Rollercoaster Post-Election

Are you holding on as tight as I am seeing the fluctuation in the stock market?  The rollercoaster has been hot and heavy since Tuesday and slightly reminds me of a few instances we had last year.  I am never one to predict where the market is going nor what I think is the best stock right now, therefore, this article will service one primary purpose.  That is – to hold on to the handle bars on the rollercoaster ride and understand why you are sitting in the seat, is what matters the most. 

The Rollercoaster ride

I will sit on the seat, patiently.  Why am I not doing anything during this wild ride of the stock market?  There are a few reasons – stocks are reacting in such a fashion that it can be VERY distracting from the fundamental value of the company.  Earnings haven’t changed and no one can truly predict that post-election, what the impact will be on forward earnings.  I have now witnessed the same industry fluctuate in both directions multiple times in the exact same day.  This also falls in line with – why I never try to time or predict the market.

However, I will say that you should continue to do what you are doing.  With the price drops/swings, it may be a good idea to set limit order buys on companies you have been wanting.  This will aid in the higher volatility, to capture that desired stock at a better price than expected.  What I have seen the last two days, are that even the most sound/basic/boring companies are fluctuating just as much since the election.  All stocks are subject/have been subject to this volatility.  Know your price points on the stocks you’ve wanted and don’t hesitate to consider that as a viable option, kabish?

Read and pierce through the ups/downs, the thunder/lightning to truly determine the value of the company.  Heck VF Corp (VFC) is now trading at $56.33; no longer undervalued – definitely needed some limit orders in the making to grab it when it was in the $52’s earlier, but an almost 10% increase from those prices and my analysis?  No thanks.  Then, on the other hand, Bert purchased Realty Income (O) in the $59 range and now it’s in the $54 range… ugh, see – talk about the wild swings – Bert, are you buying more, now?  You definitely are in a more difficult situation, as these swings have been all over the place.  There are a few things we can do, to not pay attention to the lightning.

We need to stick to our consistent screening methods.  Is the price to earnings still below 18, with a payout ratio below 60% and a yield that fits what you’d want your portfolio to have?  Do you understand that business and know that during the thunderstorms and big events, that services and production will continue?  Will their dividend continue to grow?  If you focus on your consistent approach that you have used for years, and years, and take out the emotion and “noise” from what has been occurring – you will thank yourself later.

During this time period, as well, with such volatility, it may open up even more opportunities, as well, that we may not have been expecting.  What do you do about your capital?  This bodes well in my aggressive approach and demeanor, that every single dollar counts, now more than ever (though it always strongly mattered in my eyes)!  Therefore, keep saving aggressively, as you may end up using our capital on one action, when another stock you’ve been wanting a position, begins to show signs of hitting your screener metrics.  These are just a few items to think about, during this turbulent times.

Rollercoaster Challenge

This is when our fundamentals and mind play a critical factor.  How far are you willing to stick to your guns and your analyses?  How strong are your feet and are you willing to stand your position on your values with investing and financial freedom?  Are you going to react wildly and sell off/buy on that swing-reaction?  If it’s for a foundation company for your portfolio because it dropped, then hell yeah, but are you going to buy that one company that was a speculative play, because it dropped 10%?  Doesn’t sound like you should to me.  OR are you going to sell off Johnson & Johnson stock because it jumped $4+ in just a couple of days?  I’d move the hand away from the trigger if i were you.

I am going to be embarking on the challenge.  I am sticking to the Dividend Diplomat Stock screener and will continue to make purchases towards my goals I have established.  I will continue to build up my capital position and deploy when, based on the screener, the value is right to me.  I haven’t made an individual stock purchase since my last deployment in September for Target (TGT) and T. Rowe (TROW).  Guess what?  That is OK.  Though my portfolio has increased a few percentage points overall, my income hasn’t moved.  That has also been a huge takeaway from this – my income only changes when companies are fundamentally sound and grow their dividend.  For us dividend investors, that is what matters.  Not the fact that it increased 6% Wednesday and dropped 3% Thursday, but how did the payout ratio change?  Were earnings impacted?  These are the real-deal questions.

This may be much more of an Italian banter (Bert, go ahead and make a joke), but I want us all to stay even-keeled throughout all of this, as we don’t need to have the knee jerk reaction to the rollercoaster ride.  We do need to be prepared and ready, and keep a keen eye on saving money when we can, investing wisely as we consistently have been and follow the action plan that achieves your goals.  Sounds simple, but adding in emotions can be the kink in the chain.

What does everyone else think about this?  Have you been actively engaging in transactions?  Have you changed your approach?  Have you made a purchase on purpose or accidentally and wished you had more capital?  Is your stomach queasy at all or have you kept a “stonewall” like position in the midst of all this?  Would love to hear everyone’s thoughts!  Thanks again everyone, stay hungry, stay consistent and kick ass.

-Lanny

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22 thoughts on “Rollercoaster Post-Election

  1. Hi Bert,

    Wow that was a great reaction to the market. Very passionate and motivational. Personally I’ve been waiting for the Feds to raise rates — meanwhile all this is happening.

    I’m sitting on about 10k of capital, and am tempted to sell everything in my portfolio to put on Credit Suisse. It has a 5% yield and has so much reward potential to outweigh the risk.

    Question for you — do you reinvest your dividend or cash out? And why?

    Love reading your updates.

    -Mike

    • Mike –

      Thanks for the post/comment. I am pumped that you are pumped. Right – and the 25bp increase more than likely will come next month, so we’ll see about the reaction to thatone.

      $10K of capital is HUGE, NICE. That is quite a bit and you should be able to make some moves. Evaluate Credit Suisse loan portfolio and check out what’s under the hood.

      I reinvest all dividends right now – takes the thinking out of the equation and automates further dividend growth overall for me. I know people can argue that way or the other, but this way has worked for me.

      Thanks Mike, talk soon.

      -Lanny

  2. All good points. Prior to the election I bought several companies with my PNY merger proceeds. The REITs are down, banks are higher the rest are mixed. Creating exposure to Mexico looked good on the initial peso drop but backfired when it dropped further. Yet overall I’m higher but cognizant of the fact we’re one tweet away from additional volatility. With my announced 2017 dividend increases averaging 14% – (though it’s early), I agree it’s prudent to assess ones strategy, modify if required, and stay on point.

    • Charlie –

      Boom, hit it on the head – few sectors tanked, few spiked, then few did both within the same and/or two days haha. The plan should be to evaluate the company and if undervalued and fits your position/portfolio – then buy that shit!! LETS GO!!!

      -Lanny

  3. Ciao Lanny,
    Markets as a whole saw a massive shift from defensive stocks into…. Not sure where actually… Banks and some financials enjoyed some rally but it all seemed so “random”. The fact is that Trump election brings a lot of uncertainties, mostly because it’s not clear what and how he will do it. But on the other side I also think that many investors were in defensive stocks because they saw Clinton as a bigger threat than Trump… Time will tell I guess. What is sure is that on many REITS (and healthcare Reits) that I was following I am having an hard time to go in since the change of policy, increase of rates and the whole public health issues that are going to come up once Obamacare is scrapped. Need to be a bit more patient…
    Ciao ciao
    Stal

    • STal –

      You got it – the bank/financial sector was happy, a few others were for a moment but then decided to not be as so jumpy haha. Yes – being patient and letting “real” actions occur is key, we can’t predict what the heck is going to happen, I don’t think we are in the business of doing that. Good luck and keep at it.

      -Lanny

  4. Roller coaster is right. I still can’t believe we saw an 1100 pt swing in the DJIA from the lows of the futures on Tuesday to the highs on Wednesday. Absolutely incredible. REITs have seen huge declines but the sector that I figured would see the most benefit would be healthcare and that is all over the place. Some of the large cap health care companies are seeing big gains and others big losses. Go figure.

    In reality you hit the nail on the head and the real question investors should be asking is still the same as before. Where are the share prices in relation to the real value of the underlying businesses? That’s the most fundamental question for investing. For the most part I still see many of the companies I’d like to buy being on the high end of fair value. So it’s defensible to buy some but I wouldn’t want to do any major purchases at the high end of fair value.

    • JC –

      Great comment. It is absolutely wild, the REITs have been punched below the belt and they are plummeting. Healthcare has been allllll over the place – some are up 5-8%, some are down the same %.

      Yes – how solid/heavy are your feet to stand in the sand and hold your theory/process/screener. How strong are we to stay true to our plan?

      Let’s keep it fundamental, or K.I.S.S., right? We can do this.

      -Lanny

  5. A wild ride is an understatement as to what we saw this past week. You already know that it’s not about buying at the “best” possible times rather buy when values and yields looks good with a safe dividend and just put that money to work. As you said, “…every single dollar counts.” Nothing has changed for me. I’m still planning to make at least one buy every month and average down if need be as I always have. In fact, I just nibbled on some more UL yesterday as some consumer staples are starting to look attractive once again.

    • Right on DivHut! I doubled my position in UL this week below $40 after starting a position 2 weeks ago. I figure its a great long-term buying opportunity for one of the safest companies out there. I’v been viewing the volatility as opportunity to pick up consumer staples for the long-haul.

    • Hut –

      Haha, thank you, yes, yes I did state it fairly lightly with what we are going through. I’m pumped about your comment, though, every single fricken dollar counts. I say that nibbling you did on Unilever, and was jealous as I was using some of their products this morning getting ready for the day. Pumped, stay after it DH.

      -Lanny

  6. I agree with everyone else…very good points. Regardless if the market is swinging wildly up/down or new investing fads come and go there is one thing that always remains constant, that financial ratios and valuations will remain essential tools for evaluating a company. So as you stated earlier stick to your guns with valuations you use for screening stocks. Don’t let gains inflate your ego or losses hurt your confidence, stay with what you know works and leave the emotions for someone else.

    Personally I do not think this rally will have long legs. My opinion is most large investment houses and fund managers were caught with their pants around their ankles with the surprising election results and had to reposition portfolios. Like you my portfolio value looks really good on paper this week but all that paper value has increased my annual income by 0$. I am not a gambler so I will not try to speculate what industries or companies will benefit from a Republican controlled government but I will continue to rely on my financial statement analysis skills to weather the swings.

  7. The hardest part is the psychological game. I bought into the “sky is falling” mentality in the media, which didn’t jibe with the fact that a fully republican congress and administration will be a positive for business – lower taxes, etc. I even wrote a post talking about how I’d wait for the 10% drop before getting in, but then the market took off, lol. Ultimately, you just need to stick with the game plan and timing the market is a fools game.

    • DTen –

      Easily is the hardest part. Everyone will talk about this stock or that stock, you may get vibrates on your phone about a huge jump or huge drop – but it is to turn off the noise that doesn’t keep you on your path and journey. We know there are no shortcuts and that we need to do what’s right in our path.

      Haha – yes, the market took off, but that can’t be sustained without a huge jump in earnings, I have an idea – let’s screen companies and if they fall within our filter results and they are undervalued, then buy – aka our same old strategy eh?

      Agreed on the fools game, and that is one thing, we aren’t.

      -Lanny

    • DI –

      No problem, that’s partly what I’m here for, right? I love getting pumped up – made a killer breakfast today, espresso plus more coffee and am ready to just get after it today. Keep pushing and stay hungry. LETS GO!

      -Lanny

  8. This was a timely reminder to keep an even-keel.

    I picked up some of my favourites at cheaper prices than I usually have the chance to get them at. After a couple of wild days my portfolio has pretty much done nothing – so I’m continuing to carry out my long term plan! As for whether I wish I had more capital: doesn’t everybody!

    • ADI –

      Beautiful! That was hopefully a goal of mine with the article, to keep everyone in the right frame of mind. Nice job picking up favorite companies at lower prices – that’s the name of the game. Good job on carrying out your plan, keep that focus!!! Yes, more capital please : ) Nice job though!!

      -Lanny

  9. Hey Lanny,

    well, I wrote some post about what I thought about market. Congrats of your TROW deal! Coming back to elections, I hope Trump will realize his promise and he will cut taxes. As I wrote on my blog:

    “The Trump Plan will lower the business tax rate from 35 percent to 15 percent, and eliminate the corporate alternative minimum tax. This rate is available to all businesses, both small and large, that want to retain the profits within the business.”

    Assuming constant multiples on P/E it means upside by around 30%. Let’s take P/E = 20, and EBT = 100, then in one scenario E = 65 and proposed E = 85. Significant growth, which should be visible in dividends (and cash flows).

    Best regards,

    • DTime –

      Very true, very true – if tax rates are diminished by that much, EPS looks that much better and leaves much more room for return back to shareholders in the form of dividends. One would expect, as well, that our dividend tax rates would at least remain the same.

      Looking forward to this hopefully occurring. I think if we see tax rates cut on corporations, you’d actually see a fairly even result of more production/sales/etc.. and that overall tax revenue would not be tremendously impacted, due to low tax rates. Always eager for more income/div raises : )

      -Lanny

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