Jump to content
dydo

Trading Strategy

Recommended Posts

21 hours ago, SCSolar said:

 What does price variation have to do with a meaningful dividend amount?

 

If I invest $10,000 in a a $10 stock with a  5% dividend, my dividend is $500

 

If I invest $10,000 in a $100 stock with a 5% dividend my didend is still $500 is it not???

 

Am I missing something in this like your 11% compounded return over  7 year compounded.

No, you are right, the same outcome.

Share this post


Link to post
Share on other sites
22 hours ago, SCSolar said:

Am I missing something in this like your 11% compounded return over  7 year compounded.

No, I do not think so, but maybe that  I am rounding numbers is confusing. If the calculation is constant, like dividend yield and price stood flat, there is additional 2% average gain over the dividend yield in average annual year return. 7 years is just the amount of time I spent on solar stocks, so I just used it as an example.

To reflect more accurately, 7 years of investing 8% dividend yield should provide an average 10% a year return for that period.  10K will bring  7K (dividend paid).

Of course, this is very conservative. For one dividend grows and there are periods of averaging when prices fluctuate, and it is more opportunistic to buy shares.  Perhaps simple rule to buy only if the market price is lower than the average etc. This is a forecast, not past performance. 

Share this post


Link to post
Share on other sites
20 hours ago, explo said:

Thanks SCSolar. This was a real gem for my portfolio. Maximum allocation. Do you have more super stocks like this to recommend?

With PSA added as an incumbent portfolio asset the stocks basket is now very nicely sector diversified.

stock_distributions.thumb.png.fd41c8e7fc8c6c73f5c9876d0721071a.png

What's interesting is that there was no constraint forcing sector diversification in the mean-variance optimization. The diverse sector allocation was simply an optimization result. 10 stocks from 8 different sectors were selected in the optimization. We've all heard that sectors matters for diversification, but much more that allocation of asset classes it what really matters. Clearly it seems that a balanced sector allocation is more important than balancing the stock picking within a sector.

Share this post


Link to post
Share on other sites
2 hours ago, explo said:

With PSA added as an incumbent portfolio asset the stocks basket is now very nicely sector diversified.

stock_distributions.thumb.png.fd41c8e7fc8c6c73f5c9876d0721071a.png

What's interesting is that there was no constraint forcing sector diversification in the mean-variance optimization. The diverse sector allocation was simply an optimization result. 10 stocks from 8 different sectors were selected in the optimization. We've all heard that sectors matters for diversification, but much more that allocation of asset classes it what really matters. Clearly it seems that a balanced sector allocation is more important than balancing the stock picking within a sector.

I understand that you are indicating the diversified portfolio and not the stocks in the sector is the key but what are your stocks?

 

In 2016 my diversified static portfolio mainly of large cap dividend paying stocks grew in value by 17%. That exceeded the sum of the 3 major indexes (DOW/NASD/S&P) 11.88%.

 

This year the similar portfolio grew at a 21% while the overall markets grew 25.5%. That return is slightly below the averages.

 

Over a 2 year span the portfolio has grown slightly faster 0.008% than the overal markets share price.

 

My 401K/IRA which is primarily a broad market  index fund tracked the S&P this year and  has under performed the overall markets by 5% in 2 years

Edited by SCSolar

Share this post


Link to post
Share on other sites
4 hours ago, SCSolar said:

I understand that you are indicating the diversified portfolio and not the stocks in the sector is the key but what are your stocks?

 

In 2016 my diversified static portfolio mainly of large cap dividend paying stocks grew in value by 17%. That exceeded the sum of the 3 major indexes (DOW/NASD/S&P) 11.88%.

 

This year the similar portfolio grew at a 21% while the overall markets grew 25.5%. That return is slightly below the averages.

 

Over a 2 year span the portfolio has grown slightly faster 0.008% than the overal markets share price.

 

My 401K/IRA which is primarily a broad market  index fund tracked the S&P this year and  has under performed the overall markets by 5% in 2 years

That's good results. Unfortunately I did not diversify my stocks until recently, so before August 9 this year I held solar stocks only. I've tracked the performance since beginning of 2016 but used TAN as benchmark prior to August 9 this year and the ^SP500TR after that.

My stocks have shifted during this optimization period. That has cost in transaction fees and the performance vs the benchmark has been worse after this shift.

 I guess my conclusion in previous message was that although it seems important to include many sectors in the portfolio, it seems less important to include many stocks of each sector, given that the best stocks are picked.

Share this post


Link to post
Share on other sites
1 hour ago, explo said:

That's good results. Unfortunately I did not diversify my stocks until recently, so before August 9 this year I held solar stocks only. I've tracked the performance since beginning of 2016 but used TAN as benchmark prior to August 9 this year and the ^SP500TR after that.

My stocks have shifted during this optimization period. That has cost in transaction fees and the performance vs the benchmark has been worse after this shift.

 I guess my conclusion in previous message was that although it seems important to include many sectors in the portfolio, it seems less important to include many stocks of each sector, given that the best stocks are picked.

Yes, focusing on a top 1 or 2 or sometimes 3  in a sector is basically what I do. The third is generally a short term play depending on performance of it. That is to say Tech core is MSFT and INTC while I might temporarily trade Cisco

 

My core big winners over the past couple years have been INTC, MSFT, ABBV, ABT. These are all up 50%+ with INTC and ABBV up over 100%.

 

The Telcos VZ and T are basically flat at up 15%+/- plus of course the nice dividends while CMCSA is up almost 40% in 3 years. That gives you closer to the S&P historical gains of 11%

 

My trash stock WM has done very well at up 70% in 3 years.

 

My Consumer Packaged Goods core Proctor and Gamble is up 15% over 3 years + the dividend. Again close to the S&P historical and less volatility on the downside.

 

Then the Oil and Gas stocks CVX  LYB are relatively flat from my entry point but up good over the last year.

 

My Energy stocks DUK and ConEd are in the 10% range over 2 years with the dividend.

 

The Transport choice of UNP has done relatively well since I bought back in in 2016. I recently divested of that at the end of the year and am looking for some other transport investment.

 

It is clear to me that there are 3 major growth sectors Tech which has volatility, Pharmaceuticals also downside risk and Health Insurance. With the growth comes volatility. The less volatile industries of CPG, Oil and Gas, Energy and Telcos  are not as prone to the wild swings.

I am basically looking at those stocks to drive relative cash generations from dividends in order to supply my core cash needs for retirement.

 

I do have about 30% in  other investments outside of the markets in some secured lending and some real estate property incomes. Those are all low returns in the 3-5% range  but offer a nice steady stream of cash.

Edited by SCSolar

Share this post


Link to post
Share on other sites

Thanks. My current stocks holding are: AMZN, BCPC, CELG, GILD, NJR, NKE, NUE, PSA, USB, V

Share this post


Link to post
Share on other sites
26 minutes ago, explo said:

Thanks. My current stocks holding are: AMZN, BCPC, CELG, GILD, NJR, NKE, NUE, PSA, USB, V

SO looks oversold.  Do you have it?  I was thinking of moving some csiq to it.

Share this post


Link to post
Share on other sites
1 minute ago, Jetmoney said:

SO looks oversold.  Do you have it?  I was thinking of moving some csiq to it.

It was sold when I bought PSA, but it is constantly borderline to get allocated.

  • Thanks 1

Share this post


Link to post
Share on other sites
1 hour ago, explo said:

Thanks. My current stocks holding are: AMZN, BCPC, CELG, GILD, NJR, NKE, NUE, PSA, USB, V

Thanks Balchem looks intriguing.  I bought Visa a couple of days ago when I re-balanced.

Edited by SCSolar

Share this post


Link to post
Share on other sites
13 hours ago, SCSolar said:

Thanks Balchem looks intriguing.  I bought Visa a couple of days ago when I re-balanced.

It's actually funny how I found it. In my search for stock candidates I simply googled "best stocks over decades" or something like that since that's what I'm looking for and found this: http://jasonzweig.com/the-best-stock-over-the-last-30-years-youve-never-heard-of-it/

No matter how I set the optimization parameters or what other stocks are included this one always gets high allocation (other might depend on specific correlation strengths), so it's a core piece in a high returning stock basket.

All that return and still relatively low market cap shows that one does not have to worry too much about market cap for portfolio growth. Companies just need to make ample profits and can either pay dividend or grow EPS by buying back shares and thus create high stock return (dividend + PPS growth) without having to grow market cap. This is why I now mainly look for stocks that have very stable return profiles over decades and pick those that work well together through their correlation properties, which is where the sectors likely play a role (iron mines and real estate might harvest the economy at slightly different times for example, one will feed acquisition of the other on the cheap). I don't really care about size, valuation, macro, fundamentals, technical or anything like that any more. A transition from AR studying FA the past 20 years to a completely FA agnostic portfolio management approach now. I don't really like it, but I'm quite convinced that it is a better approach to wealth accumulation. Mathematical time-series analysis is also my real field of expertise while financial analysis has been more of a hobby.

The really big contributor to the portfolio return over time will however be the addition of a second uncorrelated lower risk and return class though. This is similar to your cash income stream in that it will diversify timing of the stock basket investments to make sure those deep dips that occur every now and then can be accumulated and the high soars of high risk can be divested into lower risk. I've found a combination of funds that have correlation way into the negatives with the stock basket which allows the 100% stocks portfolio (orange/yellow point) to take a left turn on it path (the light yellow dotted line) up to the capital allocation line (the optimal 2.5:1 mix of the to classes at different cash allocations), see the attached chart. This allows the return to almost double before the risk starts to increase from the 100% stocks level. Basically the optimal mix of the two classes has double Sharpe ratio compared to each of the individual classes. The optimal 2.5:1 mix reflect the volatility risk parity of the two classes (8% vs 20%).

portfolio_optimization.thumb.png.6d06984bc4c822b4169425ae97c60e14.png

Edited by explo

Share this post


Link to post
Share on other sites
On ‎2018‎-‎01‎-‎02 at 4:52 PM, explo said:

Unfortunately I did not diversify my stocks until recently, so before August 9 this year I held solar stocks only. I've tracked the performance since beginning of 2016 but used TAN as benchmark prior to August 9 this year and the ^SP500TR after that.

In the "Stocks" chart below you can see the "Active" vs "Passive" parts of my stock returns. Basically, when I was in solar - an industry I've followed closely for 8 year - I produced a lot of active, or alpha, return, while the passive (or risk-free plus beta) return was poor due to the TAN being down more than 40% in 2016. After going broad in August last year I lost my active return. Much of that was due to too much re-optimization trading as I developed the new portfolio. The reasonable expectation is however that the active return and the funds return (pre leverage) will not be able to beat the stock market (the passive return) outside of stock market crashes. During stock market crashes is were all relative strength is reaped from those 3 other uncorrelated streams.

2017Q4_return.png

Share this post


Link to post
Share on other sites

I bought VTR to avoid rollercoaster of solar and it is acting like solar. Go figure 

Share this post


Link to post
Share on other sites
53 minutes ago, dydo said:

I bought VTR to avoid rollercoaster of solar and it is acting like solar. Go figure 

It is strange that those dividend stocks that you one time had also have been drifting down with market going up.  Maybe, people are pulling out of them to put their money in stocks.

Share this post


Link to post
Share on other sites
1 hour ago, Jetmoney said:

It is strange that those dividend stocks that you one time had also have been drifting down with market going up.  Maybe, people are pulling out of them to put their money in stocks.

Yes, it is. I think tax laws give the ability to pay more for regular companies, so perhaps people are adjusting the value of REITs for the difference.

Share this post


Link to post
Share on other sites

RSI on VTR is 27.83, now sounds like 5% dividend, made new 52-wk low.  I will sit on this one. I looked at SO, but I am worried about the nuclear plants' situation. 

Share this post


Link to post
Share on other sites
15 hours ago, dydo said:

Yes, it is. I think tax laws give the ability to pay more for regular companies, so perhaps people are adjusting the value of REITs for the difference.

Here is a nice article on Reits and that correlate interest rate spreads to performance of the Reits vs the general market. Rising interest rates is a negative on Reits performance where they track below the general markets.

The fed has been raising rates the past year. That is when the current pull backs had started. The tax plan is causing the Fed to be leaning to raise interest rates faster due to potential impacts in growth of the economy from the tax cuts. This would tend to make Reits a less favorable investment vs the markets in general.

https://www.investopedia.com/articles/04/110304.asp

  • Thanks 1

Share this post


Link to post
Share on other sites

The same can be said about yieldcos. The interest rate debacle has to do with using leverage and impacting all companies.  I think two, a quarter of a percent increase took place in 2017 and at least two are expected in 2018. I agree with relationship existence and even more agreement on the perception that all dividend stocks lose with interest rates, REITs the most, but this is where the higher yield should compensate, as long as the companies continue to enjoy their credit ratings and can increase dividends. 

The entire spectrum of stocks looks that way (as perceived reaction to interest rates)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Who's Online (See full list)

    There are no registered users currently online

  • Upcoming Events

    No upcoming events found
  • Forum Statistics

    • Total Topics
      40
    • Total Posts
      90,195


×