1st Posting for Week Beginning Monday 05/04/2020

Posted Saturday 05/02/2020 11:00 AM

A lot has happened since my last post in February 2020, in the markets and beyond. With the tax season extending now to mid-July, my work schedule remains nearly full-time, making it necessary to extend my suspension from my usual weekly postings, to probably August. I will continue to follow the markets and to track my stocks as regards earnings, ex-dividend dates, and upgrades / downgrades, but only for the purpose of keeping up with events, I will not have time to post what I see happening. Considering my last review of my stock lists occurred last December, my lists are obviously far outdated, and my recommended buy and sell prices are not current. In fact, the placement of stocks on the lists, reflecting the perceived safety, is in many cases likewise outdated. The website will remain online, and after the tax season, I will be revising the lists, based on where I see things standing as we enter the 3^rd quarter of 2020, with numerous drops, adds, demotions, promotions, and of course updated prices. I have used the drop to add some quality names to my holdings, I still believe an income strategy is the right strategy for an investor seeking stability and income, but it certainly isn’t getting any easier. The energy situation in particular has been catastrophic, and unless things improve in this sector, there may not be any energy stocks on my new Tier1, not even Chevron (CVX) or ExxonMobil (XOM). Royal Dutch Shell (RDS.B) has already cut their dividend, more are likely to follow. Numerous pundits are stating that a retest of the lows is likely, and that the market rebound from the March lows has been premature. I tend to agree that the “V-shaped” market recovery like we are seeing as I write this may well turn out to have been premature. It is probably just as well that I don’t have time to rework everything just yet, we all need more time to pass, and more data before developing a long-term plan for generating income from stocks. In closing, I will reiterate my previous post regarding the philosophy behind the website. The philosophy and goals will not change, but certainly the vehicles recommended to achieve these goals will. Good luck to all, my final piece of advice is to exercise extreme caution. Cash pays nothing, agreed, but (at least in the short run) it doesn’t go bankrupt.

As noted above, suspension of my weekly publication will continue, now until after the extended Income Tax Filing deadline of July 15, 2020. I will continue to monitor the markets and the stocks on my lists, and the website will remain online. I remain convinced that the strategy espoused by OPTIMUMSTOCKINVESTING.COM remains the correct strategy for the patient investor, particularly if retired or nearing retirement. My anticipated time frame for restarting weekly posting is August 2020, although this might slip to September or even later, depending upon events. In closing, I will reiterate what this website and the investing strategy espoused is, and what can be expected when I resume weekly posting.

So, what is WWW.OPTIMUMSTOCKINVESTING.COM all about?  Namely, to present a comprehensive approach to investing in stocks, with dividends as the foundation, complemented by occasional trades and speculations. A conservative approach to improving returns using options is also incorporated into the strategy. I have an identified subset of stocks I follow, categorized into four lists, or tiers. I originally decreed that the number of stocks followed would be capped at 100, but currently the total is over 120. Tier1 stocks are the safest, strongest firms, the least likely to cut their dividends or go bankrupt, and to experience precipitous declines. Tier1 yields are usually in the low single digits. Tier2 stocks are less safe, with risk factors that Tier1 stocks do not have, and while dividend cuts may occur, the firms are unlikely to go bankrupt, barring a severe economic downturn, or more likely, disastrous management decisions, such as an ill-advised acquisition. For example, MLPs are by definition in this category, as they have a built-in risk factor of an adverse change in the tax code. Tier3 stocks are either high-yield or high potential for capital gains, and can do very well if the economy remains strong or the fundamentals change for the better in their sector. Included here are BDCs, MREITs, telecoms other than Verizon and AT&T, metals miners, and less substantial MLPs. If hard times strike, these firms will likely cut or eliminate their dividends, and may go bankrupt. Tier4 stocks are the “walking dead”, stocks previously on the other lists, but now their dividends are absent or reduced, and bankruptcy is a real possibility. I have given up on these firms, but I will continue to track them as an exercise in masochism, as long as they continue to hang on. There is even a remote chance they may recover and get back to at least my Tier3 list. Also, occasionally a stock that is being acquired will move to Tier4, since it is no longer recommended, but will be followed for as long as it exists. 

My web site explains the approach I follow in detail, and contains a wealth of information and resources. My acquisition approach is based on the value investing approach outlined by Ben Graham in his classic works, updated a bit for the modern era, with just a hint of a trader’s mindset incorporated. I advocate acquiring a position in a stock incrementally, averaging down with subsequent acquisitions, and limiting holdings in any one stock or sector to a pre-defined maximum. The key take-away I want viewers to gain from my presentation is an understanding of the risks inherent in stocks, as well as the rewards, and the need for caution and diversification, and most of all, the realization that ANYTHING can happen, nothing is 100% safe or guaranteed!

Regarding analyst ratings, my standard admonition on upgrades / downgrades and such, is that while I’m always interested to learn of analysts’ opinions of stocks I follow, they are to be taken with a grain (or sometimes a whole shaker) of salt. That is, do not treat the ratings as actionable advice. For one thing, the ratings changes usually come far too late to be useful. If you haven’t bought or sold by the time the ratings to do so are out, you are probably way too late. Also, note that the ratings focus almost exclusively on the near-term expectation of the stock price movement, not the long-term value as an investment, with dividends considered. Another confusion factor is the fact that each firm has its own ratings terms and meanings, and sometimes different firms attach different nuances or meanings to the same term. Still, most ratings terms are more or less self-explanatory. But some are effectively no rating, such as Neutral, Hold, Equal Weight, Sector Perform, Market Perform, or just plain old Perform. Perform? Yes the stock will Perform in some fashion, but such a rating is ridiculous – it means nothing at all. The best I can do with these non-committal ratings is to consider them equivalent to Neutral. All of these ratings, Hold, Neutral, Market Perform, Sector Perform, and Perform are basically no-calls – as if the analyst cannot come to a conclusion on what the prognosis really is for the stock. Regardless, I always find it to be of interest when a firm indicates a view of a stock I am following, whatever the view. For upgrades/downgrades, I give the prior rating if available from my source. I formerly skipped reiterations, since these are not rating changes, but now I include them, as they represent a new evaluation result, even if the review did not result in an upgrade or downgrade. Thus, I now present all available new ratings on the stocks I follow. Sometimes it is possible to view the complete analyst report, either via brokerage websites or online sleuthing, if a rating is of enough interest that one desires to determine what is behind the rating. The full ratings report can indicate the analysts’ thinking, which can be useful information.    

The focus of my weekly postings, also shown on my Facebook Page, is to present new information regarding the stocks I follow, such as upcoming ex-dividend dates, earnings reports, analyst upgrades, downgrades, and reiterations of ratings, plus initiations and resumptions of coverage. I also highlight any other significant developments regarding the stocks on my lists, such as acquisitions or stock splits. I also share information of moves I have made, in line with my strategy.

So, until summertime brings my return, stay informed, stay cautious, but don’t be afraid to take advantage of opportunities when they are presented.

JT