Market Blood Bath Reflections

Has anybody been paying attention to the stock market the past week?

Yesterday, October 10, 2018 the S&P 500 dropped 3% and in the past week the overall market is down about 5%.  Did you jump out the cellar window?

If you’re new here you might be surprised the Smidlap portfolio is a blend of individual stocks (45% of invested value) in our IRA’s and index funds (40%) in my work 401k.  The remainder is fixed income preferred stock ETF’s and cash.   Here is exactly how the portfolio is constructed in case you enjoy details.  Take a look while I wait.  All kidding about the clickbait headline aside, I wanted to throw some valuable insight into how various parts of the portfolio performed during a little sell-off.  I also want to demonstrate what a watch list of stocks is and how you might consider setting one up for yourself.

About risk, volatility, and growth stocks

We are pretty heavily weighted towards growth stocks like NFLX, NVDA, SHOP, and AMZN in our individual holdings.  Many of these have lost 10% or more of their value in the past week while the SP500 has lost about 5%.  This is the implied risk and observed volatility of growth stocks.  Here’s the thing, though:  a month ago our individual stocks were up by 25% year to date while the SP500 index was up 7%.  Sure, it’s tough to watch all those red numbers that indicate 10’s of thousands of dollars as your money shrinks on paper in a short period.  However, even with the lesser declines in the index and the blood bath for my tech heavy portfolio, our stocks are still beating the index 15% to 2% since the beginning of the year.  This isn’t any kind of recommendation, but an observation.  The other interesting part of the scenario is the reason these tech stocks make up so much of the portfolio in the first place:  they have performed so well in the time I have owned them (more than two years in most cases) that these winners make up a larger percentage.  It’s easier to look at a 20% pullback when some of these names have double or tripled or more and unless the story of the underlying business changes I’ll be holding them as predicted winners in the new and evolving economy.  Have you ever heard the saying “sell your losers, let your winners run?”  That is the Smidlap strategy.  I should be selling this but y’all get that genuine gibberish for free!

watch list

Here is a snapshot of our watch list on Yahoo Finance

What can a watchlist do for you?

If you can’t read it very clearly, the left side of the watchlist is pretty typical day to day stuff like ticker symbols, price and percent and dollars gained or lost, and present value of holdings.  The right side is the most useful and interesting part to me.  It has the stocks percent above it’s 52 week low and percent below it’s 52 week high.  Generally the higher the sum of those two numbers the more volatile the stock will be.  Let’s look at an example of Shopify stock (SHOP).

As I write this the stock is 26% below it’s 52 week high of $176/share and it is down 14% in the past week alone.  The psychology part of the list comes in when you see it is still 40% above its 52 week low.  It also makes those 20% swings easier to take when your average cost was less than 50 bucks a share on a $125 stock.  We’re playing the long game here in our house an buy and hold seems to work pretty well.  It also helps your psyche to have been invested through a real recession like the one from 2008 to 2010.  That was a bloodbath and took some stones to stay all in.

The last three important columns of the watchlist I use just for potential dividend stock holdings.  The first is % forward yield, the second is dividend per share, and the third is predicted earnings per share for next year.  I don’t own a helluva lot of stocks specifically for the dividends, but I recognize that steady dividend growers can seriously outperform the market when the underlying business are strong and have a competitive advantage.  They also pay you cold hard cash that you can either spend or reinvest, and that can be significant.  The % yield is useful for the obvious.  You can get almost 2% in a savings account right now with zero market risk and 3.3% on a 10 year treasury note, but I like the upside of a 2% dividend stock that has steadily increased that dividend over time.  The price appreciation of the shares usually comes along for the ride.  I was fooling around with my watchlists (I have 2 for real holdings and about 4 more for different categories) to see which stocks fared best since this sell-off started a week ago.  What I found was pretty interesting.  With all the red numbers three dividend stocks are still within 4% of their 52 week highs (These Yahoo lists are easy to sort too).  The tickers are OHI, MKC, and CME.  OHI is a nursing home REIT with a huge 8% yield.  MKC is McCormick spices, a defensive play.  CME is Chicago Mercantile Exchange where you trade options and futures and shit that is too complicated for me.  I don’t want to trade there.  I just want to own the stock and make money.

I decided to take a closer look at CME group and I liked what I found and am considering buying more shares as I presently don’t own very much.  I like that it held up so well during this sell-off, like it doesn’t correlate with the market too highly.  The dividend yield only shows up as 1.54% but there’s a secret that doesn’t show up in the charts.  Each December they pay a special dividend to toss extra cash earned back to shareholders.  This year the quarterly dividend was 70 cents for a total of $2.80.  Upon further review (like a football ref) the special dividend this past year was $3.50!  That puts the yield at a juicy 3.5% with plenty of coverage.  They have also raised the dividend from $0.45 to $0.70 over the past 5 years.  That’s about 9% compounded dividend growth.  Can I interest you in a business like that?

You can also utilize your watchlist to watch for oversold stable companies.  I have a dividend list of companies I do not own that includes BUD, PETS, and MMM.  These are stable business but I won’t buy any until I think they are done being beaten down.  The beauty of your list is that if you set the thing up with way you can just scan it every few weeks to see what issues might have strange patterns.  You might also look at the ones that look especially strong these days like TJX, WM, and ROST.  I made the list up from dividend growers when I had some extra time on my hands and have I ever told you how much I enjoy this rubbish?  I really do.

What about you Smidlappers?  Did you panic and sell?  Have you ever kept a watch list of stocks?  Let me know.

P1040237
Here’s a photo from Niagara Falls of Frankenstein eating a burger.  He sold in a panic.

21 Replies to “Market Blood Bath Reflections”

  1. I haven’t sold in the last few days, but I’ve been trimming what I consider ‘riskier’ or cyclical positions over the last 6 months. I’m more in cash or cash equivalents than I have ever been (~7-8% depending on where the market closed :/ ).

    I’ve always got a watch list, too, but I’ve been simplifying my stock holdings recently. I used to spend way too much time researching stocks, buying and selling, and it wasn’t especially lucrative for me.

    1. well done and disciplined to take a little off and lock in some gains. i only have made a handful of trades this year as i’m really buy and hold, unless something is not working. i like that cash position. if i could get 2% or more for my cash in a brokerage i would like to get there too. we’re getting closer to pulling the plug so cash will be key. i want 2-3 years worth.

  2. Hi Freddy, I have several watch lists in Yahoo finance and I check them regularly. I am more of a hold kind of girl so I didn’t sell anything this week but planning to buy a few soon. How about that Square stock? Too risky??
    Cheers

    1. i’m a hold type too. i think i need to learn the art of trimming positions by 10-20% when times are good, but we learn as we go.

      motley fool just recommended square last week in my paid subscription. i just looked at what they wrote and it’s growing like crazy and e-commerce is the future. i’m going to put it on the watch list i think for when the dust settles.

      all the best, as always.

  3. Didn’t do any selling. Outside of my weekly contributions, the only moves I ever make are re-balancing twice a year, and buying the odd stock when I have enough cash to rationalize it. I’m waiting for the REAL crash to happen to make any big moves.

    I used to have a 100+ stock watchlist on Google Finance, but in their wisdom they eliminated that option and I haven’t bothered to set it up again somewhere else.

    1. i’ve had my yahoo account since ’95 and they’re finance page is the one thing where they remain useful. we only sell to swap for another more favorable stock. i have moved very slightly more towards preferred fixed income issues but in a very minor way. we make very few trades.

  4. I’m just not watching my retirement account (which is pretty small anyway). I’d feel anxious about something that will most likely rebound soon enough. Even if a recession hits, I’m not retiring for at least 25 years, so it’s moot right now. Why stress myself out?

  5. I’m a fan of the Warren Buffet mentality of buy and hold forever (not saying I always do that, just that I like the mentality). As my accounts have grown I’ve found that I just don’t look at them during downturns, as well as ramping up more savings and looking for opportunities to invest to take advantage of the huge sale on stocks that occurs every now and then…

  6. We are far enough out from any sort of draw down the money we have in the market more or less feels like Monopoly money at this point. That, and we still have more invested in real estate than we do the stock market, so it helps to put the numbers in perspective.

    1. and there you have it. the numbers on the screen change but life pretty much carries on. what was good is still good and not so much probably still not so much. you learned a lot of wisdom at a relatively young age. that will serve you well i think.

  7. Go ahead…. sell it all! The market is crashing, run for dear life haha! It’s all noise at this point. Like some have mentioned, we are currently not drawing down, so none of this matters to us, we are just going to keep adding to our portfolio.

    I’ll just be watching the mainstream madness from the sidelines

What do you think? You must think something. This is the place to let it fly or just say hello.