My mate Phil (@sloan_phil on the Tweets) has kindly provided this Guest Blog following the recent events regarding cuts to Dividends and his action in reviewing and rejigging his Income Portfolio. I have read it a couple of times for proofing and all that and it is really good and has some excellent insights into investing in US Stocks.
Many thanks to Phil for providing WD Readers with this and a personal thank you for saving me a load of work in writing a blog this week !!
I have no doubt that regular Readers (please no Wheelie, I can’t take anymore purile and unimaginative All-Bran references), will be well aware of my borderline imbecilic obsession with Hedging my Portfolio and you must be exasperated beyond belief to see that I am writing about this well-treaded subject yet again. Anyway, it is what it is, and after the recent heavy sell-off in the Markets (which after all is exactly why I have been mucking about with Hedging for so many years, in anticipation and preparation for such an event) I feel it would be worthwhile to just get down in blog format some thoughts and observations etc. that have arisen after this episode and the Global tragedy of the Coronavirus.
Overall I am quite pleased with the Hedging I did although of course in an Ideal World I could have done it better. I guess my main area of weakness was in not Hedging in larger size (more on this in due course) and I would say another failure was in not getting a big enough Short on early enough. Other than that, and some moments of panic when I shorted more and really was lucky to get away with it, I am overall fairly happy.
I have been meaning to get on with writing this Blog for quite some time now but for various reasons (mostly good old-fashioned procrastination and farting about), I have been putting it off but at last I have to bite the bullet and get it done.
My interest here is to look at the Charting (Technical Analysis) factors which surrounded the eventual Bottom when the Markets floored out in 2009 before that monster Rally of 11 years or whatever it was. Of course we will struggle to find Signals and Indicators that point to precisely where the Bottom is (I may use the term ‘Proper Bottom’ for this because I am sure we will have lots of little Bottoms on the way to actually reaching the final one), but I think many Readers will be surprised by what I dig up here and the implication is that we can use some pretty basic Technical Indicators and Tools to help us ascertain the Proper Bottom.
I’m fairly certain I have written a similar Blog to this many years ago and I think it might have been titled with the use of the word ‘Roadmap’ or something; but I can’t be too motivated to dig it out and I don’t think it will hurt one little bit to scribble out something new which might have some additional thoughts in it and certainly is in tune with the current zeitgeist.
However, I have been enthused to write this because the recent plunge in the Markets and the behaviours and activity I have witnessed on Twitter etc. have highlighted to me that so many People do not have any kind of Strategy and even less do they have a Flexible Plan that is able to adapt fairly quickly to changing circumstances. There doesn’t seem to be a lot of thinking ahead yet it is vital that you do this. The most obvious manifestation of this is that a large number of People are clearly ‘Uber Bulls’ and they in essence remain pretty much 100% Invested whatever the Markets do. This has proven to be a very profitable and wise approach for the last 12 years of a rampant Bull Market, but the idea that this will always be the case is in essence very naïve and dangerous.
Fairly recently I caused a bit of a stir on the Tweets when I suggested that People who have regular payment plans into Funds (normally Unit Trusts – see my ‘Funds’ page for definitions of what the different types of Funds actually are), might be wise to suspend the automatic payments prior to the Coronavirus problems when it is highly likely that we could see Stockmarkets really struggling.
I got a lot of flak for this and it is very understandable why because there are maybe some advantages of such drip-feeding over time; but for me personally, I wouldn’t do this at all. But then I am perhaps a different type of Investor to many others and there is an element of ‘Horses for Courses’.
I’ve been meaning to write this hopefully fairly short Blog for a while but I keep getting distracted onto other things and we actually discussed this on a recent TPI Podcast so I wasn’t feeling a huge need to get it written. Having said that, we didn’t go into a comprehensive coverage of the issues and there is always a sense I have that I should try to cover as many topics as I can within my Blog Archive, so that WD Readers can revisit it in the future if they want to know about something. Maybe new Readers might find it useful also as the whole WD thing should really be to help Newbies as its main Sultana d’Etre (should that be ‘Raisin’?).
The essence of the ‘problem’ with my Income Portfolio is that my original theory behind it was to generate an Income Stream from the Dividends that was at least 5% a year based on the starting position each year. Apart from other aspects such as low activity and low risk and the diversification benefits, part of my thinking was that at some point in time in the future, I might have grown the Income Portfolio enough so that it would be throwing off Dividends that might amount to maybe £6,000 a year or so and that with other Income sources I have, I could get to a position where my Yearly Spending needs on food and rent and stuff are covered without me having to sell any Shares or make any money on Spreadbets etc. It is simply easier to just take Dividend Cash out of an Account than to have to think about which Shares to sell and all the timing issues and suchlike.
I am sure I have mentioned a few times before how I really struggle with this idea of ‘Growth Stocks’ and ‘Value Stocks’ and my whole beef is really around the idea that a Growth Stock doesn’t need to encompass the concept of Value and that Value Stocks really seems to be lazily used to describe Stocks with a large Dividend Yield. Of course the idea that all Stocks with chunky Yields represent value is silly because they could just as easily be flagging a big problem and actually be a ‘Value Trap’.
‘Value Trap, utter Cr*p.’
I was thinking that had a bit of a rhyme to it and then I remembered a joke from the comedian Tony Hawks (he’s on Radio 4 a bit but most people probably won’t know him – apart from the book ‘Round Ireland with a Fridge’ which is very good), where he talks about when he had a minor hit record as ‘Morris Major & the Minors’ probably in the late 1980s and it was called ‘Stutter Rap’. Anyway, he was on about reviews it had got and some wag in a Music Paper of the time had the written the headline; ‘Stutter Rap, Utter Cr*p’.
If you haven’t read Part 1 yet it is probably a good idea to do so and you can find it here:
When that Part finished I was going through the reasons why I am thinking that a proper full-on Bubble has become more likely, and here are a load more:
Technical ‘Breakouts’ on Major Indexes
If you keep up with my Weekly ‘Stocks & Markets’ Blogs which usually come out late on a Sunday Night, then you will probably have seen me mentioning the strength in the Indexes and how many have either recently ‘Broken-out’ to new All Time Highs (the US Markets) or they are very near such Break-outs and I expect to see them soon (German DAX, CAC40, FTSE100) and such Price Action is extremely Bullish and supportive of the start of a Bubble if that is how things are going to play out. It is pretty remarkable that after 11 years of the Longest Bull Market ever, we still have such strength and demand for Stocks.
In a recent TPI Podcast we talked at length about a potential Stockmarket Bubble and I also wrote a bit in a Weekend Charts Blog. Both times I think I promised to write a more detailed Blog specifically on the subject and in theory as I start writing, this Blog is intended to fulfil that commitment. You can find the Podcast here by the way:
First off I must make it very clear that I am not saying a Bubble is definitely going to happen; nobody can foresee the future (least of all me !!) and all we can realistically do is to assign probabilities to possible future outcomes. Using such an approach, I would guesstimate that perhaps a year or more ago, I would have said that a Bubble was a very low likelihood, perhaps something like 5 to 10%. The fact is that Stockmarket Bubbles are very rare and hence a low probability is appropriate, but with the various factors that I will get onto shortly, I would now say that the probability has risen to perhaps 15 to 20%.
Needless to say if you have not read Part 1 yet then it probably makes sense to go back to that one first before you start on this one. You can find it here:
Anyway, I was going through various Bullet Points around the subject matter concerned and here are the next bunch:
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