Biloxi (Gulf Port) Breakfast
(Sound Investors Forum)
January 2012
Ron Spruell
(Or Mr. Spreadsheet to you)
Posted at:
http://bribg.pbworks.com/w/file/50022404/
Biloxi_Breakfast_2012.ppt
Cajun Clickers Computer Club
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Topics
• Diversification
• Quality Stocks
• Covered Calls
• Brainwashing
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Why diversify
• Avoid Investment Loss
• Di-worse-ification
• ???
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Types of Diversification
• Time Diversification
• Asset – Asset Allocation
- Equity
- Fixed Income
- Geographical
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Time
Diversification
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Asset
Diversification
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Mutual Funds
Mutual Fund Research
Newsletter
http://funds-newsletter.com
Tom Madell, PhD, Publisher
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Mutual Funds 12/1/2010
Long-Term Fund Choices for the Next
Five Years
• Stock Funds (9)
•
•
•
•
Vanguard 500 Index Fund (VFINX).
Yacktman Fund (YACKX).
Vanguard Windsor II (VWNFX)
Fidelity Contrafund (FCNTX).
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Mutual Funds 12/1/2010
Long-Term Fund Choices for the Next
Five Years
• Stock Funds (9)
•
•
•
•
•
Fidelity Low Price Stock (FLPSX)
Vanguard Small Cap Growth Index (VISGX)
Vanguard REIT Index (VGSIX)
Vanguard International Growth (VWIGX)
Tweedy, Browne Global Value Fund (TBGVX)
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Mutual Funds 12/1/2010
Long-Term Fund Choices for the Next
Five Years
• Bond Funds (3)
• PIMCO Total Return Instl (PTTRX)
• PIMCO Real Return Instl (PRRIX)
• Vanguard Total Bond Market Index Fund
(VBMFX)
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Mutual Funds
Moderate Risk Investors
Asset
1/1/2012
Stocks
62.5%
Bonds
32.5%
Cash
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5%
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Mutual Funds
Aggressive Risk Investors
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Asset
1/1/2011
Stocks
80%
Bonds
10%
Cash
10%
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Mutual Funds
Conservative Risk Investors
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Asset
1/1/2011
Stocks
35%
Bonds
50%
Cash
15%
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Stock Fund Model Portfolio 1/1/2011
Our Fund
Recommendations
Fidelity Low Priced Stock
(FLPSX)
Nicholas Equity Income
Fund I (NSEIX)
Fund
Category
Mid-Cap/SmallCap
Tweedy Brown Global
Value (TBGVX)
Vanguard Internat. Growth
(VWIGX)
(See Note 1)
International
Vanguard 500 Index (VFINX)
Yacktman (YACKX)
Large Blend
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Recommended
Weighting
20%
20%
17.5%
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Stock Fund Model Portfolio 1/1/2011
(continued)
Vanguard Growth Index
(VIGRX)
Fidelity Contra (FCNTX)
Large Growth
Vanguard Windsor II (VWNFX)
Large Value
Vanguard REIT Index (VGSIX)
(See Note 2)
Amer. Cnt. Real Est. (REACX)
Real Estate
(REITs)
10%
Vanguard Equity Inc (VEIPX)
Equity Income
5%
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15%
12.5%
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Bond Fund Model Portfolio 1/1/2011
Our Fund Recommendations
Fund
Category
PIMCO Total Return Instit (PTTRX)
or
Harbor Bond Fund (HABDX)
Vang. Total Bond Mkt. (VBMFX)
Intermediate
Term
PIMCO Real Return (PRRIX) or
Harbor Real Return (HARRX)
Inflation
Vang. GNMA (VFIIX)
Vang. Interim. Tm. Treas.
(VFITX)
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Intermed.
Govt.
Recommended
Weighting
32.5%
15%
12.5%
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Bond Fund Model Portfolio 1/1/2011
(Continued)
Vang. (state specific - see Note)
Vang. Intermed. Term Tax-Ex.
(VWITX)
Intermed. Term
Muni.
15%
Vang. Long-Term Inv. Gr. (VWESX)
Long-Term
Corporate
10%
Vang High Yield Index (VWEHX)
High Yield
PIMCO Foreign Bond (USDHedged) Adm (PFRAX)
T Rowe Price Intl. Bond (RPIBX)
International
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10%
5%
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Mutual Funds
Mutual Fund Research
Newsletter
http://funds-newsletter.com
Tom Madell, PhD, Publisher
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Quality
Stocks
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Quality Stocks
• Quality, like beauty, is in the eye of the
beholder!
- Solid Financial Statements
- Sales and Earnings Growth
- Pays a dividend that increases year after
year
- A by Product – (we hope) is
Mean regression (Signature Price)
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Sources of Quality Stocks
• ValueLine – Safety Rating of 1 and 2 (400)
- 1 (100)
- 2 (300)
• S&P – Quality Rating of B+ or better (~680)
- A+ ~43
- A ~111
- A- ~159
- B+ ~371
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Sources of Quality Stocks
• Morningstar.com ($$)
• Dividend.com ($$)
• Brainwashing ($$)
http://www.valuestockbuylistprogram.com/
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Sources of Quality Stocks
Dripinvesting.org - - - Paying increasing
dividends 5 years or more (448)
- Dividend Champions; 25 years (102)
- Dividend Contenders; 10 to 25 years (146)
- Dividend Challengers; 5 years (200)
Free, Updated Monthly
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Quality Stocks – My Lists
• dripinvesting.org
- Dividend 3.0% minimum (~198)
• dividend.com
- DAR rating 3.4 minimum (~215)
- Dividend 2.5% minimum
• Your list??? 10 to 110 stocks
(recommended)
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Options Mike - from Yahoo
Group justcoveredcalls
- Dividend Champions, Dividend Contenders, and
Dividend Challengers; 9 years (295)
- Plus Morning Star Premium Cash Flow Stock
Screen (~136) (See note)
- Take only stocks that Meet the 2 Screens (82)
Free, Updated Monthly
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Covered Calls
Covered Call Writing Demystified
Paul D. Kadavy
2009
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Covered Calls
• Complicated, hard to understand – because
it is different.
• Language is different, e.g.
- Write means Sell to Open (a contract)
- Close means Buy to Close (a contract)
• And Not Covered here. . . (high risk)
- Buy to Open
- Sell to Close
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Covered Calls
• Buy/Write means to buy the Shares of
Stock and Sell to Open the Call Contract(s).
• Strike Price is the Stock Price at which the
Option can be Exercised. The Seller (us)
will receive the Strike Price for the Stock
(maximum).
• 1 Option Contract = 100 Shares
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Covered Calls
• Expiry is the Expiration date of the Option –
Normally the 3rd Friday of the month.
• The Buyer has the Option, but not the
obligation, to buy the Shares.
• The Seller has the obligation, but not the
right to sell the Shares.
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Covered Calls
QUALITY STOCK!!!
When to buy??? My rules are very subjective!
Technical Indicators:
• RSI (low, less than 30 if possible)
• Bollinger Bands (just leaving the lower
Bollinger Band
• Price less than 25% of 52-wk Hi_Lo Spread
• Question to ask. What is the 5-yr Hi and Lo?
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Sold
Put
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Buy Stock
Sell Call
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Covered Calls
• Advantage of Long Term Options (LEAPS)
{Long-Term Equity Anticipation Securities}
1) Reasonable return, 8% to 12%
2) Greater down side protection
Harshad’s Spreadsheet
Example Calculation.xls
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Pause for Harshad’s
Example Calculation.xls
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Harshad’s Example 1
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Harshad’s Example 2
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Harshad’s Example 3
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Harshad’s Example 4
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Brainwashing
The Brainwashing of the American
Investor: The Book That Wall Street
Does Not Want You To Read!
Steven R. Selengut
Revised Edition
2007
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Brainwashing - Basics
The Big Three:
• Quality
• Diversification
• Income Generation
S&P earnings and dividend ratings of B+ through A+
identify investment-grade equities, or stocks that
they consider to be lower risk, higher quality
companies.
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Brainwashing - Basics
Only two classes of investment securities: income
and equity.
Portfolio should consciously be allocated between
that of a class of securities whose primary role is
income production and the other class , whose
primary purpose is to generate growth in capital.
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Brainwashing - Basics
The primary purpose of fixed income securities is
the production of a safe and consistent flow of
income.
Corporate and municipal bonds, government
securities, preferred shares, debenture-like
preferreds, unit trusts, royalty trusts, and income
Closed End Funds (CEF) are among the
securities that fit within this category.
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Brainwashing – General
• No more than 5% in any one individual
security, either fixed income or equity.
• No more that 15% in any one industry.
• No rules about Sectors that I could find.
(I would use 20%.)
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Brainwashing – General
• Diversify by Country. (There were no rules
that I could find.)
• Diversify time wise. Limit number of buys
per day to 5.* (Comment on this.)
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Brainwashing – General
• As the number of stocks meeting the basic
buy parameters rises above 15% of the
selection universe (Quality Stocks), ratchet
the parameter up 1% at a time until the list
of opportunities fall back within the
acceptable range of 20 issues. Rank by
quality.
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Brainwashing – 7 Rules
• Any stock that is 20% or more below its 52week high is considered a candidate for
new buying.
• Any stock that is down more than 20%, or
10 or more points, from you original costbasis per share is considered a candidate
for additional buying. Check fundamentals
first before buying!
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Brainwashing – 7 Rules
• The stock should pay a dividend. This is a
symbol of the fundamental strength of the
company.
• Higher and Lower: Low is a price that is at
least 20% below the 52-week high. Higher
is a selling price that will return a 10%
net/net profit, where net/net means
commissions and taxes associated with the
trade.
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Brainwashing – 7 Rules
• But absolutely never buy at a price that is
less than 20% below the benchmark figure
(52-week high).
• Only buy stocks that are down in price by at
least 20% from their highest level over the
past 12 months.
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Brainwashing – 7 Rules
Eliminate from the qualifying buy candidates
any stock that:
• Went up a point or more yesterday.
• Is up a point or more from last month's
closing price.
• Is up two or more points from the previous
month's close.
• Is up three or more point from the close
three months ago.
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Brainwashing – 7 Rules
The price must be below yesterdays closing
price by:
• $0.35 or more if the stock is trading below
$20 per share.
• $0.50 or more for stocks between $20 and
$49 per share.
• $0.75 or more for stocks ranging from $50
through $70
• $1.00 or more for stocks above $70 per
share.
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Brainwashing – 7 Rules
Don’t even think about buying a stock that is
selling for $90 or more!
Don’t buy Odd-Lots.
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Buy
Down 32%
from Hi
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Approx. 40 Trades per year
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Yahoo! Groups
• Smf_addin – Randy Harmelink
• Justcoveredcalls – Mike Artobello
• TtP-S – Pete A
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Biloxi (Gulf Port) Breakfast
(Sound Investors Forum)
January 2012
Ron Spruell
(Or Mr. Spreadsheet to you)
Posted at: http://bribg.pbworks.com/w/file/50022404/
Biloxi_Breakfast_2012.ppt
Cajun Clickers Computer Club
1/2012;RKS
60
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