are judging them on historical numbers, but this current economy, with it’s low interest rates, doesn’t come close to resembling historical numbers, this is why I say you have to pay attention the the condition of the market. Those historical numbers that so many people focus on aren’t worth much if you do not know what the market conditions were at the time. People insist on continuing to make this mistake.

With as many companies that are coming out and beating higher earnings and revenue expectations, they are confirming that whatever valuations are today, they are not too high, not based on the current condition of the market. It could change of course, but until it does, it’s business as usual for me. Anyone I manage for that has cash is going to have that cash invested.

My cousin asked me last night which of his 25 companies should he invest a current 401k roll over into and I asked him, which of your companies are going to perform the best over the next few years, he said I don’t know. I said, I don’t either, add to all of them. He said, simple enough. There it is!"

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Auténtica miel.

  1. Actually, I think Mikee asked a terrific question because what he is describing is what I am seeing others do within their portfolio when I'm asked to look at what they have. First of all it starts with a plan, how are you going to open a position? What size? What's the reason for even considering it? Just as I have two basic tactics for adding to positions, selling at a discount to fair value, or a beat and raise, I also have a couple of tactics for even buying a company. I am a huge proponent of declaring what a full position is within a portfolio. If $10k is a full position I then break down my buys to 1/4 sized positions. HRL primarily trades at a premium to fair value. It takes some sort of market event or the company going through a business cycle for price to come down to a reasonable valuation. HRL came down in price, it presented a decent valuation, and I established a 1/4 sized position, in our example it would have been $2.5k. The reason I didn't open a larger position is because there was too much uncertainty surrounding HRL and I had no idea when they would be in a position to reverse course, so I played it conservatively. HRL dropped another 10% and I allow myself to average down once, so I added another 1/4 sized position. HRL is still in the red, my son's position is down 14% but I don't add to positions in the red after the first average down price until I get a catalyst. So, instead of putting HRL on the back burner for now, I'll place it in the crock pot and wait for HRL to do what it has to do. Mikee, held TGT for a long time in order to come out with a small profit and price drifted up without a catalyst and it made him profitable in a company he had no faith in. HRL will see its price drift as well, it will take time just as TGT did, but when it comes out with a catalyst, I'll start building it again. If you believe in the company you hold, if you don't believe in the company you sell and take your loss. Now, there are times when I'll go in with a full position right off the bat but I do that when the catalyst exists at the time I have cash. KHC was one such example. When they broke up the old Kraft and MDLZ went one way and KHC the other, I wanted no part of MDLZ and always wanted to own Kraft if they split. So when they split I bought a full position right off the bat, before they ever announced a dividend. ABT was another where I went in with much larger position size on the announcement of the St Jude merger. I didn't want to own ABBV and ABT on its own wasn't all that attractive to me, but with the St Jude merger, I loved it and boom, I went in large. So those are the scenarios I use for buying and adding. Now, there is a difference in adding to a company like O with price declining as opposed to HRL declining. O isn't facing headwinds, is meeting expectations, and is simply caught up in a market rotation process. Consumer staples are experiencing that as well, but HRL has their additional headwinds and if they didn't, you wouldn't have been able to buy them at a reasonable valuation. So then you have to be patient. The market doesn't care when you entered or what you paid. Companies need time to recognize what they need to do, to make those adjustments, come up with a plan and then put it into action, and that takes more than 6 months or a year to accomplish. I do have my son reinvesting the dividends for now, but I won't be adding more shares at this time, HRL is in the crock pot. If you want the benefit of the long-term growth (LONG TERM) that equities offer, then price volatility is the toll you pay. Put HRL in the crock pot and put a lid on it so you don't have to look at it. That's what I do, and I pull the lid off just prior to earnings, take a review, and then what comes out next time determines whether the lid goes back on or I take HRL out, place it on the front burner and add some more. Easy peasy when you can develop the discipline to put a lid on it. ... Ha! Now, who's got wings?
  2. I hope you new investors, especially you young ones are paying close attention to the angst that some are feeling about positions in the red. I have stated all along that too many people use short term tactics for long term investing and a short term tactic is to worry about price action. I want you to understand that these people thought one of those better investments to buy elsewhere was one of those better investments they bought, if they didn't think that, they wouldn't have bought it. Yet, due to the position now being in the red, they are second guessing themselves. It's natural to do so, we all have been through that at some point in our investing careers. They aren't actually questioning the company, they are questioning the price action and their poor timing in buying the company, but how do you do better timing if you can't predict the future? Now listen up. I recently spoke about investing small and building your portfolio out in numbers, you decide how many numbers that should be. 20 companies? 30 companies? 50 companies? Your portfolio, you decide. Once you build your portfolio out, and you've purchased everything on your watch list, stop looking for new companies until you build your existing positions up. Now here's the good part. It will take a good bit of time to build out and by the time you are ready to build up, you should have a very good idea of who has done well for you and who hasn't. Those that haven't, the position is so small it doesn't matter, ignore it for now. But those winners? Oh babee I want to add to those winners! Now think about this. If I buy a new company today and price heads lower, I'm back to feeling that angst. I'm back to determining if I made another mistake or not. But, if I add to a winner, and I average up my cost basis to where it's still well below today's price, and the price does decline, I'm still looking at green and green doesn't usually make me lose my mind, if you know what I'm talking about. ... Ha! That's why I give very little attention to the red numbers and focus on the green numbers. I am not going to throw good money after bad until it decides to become good again. I will continue to build on my winners. If it's the bottom of the ninth and you need to pinch hit for the pitcher, you aren't going to send your weakest hitter up there, you are looking for strength, your best available hitter. That's how I look at my positions when it comes time to add on more. This doesn't need to be difficult.
  3. Lots of people look at price gain/losses and allow it to affect their decision making. Some people just can't help themselves, their self-worth as an investor is tied to the result of each company and if you folks have been paying attention to the comments I've been making on the psychology of investing from various reports I've read, you would know that you have to detach yourself from the price movement, from whether the price is currently up or down. I've said this from day 1 when I started sharing how I select companies, I base it on what they do for a living, what is the product or service that they offer, what it is they do for a living, and then decide whether I wish to partner with them in a long-term relationship. I remember buying CL for my son back in 2008. I didn't see how anyone wouldn't want exposure to their product line. CL dropped in price immediately and I thought it was never going to go green, it took a while because I invested at the worst possible time, the worst of the Great Recession hadn't hit yet. ... Ha! I have continued to hold on to KMI in my son's portfolio because I want access to their assets. Oil, natural gas and other distillates can't get to here from there without those pipelines. They are the backbone of our society. So I want access to their service. The company screwed up but the assets are still there generating copious amounts of cash flow and now that the company is getting near the end of their hurricane-like headwinds, I am now considering adding to them in 2018. Where we get in trouble is when we buy companies because they present a good value and all we are focused on is that price. We justify owning a company whose product or service we don't fully understand and all we really want is those capital gains. When the company doesn't deliver right away it undermines our confidence, we end up selling, it leaves a bad taste in our mouth and then we start second guessing every position in the red. We start to think we're making the same mistake again. When I purchased SJM, HSY and HRL, I was buying their product line. They can stay in the red for the next couple of years and I don't care, it won't stay there forever, that product line with other company moves in the future will work out for us. If I didn't believe that I wouldn't have purchased them. The biggest mental adjustment an equity investor has to make in managing a long-term portfolio is to realize we have no control over price movement, the only thing we have control over is in how we react to it. Common sense tells me price goes up and down all the time because the market doesn't care what I own, when I bought it, or who I am. Prices are going to go up and down, every business is going to go through a down business cycle, it's all in the game, and if I know it's all in the game, I'm going to ignore it, I'm going to put a lid on it and patiently wait for that catalyst to come along. It might be a future beat and raise, it may be a merger or acquisition, it can be a number of things I may not even be aware of currently. All I know is that I am not going to worry about things I can't control and I am not going to allow the market or companies showing temporary losses to intimidate me. I'm going to manage my portfolio through good times and bad. The only thing I have control over is who I buy and how much. The objective I set in managing the portfolio is one I have a good bit of control over and that's in building an income stream that is reliable, predictable and increasing. I can achieve these objectives in good times and bad, through booms and busts, through headwinds and tailwinds. I work with what I can control. It's when one establishes goals they have no control over, and capital gains come under that umbrella, where those goals don't get achieved and that is where most of our angst comes from and angst undermines our confidence and causes us to second guess ourselves. As long as I continue to stay focused on the income, and it continues to grow in the 8% to 12% range, those capital gains will follow along eventually and I end up by getting them through the back door, it just might take a little longer for them to walk around the house to enter from the back, but they will enter.
  4. Sobre Sector Sanidad: "There are basically two types of investments. The picks and shovels and the gold miners. Some gold miners struck it rich, most didn't. Those who sold the picks and shovels did really well for themselves but their growth was slow and steady. I look at companies like CAH, MCK and ABC as miners, they are the middleman and everyone wants to get rid of the middleman if they can. The medical supply companies are the picks and shovel companies. Every single person who is confined to a hospital has an SYK product being used during their stay. Picks and shovels!"
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Un recordatorio de los libros que recomienda leer:

"In addition to The Single Best Investment by Lowell Miller (my investing bible) I recommend The Ultimate Dividend Playbook by Josh Peters formally of Morningstar and Dividends Still Don’t Lie by Kelley Wright of IQ Trends I believe it is.

You’d be surprised how many people tell me that SA articles, the news and price volatility has caused them to wander off the reservation and a re-read of these books got them to focus more on what this strategy really is all about.

Do not read these books like they are novels! If you do, you’re a knucklehead! They are study guides, one chapter at a time, stop, think about it come up with a plan of action before moving on to the next chapter. If you saw all the highlights, notes and how the binding is falling off some of them, you’d know how many times I have referred back to them. My Tom Clancy novels? Look brand new! Clancy is entertainment, investing books are study guides. Be smart! Act smart! Do it right"