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Posted by Martin January 09, 2020
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What are the stock market tips?


What are you looking for? Recommendations? Tips of what to buy (or sell)? Or investing strategies?

My tip is: start thinking what you want to do in the stock market, what you want to achieve, develop a plan, read some books to educate yourself, and then execute the plan.

There is an old adage – plan your trade and trade your plan.

Everything other than that doesn’t work.




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Posted by Martin January 08, 2020
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What 4-5 stocks would you suggest are a good way to start investing in and why? Would you advise long term investment or buying and selling it within what specific period of time?


I do not think we can give you any specific advice on which particular stocks you should buy. However, I personally recommend dividend paying stocks, namely dividend growth stocks which have excellent dividend history. If you look at some of the great candidates then you will see that these were the companies which were increasing the dividend during 2008 recession. What does it tell you about the business which performs well during the recession so they can increase their dividend instead of cutting it? Well, it tells me that if a company does well in recession, it will excel in prosper time even more.

So, go to a dividend aristocrats list, or David Fish CCC list and look for aristocrats or champions, study those stocks and pick those which fit your criteria or you can familiarize with their business and the ways they make money. For example, Michael Baum started buying water stocks. I think it is not a bad idea and since I bought my water stocks, they already doubled in value and keep paying nice and increasing dividends.

As far as investment strategy and time horizon, well, people always over estimate their short term ability of investing and under estimate their long term achievements. The fact is, that people who tend to go in and out of the positions lose money in the end or significantly under-perform the market. More over, the high quality dividend stocks are turtles. They are huge and move slowly (you can look at their annual dividend growth which usually equals to the stock price annual growth, so if you see a stock which increases their dividend at 3% annually (average) you may expect 3% price increase annually (yes, there may be times when they may speed up, but also slow down). So trading in and out will not get you anywhere. Thus definitely, long term investment.

Consider your stock holdings as a money making vehicle, or a rental property. You buy a rental property and then rent it out. You do not buy and sell it next month, right? Well, why should you do the same with your stocks? Use your stocks as a rental property and rent it out, or in other words, monetize your holdings. How can you monetize your stock holdings?
 

There are three possible ways:
 

  1. collect dividends
  2. sell cash secured puts to buy the stock and collect premiums
  3. sell covered calls (overwrite your account) ideally to prevent assignment, and collect premiums
     

If you do it right, you may be able to collect about $20 to $30 every three months on dividends (depending on a stock and amount you hold), plus about $20 to $40 dollars every month selling options around your positions monetizing them. My account where I do this averages about 30% to 45% annual returns doubling my account every 3 years…




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Posted by Martin January 07, 2020
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How can I invest in dividend stocks to get a monthly income which also should be safe or less risky?


Yes and sort of. You can invest in dividend stocks to generate monthly income. There are a few monthly payers but most of them are risky. There is only one or two monthly paying stocks I would recommend to invest in for monthly income.

For the rest, you would have to buy stocks which pay dividends in different month, for example, buy a stock which pays dividends in January, April, July, and November, then another stock which pays dividends in February, May, August, and December, etc.

To mitigate risk you want to choose high quality dividend growth stocks (dividend aristocrats) which are stocks which have a great and log history of paying the dividends and increasing the dividends. For example Johnson & Johnson stock increased the dividend in 2008 and there were many others who did the same. Yes, the stock dipped a lot in value, but the income it paid to me was consistent, steady, and rising. So while others were panicking and selling, I was buying. And I bought JNJ for $45 a share when everybody else was predicting end of the world. Look where JNJ trades today. And my 3% income back then grew to 15% today.

So, it is doable. You have to look at your investment as income machine, not speculation and you must be OK to hold and buy more when the stock goes lower. Dividend aristocrats are well established and reliable companies which you can trust and do not have to worry much. Of course, there will be stocks, time to time, which were once aristocrats but later on screwed up (like GE). But, if you know how to invest in dividend stocks properly, you will see early warning signals to get rid of a stock before it is too late (many experienced dividend growth investors could foresee the GEs problems and got out before the stock cut the dividend and subsequently tanked to $4 a share. To learn more, I would recommend a book “The Single Best Investment” by Lowell Miller.




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Posted by Martin January 06, 2020
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What do stock market investors need to know about intensifying the U.S.-Iran tensions?


We have seen news saying that the markets are tanking because of Middle East tensions and Trump waging a war against Iran.
Well, it may have been an excuse for people to unload some gaining positions. But it apparently is not enough to stop this bull market.
 

If we review the economic data we have seen recently coming:
 

  • consumer confidence slipped down to 126.5
  • jobless claims flat at 222k
  • ISM manufacturing down from 48.1 to 47.2 indicating that manufacturing is in recession.
     

we can see that investors in fact, didn’t care. On top of that, we can see that they pretty much didn’t care about the tension in the Middle East either; despite media bombarding us with bad news.
 

If the tensions was such a bad thing, and it would plunge the entire world in a WWIII the markets would already collapsed. We saw the markets to drop by 1.2% on Friday (and recovered as high as 0.55% closing down 0.72%) and today although we opened down 0.44% we are already up 0.20%.
 
There is no follow through, no panic, no mass selloff. And a market which refuses to go down has only one way to go.




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Posted by Martin January 06, 2020
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Is there any value in investing in individual stocks if you have less than $500 to invest?


If you pick a broker who will charge you zero commissions so you can buy even 1 share of a stock and pay nothing to do so, then yes, you can still do it. Choose high quality dividend growth stocks (dividend aristocrats), 3 to 5 companies, buy few shares (choose stocks in the $40 – $50 range), set dividend reinvestment (DRIP) plan, and let it go. You won’t make much (meaning that in 20 years you still will not be able to retire on it) but you will still make more than in a savings account. Note that investing in stocks is a long run. So if you plan to buy today and plan on selling in a few months or even a year or two, then this will not work and you will lose money. This will work if you buy now and let it sit there for 5 to 10 years. A good example would be Mastercard (MA). I bought the stock a few years ago for $75 a share. Today, it sells for $303 a share. Do not worry about diversification. I agree with IBD and Warren Buffett on this matter who both consider diversification a myth. You can be very well diversified with 5 stocks too. If you do your homework, study the companies you plan on buying and know their business (for example, know how Mastercard make money – and it is not in lending money to people) then you will be safe.




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Posted by Martin January 06, 2020
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Is this investment strategy good:


Is this investment strategy good: allocate 75% in savings account with high APY(~2%), 20% in long term re-investing dividend stocks and 5% in short to mid term high risk stocks (kind of a swing trade)?

 
 

How old are you? If you are close to retirement or retired, and inherited a large sum of money, this may be acceptable (although not for me either). If you had saved enough throughout your life, it still would be a bad idea.

If you are young, let’s say 20’s then this is an incredibly bad idea. If you can invest money for the next 40 years then there is no better allocation than stocks. On top of that, if you have really 40 years time frame, you should go extremely aggressive (use leverage and as you age start deleveraging your account). A good book on this topic is Lifecycle investing by Ayres & Nalebuff.

So, if you have time, invest 100% in high quality dividend growth stocks, reinvest dividends, and use options to leverage your investments (as described in the book for example, or use a “Wheel strategy” – sell puts as long as you get assigned, then hold the stock, collect dividends, and sell covered calls as long as you get assigned).

Just look at the 40 years S&P performance and compare it to a 40 years savings account performance and try to convince me again why would you waste 75% of your money in savings accounts for the next 40 years.




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Posted by Martin January 05, 2020
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How should I invest $100 per month in stocks?


I bet many people will tell you that you can’t because of diversification and other myths and misconceptions what all sorts of advisers tell general public to cover their backs and lack of deeper knowledge.

I started like that myself and built up a nice portfolio. It is difficult at first but doable, mainly today when you can trade commission free. That is a key. You must choose a broker which will allow you to buy a single share and charge you nothing for it.

The next thing is to choose a high quality dividend growth stocks (dividend aristocrats) to boost your income from your holdings, and reinvest that income. At first, use DRIP, later on I would recommend buying more stocks different than those which generated the income.

At first, choose only about 5 to 10 stocks and start buying them and accumulate.

Here is my portfolio I opened in April 2019 to do exactly what I preach. As you can see, even though the portfolio is small and generates small income, but it is growing. And given the size of the portfolio it is still sufficiently diversified as the point is not in owning hundreds and thousands of stocks but stocks which can hedge each other. So you can have only 5 stocks and achieve the exact same or even better diversification than someone who is buying hundreds of stocks.

 
Holdings
 

Note, the stocks above are my holdings and not a recommendation or solicitation. If you decide to buy them, do so on your own risk and you must do your own due diligence and be aware that you may lose money.

Also, my broker charges me zero commissions so I can buy a single share and it cost me nothing. Before, when the brokers charged commissions I first had to save at least $600 dollars to buy a few shares to mitigate impact of the commissions so I was buying shares every 6 months. Today, you do not have to wait and you can start buying a few shares every month and slowly accumulate.




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Posted by Martin January 04, 2020
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What are the best companies to invest money in the US in 2020?


If you have a plan and know what you are doing, you should have a watch list of companies you want to invest in. These companies should be great to buy any time, not just in 2020.

But without knowing your objectives, goals, strategy, risk tolerance, time horizon, or amount of money you want to invest, there is no way to tell you invest in this stock or that stock to make tons of money in 2020. No one knows the future and what is a great company today, may be a bad company tomorrow.

Investing in someone else’s tips and recommendations is a sure way to lose money. A person giving you a tip may have a totally different goal, strategy, and knowledge than you. And if the stock or market conditions change, they will adjust their position or get out (usually without tell you), so you will be the one losing money. Not them…

So, do your own homework rather than looking for a miraculous stock, a holy grail, which will make you rich over night.




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Posted by Martin January 04, 2020
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Is investing in stock market a bad idea at retirement age?


Not at all. However, your strategy will depend on a few important factors. For example, are you starting at retirement from scratch, meaning you have nothing saved? Or you have a significant amount saved and invested elsewhere and just thinking or re-allocating it?

Generally, it is never late to start in the stock market but as in investor a young person starting investing has a lot of time on his/her side and time is your friend. If you are already in retirement, you do not have much time – but that also depends where are you ate retirement – just retired or in mid retirement? If you just retired, it is still good as you may have another 10 to 20 years in front of you. And that is a good time to start and invest. However, I personally would look for safe but aggressive methods to boost your income from your investment and reinvest it unless you need it to pay your bills.

A good way is to use cash secured puts and covered calls to generate additional income on your holdings. Do not listen to people telling you that options are risky. It is not true. The risk is in underlying stock, not options. So whether you use options or not, you still have the same risk but options offer you a better protection compared to holding just stocks.

For example, when you sell cash secured puts, you always have money to buy the stock. And if you sell puts against a stock you want to buy anyway, then you have nothing to lose but buy cheaper than when buying a stock out right.

Example: Trade A and B want to buy a stock ABC at $30 a share. A trader A buys 100 shares of the stock immediately at $30 a share. Trader B sells 1 contract of cash secured put with 28 strike price and collects $40 income from selling the put.

The stock dipped to 26 a share at expiration.

The trader A is sitting on a loss $400 dollars ($30 – $26 = $4 * 100 = $400) , while trader B just bought in 100 shares by being assigned at 28 a share. His loss is only $160 a share ($28 assignment – 0.40 received premium = $27.60 cost base – $26 = $1.60 * 100 shares = $160). And once you get assigned, you can start selling covered calls and generate more income.

So, as you can see, it is not the options which carry the risk, it is the stock. Options can actually help you to lower that risk.
And if you choose high quality dividend growth stocks, you can achieve triple income from your investments: dividends, puts premiums, and calls premiums.
And it is never late for this to implement.




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Posted by Martin January 03, 2020
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Will investing in stocks be a good way to use a lump sum of money?


A study was made (sorry no longer remember who did it and link to the source, but I may try to find it if I have time), indicating that investing smaller portions but regularly outperforms a lump sump investment long term.

So, if you have a large sump, identify stocks you want to invest the money to and then divide the sum by number of the stocks. Then divide each number by at least 3 payments (if your sum is large to divide by more, do so). Then invest those amounts in monthly intervals, usually on drops of the price.

If you want, you may use put options to buy those stocks. In that case, make sure, you divide the amount for each individual stock in a way that each purchase will allow buying 100 shares. The sell at the money cash secured put. If the stock moves away from you, the put become worthless (you can roll it higher to trail the stock price while collecting premiums). If the stock dips below the put strike, you will buy 100 shares at a lower price. Then sell another put for the next cycle.

So, for example, you have $500,000 lump sum and you want to invest to 10 stocks. That means, you can invest $50,000 to each stock. Then let’s say one of your selected stock is Apple (AAPL). Currently it trades at $298.54. In order to buy 100 shares in a cash account (not margin), you will need $29,854 sum. That means, you can sell 1 put to buy in the first 100 shares (for the rest, you will not have enough cash, so you will be buying out right.

Then you can sell 1 AAPL January 17, 2020, 295 strike put and collect 4.35 or $435 dollars premium. If the stock stays above 295 by January 17, 2020, the option expires worthless, you keep the premium (you can immediately reinvest it), and you can sell new February 21, 2020 put. If the stock dips below 295, you will be forced to buy 100 shares of Apple at 295 a share.
Do this with all other stocks until you are fully invested. Then you can start selling covered calls to collect even more premiums. I recommend investing in high quality dividend stocks as with them you can afford to sit on them through any market, collect dividends which are increased every year, collect premiums from covered calls and cash secured puts, so in fact, you will hit triple income with one stock. If you have 30 years (for example) in front of you till retirement, you do not have to worry about any risk in stocks whatsoever. No bear market or recession takes longer than 2 years and it always recover. Just look at previous recessions and today’s market. The 2008 recovered in 3 or 4 years and from there we just rallied and rallied, and rallied. And during that 30 years, you will be collecting dividends (note that many high quality dividend growth stocks increased dividends in 2008 when everybody was panicking, selling everything, screaming, running for cover, and predicting end of the world).

If you stick to the plan, you will never be forced to sell a single share of your holdings and just live off of the income it will generate. As of today, per my own personal experience, you can expect 30% annual return +/- on this triple income strategy. Note, this may vary based on selected stocks and other market factors. But over the long run, you will not lose (unless you foolishly sell in the next bear market worried about your money like many investors out there end up doing and they ultimately end up selling low and buying back high, losing money.




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