Cabot Wealth Advisory for 07/2015
Three Simple Options Strategies to Hedge Your Portfolio
On Monday, Paul Goodwin discussed the panic that sparked a greater than 2% decline in the markets on Monday. So how do you protect your portfolio from a pit bull and a swarm of bees?
The Triple Whammy of the Fed, Greece, and China
Markets are used to all kinds of stressful events, and for the past year or so have taken the Greek debt crisis pretty much in stride. Up through last week, what we saw in the market was an unemotional averaging out of all investors’ estimates of the probability of a Greek default and the likely fallout (including Greece’s exit from the Eurozone).
A Great Vacation Stock
Having just returned from vacation, I’m thinking of the millions of baby-boomers who are spending more and more money on leisure travel, particularly on cruises, an industry that is dominated by a few big players
The Ten Commandments of Dividend Investing
Investors love dividend stocks—they pay you regularly just for holding them, they’re less volatile than other stocks, and over time, they actually deliver higher returns too. Investing in dividend stocks isn’t hard, but it is a little different from growth or value investing, or other strategies based purely on capital appreciation. Following rules designed to maximize capital appreciation can actually hurt your overall returns when buying and selling dividend stocks.
Is There Such a Thing as "Too Late to Sell?"
Markets are all about buying and selling, and the market itself will happily let you know if your strategy, your tactics, your rules and your intuitions are up to the task. But year in and year out, the lesson the market is fondest of teaching is about selling. I know, I know, you’re probably weary of investing experts who always want to talk about when to sell. It’s the Great Mystery for novice growth investors and the Prime Directive for veterans.
What Will Happen to Greece?
Cultures are harder to change than borders , but no country lasts forever. This doesn't mean I think this is the end for Greece, but simply that the trends there are unfavorable. Instead, I’d put the money in a country that is enjoying increasingly positive perceptions about its long-term economic prospects. Hint: it’s not Greece!
Two Low-Volatility, High-Quality Stocks
My approach to investing is conservative; the tortoise wins the race. But the race is only won over an extended period of time where cultivating patience is an absolute necessity. My objective is to stay fully invested at all times in stocks and bonds, and only invest in stocks and bonds that will decline a minimal amount during stock market corrections.
Three Lessons Learned from the Greece/China Wildness
You’ve already heard everyone and their cousins’ opinions on Greece, China and all of that (including mine a few weeks back), so I am not going to bore you with a new in-depth analysis of those situations. Instead, I’ve been thinking of the many questions and comments I’ve gotten during the past month and three lessons that we can learn from this wild period.
Is the Dead Cat Still Bouncing?
Markets recently went through one of the worst summer picnics ever, with the major market indexes falling apart from late June through early July as the ants, the mosquitoes and the bulls in the pasture ganged up on hapless investors. And the worst of all was July 8, a day that saw the S&P 500 Index down 1.5%, with fans of individual stocks down three or four times that.
You Call That a Bottom?
I’m tempted by the idea of finding a stock at the bottom of a correction. I’ve given up on the idea of recognizing a bottom in the market. Market bottoms are idiosyncratic, sometimes bumping along for weeks or months, sometimes forming sharp Vs and other times W-shaped patterns. As I always say, the only people who consistently sell at the top and buy at the bottom are liars.
Is Gilead Sciences (GILD) Overvalued or Undervalued?
GILD has soared from under 20 to over 120 over the past four years, thanks to mushrooming revenues from Sovaldi and Harvoni, the company’s hepatitis C drugs, revenues grew 52% from last year—and that was the slowest revenue growth rate in five quarters!. But the stock is very well known, and some analysts (Goldman Sachs apparently among them) are worried that falling prices and competition will cut into the company’s fat profit margins.
What Will Rising Interest Rates Really Mean for the Stock Market
Long before Greece and China started making the largest headlines every day, investors everywhere thought rising interest rates would cause the next big market decline. (As my father always says, trouble comes from where you least expect it.) Now that Greece has secured a respite from its lenders, interest rates are moving back to the top of investors’ list of things to worry about—especially since Janet Yellen just reiterated last week that the Fed expects to begin raising rates by the end of the year.
Every year, usually on a Thursday in July, most of the Cabot crew gathers in Salem, jumps into cars and heads north. With bathroom breaks and a stop to purchase refreshing beverages (ahem), the group drives through New Hampshire’s tiny seacoast neck and winds up in Kittery, Maine, at the Chauncey Creek Lobster Pound. There, lobsters, baked beans, coleslaw, steamers, mussels and (importantly) chips are consumed and the store of tissue-restoring beverages is significantly reduced.
Today, I’m writing on a MacBook Pro. This morning I did my morning crossword puzzle on my iPad. All day long, my iPhone is by my side. My home Wi-Fi comes from Apple AirPorts. And some nights, I stream entertainment through my Apple TV. In short, I love Apple products, and I expect to continue using them for many more years. But one of the most important market truisms is this: “The company is not the stock.”
Do Your Stocks Have Borrowing Trouble?
Hostess is making news today as it is issuing $1.23 million in term loans—most of which will go toward paying $905 million in a special dividend to its private shareholders—which I may add, is also more than two times what the buyers paid for this tasty snack business, and triples the company’s debt. According to Bloomberg, these types of deals grew to nearly $16 billion in the second quarter, the highest level in the past 12 months. I’m not making a judgment for or against this action. I just want to make a point that this debt, or leverage recapitalization—spurred by low interest rates—is increasingly becoming a method in which private equity holders get their money back—without selling the business. But it does burden the company with additional debt, which isn’t going to fund company expansion or operations.
Managing Your Stock Portfolio to the Market's Tune
In today’s Wealth Advisory, I’m doing something I’ve never done before—reprinting an entire piece I wrote in Cabot Growth Investor last Wednesday. It doesn’t involve any specific stock advice (that is and always will be for subscribers only), but it details the wild divergences in the market (which are now getting lots of press—even the Wall Street Journal had a big write-up on it Monday), what it means, and how I’m advising people to handle it—I think it’s very timely.
Beach Weather in the Market
It’s the beginning of August, high summer in New England, and a bit of summer fatigue is setting in. Summer in New England is short, so we try to pack half a year’s worth of cookouts, beach days, hikes, kayaking, sight-seeing and other outside recreation into three months. It’s fun, but the pace can be a bit frantic, especially as the season enters its third act. Frankly, all I want to do now is lie on a beach somewhere and read a book.