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Archive for November, 2012

Posted by Martin November 30, 2012

Will “Rally Attempt” hold?

Will "Rally Attempt" hold?

Today the market (SPY) provided a follow up in its price action to yesterday’s break above the trend line. It can be a shakeout, but I still see it more likely as a bottoming pattern. Today’s price extended recent rally all the way up to 50 day MA, but it broke thru the two month long downtrend line on higher than average volume.

That doesn’t mean that we should be buying into this rally. We still should be sitting tight, saving cash for more buying and wait for more confirmation. I am still expecting a downward move from these levels. However, since the price extension is quite significant, I am convinced that the market will not go too low to create a new lower low, but it will create a new higher low.

SPY

Click the image to enlarge.

If that happens we may go down to 137 major support level. This level played a significant resistance and support role during May 2011 and March – May 2012 respectively. I think we may stop at that level if that is the case and move back up. That would be our first higher low.

That’s why I think we are experiencing a “Rally Attempt”. We still can fail and see even more extended down pressure if the negotiations in Congress about the fiscal cliff fail and who knows what else the politicians bake for us and what mess they create. Somewhere on the internet I read a note that they have no clue what impact their comments can have on public. I agree with it and all that can still change the course of the market.

So what’s next? Wait for confirmation, save more cash and let’s see if the market creates its first higher low and reverses. The Rally Attempt can still fail.

Happy Trading!

Posted by Martin November 26, 2012

New trade – adding Realty Income (O)

Today I realized a part of my planned buying of Realty Income stock. Maybe little too early since I am expecting more drop in price, but I will be buying more later if that happens. I am also planning on adding SDY to my portfolio, but this didn’t happen today and I moved my buy order lower.

Well, I am learning to better manage my money than before so I will be doing mistakes. Nevertheless I am still buying cheaper than my previous purchases, so I am OK with it in the long term.

11/26/2012 09:39:35 Bought 10 O @ 39.65

Total shares held as of today: 76
Estimated annual dividend: $138.32
Consecutive Dividend Increase: 14 years
Dividend yield today: 4.62%
Dividend 5yr Growth: 3.87%
Dividend paid since: 1994

Posted by Martin November 25, 2012

Where is the market heading? Still in correction.

Where is the market heading? Still in correction.

Recently I have read an article on internet by a dividend investor who claimed that he doesn’t care what the market is doing as long as his dividend income is intact or improving.

Basically this is a valid statement to me and I believe many dividend growth investors are not that much concerned about the market or anything else or even the holdings in their portfolio as long as their stocks are paying dividends and there is no danger of cutting the dividends.

So why I am concerned about the stock market direction?

Market timing

The reason why I would be watching the entire market and my holdings where they are heading is because the price correction offers me a better price to buy more shares. That’s it. Seeing my holdings falling, but dividend ratio is intact, I cherish this price action as a great opportunity to buy cheaper.

Recently during the last two weeks or so, this was a great time for me and I could add a few shares of some of “my stocks” to my portfolio. So are we done with decline?

Probably not. When you take a look at the market’s price action what is awaiting us in the next week? The market is still in clear correction phase and we may drop even further next week. There may be many reasons behind it such as fiscal cliff, worries of debt crisis in Europe and who knows what else.

Right now the futures point to lower open on Monday. The market (SPY) reached the resistance and may turn back down. Will we create a new lower low or are we experiencing a reversal when the market creates its first higher low? Time will show and for me this will be a waiting game and if we head further down I see it as a great opportunity to add more shares.

SPY

Click the image to enlarge.

See above picture what I see the market will probably do in coming days. If we see a reversal, this would be a last opportunity to add to my portfolio. If we see more downturn, I will be saving more cash to buy cheaper. Time will show.

Happy Trading!

Posted by Martin November 23, 2012

New trade – adding Abbott (ABT)

Today I bought more shares of ABT to my dividend portfolio at $63.58 per share.

11/23/2012 09:30:14 Bought 6 ABT @ 63.5799

Total shares held as of today: 19
Estimated annual dividend: $38.76
Consecutive Dividend Increase: 39 years
Dividend yield today: 3.22%
Dividend 5yr Growth: 10.23%
Dividend paid since: 1926

Posted by Martin November 20, 2012

My goal in Lending Club accomplished!

My goal in Lending Club accomplished!

Dividends Today I have reached a goal of saving $10,000 in my Lending Club account. The process is not finished yet and it will take at least two more months to finish it completely, but all the final deposits are on the way and I can move on to next goal.

My next goal is to reinvest all proceedings and gains made in Lending Club and continue this account to grow, but there will be no new contributions. The next step then will be to save $10,000 in my TD account or reach that value. I will be depositing money monthly (at this point I can afford $150 monthly) plus all potential surplus money, bonuses and all money I can afford to set aside and save.

Here is the outline of my goal and strategy with TD account:

  1. I will continue in dividend investing.
  2. I will be selecting high yielding, good quality stocks with great dividend history and dividend increase of at least 10 years or more (with some exceptions, such as REITs.
  3. Keep 30% in cash which will be used for put selling (cash secured puts).
  4. Reach 100 shares on current holdings (this goal will exceed a time frame of my primary goal).
  5. Start selling covered calls on owned stocks (which reach my 100 shares holding).
  6. Start selling cash covered puts and buying stocks by selling puts.
  7. When the market and my holdings will be rising I will be saving cash and adding more position sparingly (only when a great opportunity arises). When the market or my holdings start declining I will be looking for opportunity to buy more shares from saved cash.
  8. Since I am a believer in leveraging and agree with Douglas R. Andrew’s opinion (see “Missed Fortune: Dispel the Money Myth-Conceptions – Isn’t It Time You Became Wealthy?” by Douglas R. Andrew), that in early years of savings an investor should leverage his investments “to the tilt” and in later years start de-leveraging, I will use the principles in his book to boost my savings. I am aware of the caveats and dangers using margin, but if managed correctly you can sustain even horrible market declines avoiding margin calls.
  9. And last I will reinvest all my gains and proceedings (dividends). I will not be reinvesting them back to the companies who paid, but based on balance of holdings,
  10. I will be balancing my portfolio to keep my holdings equal in dollar amount as well as based on income weight. Having holdings balanced based on income can help in case when one stock drops the dividend or cut the dividend, the income loss will be smaller than when having larger position. For example, when holding FULL which pays 11.23% compared to ABT paying 3.24% I will be forced to have less exposure to FULL than to ABT. If both FULL and ABT will represent 4% of the entire portfolio income, if FULL stops paying I would lose only 4% of the entire portfolio income. With dollar amount weight I would lose 11% of my income. However, I will still keep balance in between both ways, but leaning towards income based balance. Of course in early years my portfolio will be imbalanced and more concentrated, but as time will go this will be fixed.

I think, that is about all I want to do with my portfolio at this time. As I spoke with Dave Landry (whose book “The Layman’s Guide To Trading Stocks”. I strongly recommend to all beginners in investing and trading stocks), he said to me when I was complaining about my trading results:

“Start SLOW and build… have realistic expectations. Also, if you’re happy doing what you are doing, then keep doing that… and be prepared to do some homework!”

Thanks Dave, I will continue in building my financial freedom and keep your advice!

Happy Trading!

Posted by Martin November 19, 2012

New trade – adding McDonald’s (MCD)

Today I bought more shares of MCD to my dividend portfolio at $84.61 per share.

11/19/2012 09:30:13 Bought 5 MCD @ 84.6099

Total shares held as of today: 15
Estimated annual dividend: $46.20
Consecutive Dividend Increase: 35 years
Dividend yield today: 3.66%
Dividend 5yr Growth: 20.40%
Dividend paid since: 1976

Posted by Martin November 16, 2012

New trade – Armour Residential (ARR)

Today I bought a few shares of Armour Residential (ARR) stock and increased my holding in this company. There were two reasons why I decided to do so:

  1. A huge price drop a sell off which was so scary to me that I was at first doubting whether to hold this company at all, but then I went back in time and saw that these sudden drops weren’t that unusual and always the stock managed to recover. It seems to be the case these days again.
  2. The next reason I see this stock positively is insider buying. Yesterday a CEO and another executive officer bought 10,000 shares @ $6.10 per share. Constantly insiders are buying shares of their own company and that I consider as a good sign. Even in October, when the stock was trading at $7.6 per share, insiders were buying.

Thus I bought more shares as well. It was slightly at higher price than insiders but that was because of my buying rules.

11/16/2012 13:52:51 Bought 73 ARR @ 6.8399

Total shares held as of today: 305
Estimated annual dividend: $329.40
Consecutive Dividend Increase: 0 years
Dividend yield today: 16.85%
Dividend 5yr Growth: N/A
Dividend paid since: 2010

Posted by Martin November 15, 2012

A great opportunity to add more stocks to my dividend paying portfolio

Recent sell off in the stock market created excellent opportunity to buy more shares to my existing portfolio. At this point I am not adding new holdings to my portfolio, but adding to the existing shares only.

I made a rule on how many shares to hold in a portfolio. I searched the internet to find out how many shares to hold when you have small portfolio and keep it manageable. Some people and advisers will tell you need at least 30 different stocks to have your portfolio diversified. However all those adviser are expecting you having 500k portfolio. With $500,000 it is probably possible having 30 stocks, but I do not believe it is manageable. Watching all 30 companies to catch potential issues isn’t easy.

Then I found that it is not absolutely necessary having that many stocks in your portfolio and that actually you can do even better with lesser stocks if you are picking the best stocks. On top of that, when buying dividend payers and selecting companies who have paid dividends for decades, continuously increasing the dividend, you wouldn’t be too unlucky picking a loser.

So what I have found and now trying to follow? Here is a table of portfolio size and how many stocks to hold in that portfolio:

Portfolio size # of dividend stocks
$0 – $5,000 2 stocks
$5,000 – $10,000 4 stocks
$10,000 – $20,000 10 stocks
$20,000 – $30,000 15 stocks
$30,000 – $50,000 17 stocks
$50,000 – $100,000 20 stocks
> $100,000 30 stocks

Of course you can have a different allocation and I do not have my own allocation according this table yet, since I started practicing this recently, but with saving more money and reinvesting dividends I will get my portfolio in line with this table.

So this is the reason why I am not adding new holding, but adding to the existing ones although it is tempting to add new holdings. It is tempting because there are great companies out there which I want to own, but I want to be systematic and patient.

The sell off in the market however provides excellent opportunities to buy more shares of the companies cheaply as well as increasing my yield on cost.

I opened a new buy order for tomorrow for Armour Residential (ARR). Currently the stock was punch down severely and I believe this was an overreaction and the stock will stabilize and improve in price. The current yield is over 17% which makes it very attractive dividend for high yield hunters. You could even see it in today’s trading how strongly the stock recovered.

Buying more shares of ARR
So I am opening a contingency buy order for ARR if the stock will trade at $6.84 a limit order at max. $6.94 will be triggered. Thus if the stock pops up too much or will trade below the trigger price the trade will not be executed.

If this trade executes it will improve my current average price which is $6.96 per share and it will improve my current yield on cost which is 14.50%

MCD is very tempting too, so adding more shares to my portfolio
I actually entered this order yesterday, but it didn’t execute since the stock traded lower today. So I lowered my contingency order to buy more shares if the stock will be trading at $84.62 or higher then a limit trade at $85 per share will be triggered.

I will not be buying using all my available cash in case the market will push lower (and there is a lot of downside pressure still) and those stock fall lower. In that case I will be adding more shares to my portfolio with another portion of available cash.

Happy Trading!

Posted by Martin November 14, 2012

Why are REITs falling and will they recover?

REITs stocks are sharply falling, one would call it a free fall. Even famous, strong and gigantic companies such as Annaly Capital Management is down by 4.2%, American Capital Agency by 3.8%, and ARMOUR Residential (ARR) by 4.4%. What does it mean for you if you hold those stocks?

A tough year for mREITs
Let’s begin with the fact that it’s been a tough year for mREITs in general. As the Federal Reserve has sought to drive down long-term interest rates via quantitative easing, the interest rate spread that these funds rely on to make money has contracted. Since the third quarter of last year, Annaly’s went from 2.08% down to 1.02% today, and American Capital’s from 2.14% down to 1.42%.

It follows that the compression of interest rates has obligated these companies to decrease their lucrative dividends payouts. Over the last 12 months, Annaly’s quarterly payout went from $0.60 a share down to $0.50, and American Capital’s from $1.40 a share to $1.25. And this, in turn, has put downward pressure on many of these companies’ stock prices.

What’s an income investor to do?
While many analysts and commentators have been anticipating a downward move in mREIT stock prices, that is no consolation to investors currently holding shares in the likes of Annaly, American Capital, or Armour Residential. To those shareholders, I say it’s my opinion that the market is overreacting to general trends that we’ve seen coming for some time now. Investors should avoid the allure of trading stocks on the heels of information like this. What investors should do instead is educate themselves further about the companies they own.

Personally I am sitting tight since I believe this is an overreaction of the market and those companies will recover. More to that I will be purchasing more shares as soon as this free fall ends or I will spot a sign of the end and strength. Many investors will be attracted by nice yield which in case of ARR is now breaking 16%. What a great yield on cost when buying now.

Source: The Motley Fool

Posted by Martin November 10, 2012

Market sell off, are you scared?

I am freaking out! It is not a pleasure watching my holdings evaporating and showing a loss. It is also difficult to hold and sit tight. It is even harder investing more money into falling stocks.

Some people say “do not try catching the falling knife…” others say it is a great opportunity to buy more shares, some are crying sell, sell, sell!

Which way are you going with your investments? Are you sitting tight, raising cash, trading options, or selling like crazy?

I am trying to sit tight, talking myself into not panicking and hold. I hold dividend payers. Those are the companies which should sustain any similar sell off better than others or growth stocks. But my concerns and double guessing are growing and doubts are increasing. Will those stocks really hold and will they recover?

Or are we seeing rich people really fleeing out of dividend stocks due to Obama’s policies on rising taxes on dividends for rich people. Does he realize that this drop will damage middle class although he is claiming that it wouldn’t?

Or is it a drop because of many other fears we experienced in the past; because of Europe, fiscal cliff, and many others and the stocks will recover?

Does it even make sense seeking the answer?

In times like this I am trying to remind myself what dividend investors and professionals say about investing into dividend stocks:

When is time for selling the dividend paying stocks?

Many experienced investors will tell you, that there is only one reason when you should considering selling dividend payers. If you answer yes to any of the following questions, then you should consider dumping your stock:

  1. Is the dividend in jeopardy?
  2. Has the company changed its dividend policy?
  3. Has the company failed raising the dividend?
  4. Has the company cut the dividend?
  5. Did the stock spiked up (climax top) too much?

None of it happened recently. Many of my holdings are just out of favor due to either increased investing, or market panic. So why liquidating a money making machine, which is currently paying me $550 annually in dividends?

I am sticking to my plan, sitting tight, saving more cash to buy more holdings and as time comes, buy more when those stocks are quite cheap.

What will be my next plan? I still am working towards saving 10,000 of dollars into my Lending Club account (my current value is $7,600) and as soon as I save I start focusing on my TD account. The goal will be to raise cash up to another 10,000 dollars, keep 30% in cash, invest the rest, buy more shares on my current holdings (to reach 100 shares on optionable stocks, which would allow me start selling covered calls) and after raising the cash, start selling puts on current holdings (buy in thru the puts).

As Mr. Miller says it in his book “The single best investment”

“Holding successfully requires a kind of spartan attitude, a kind of warrior attitude, in which you hold your ground, never tromping away, through thick and thin, through storms and sun, never becoming excessively excited or happy by profitable rallies, never sinking into gloom or depression or second thoughts when prices are on wane. A warrior attitude in which feelings may be felt, even deeply felt, but not necessarily acted out…

As a warrior you understand that there are many ways to win the battle of investing, there are many ways to come out on top in the end.”

So what helps when the mood becomes gloomy? I take my dog and go out!

I am getting my cash ready to buy more shares of ABT, O, JNJ, PPL, or MCD, T, WMT. Most likely it will be Realty Income stock, since I will have 100 shares and will be able to sell covered calls (although options on this stock aren’t those among best, but we will see when time comes).

Happy Trading!