| | | Good Morning Balti,
This is a response to your questions and a bit of my trading experiences mixed in.
My Father was a banker and he enjoyed trading and buying socks in his personal account. He bought municipalities and bonds in fulfilling his job as the President of a small rural bank in Wisconsin, It was a very well run bank and he had some notoriety for having a well run bank. One year he was voted to be the President of the Wisconsin Banker's association. So I have been raised very conservatively in my investment views.
First off, I am now retired and that milestone has been a lifelong consideration for me and my personal finances . So now I'm VERY Conservative!
In most of my younger days I utilized margin to the degree that my dividends from positions covered the cost of the margin expense. In my earliest years I utilized margin and paid the cost with monthly contributions. After I graduated from College in 1976, I allocated 25 % of my take home pay to the market every month.
During my 5.5 years of GMI myself and a very close friend started an investment club, which we basically managed, and studied Ted's book. We applied his approach to our total portfolio.
At that time Ted had a quarterly "Investolator Newsletter". That gave us the opportunity to have a letter writing dialogue with Ted as he lived in Redondo Beach California. As you may know Ted had a 6th grade education, and was not a very eloquent writer. He would put out his list of stocks and then post his gains. After a while he relied on his young college friends to proof the results in his letter, (after we had noticed some errors and reminded him that they could be troublesome for his reputation if some one took his numbers to task).
Ted responded to our double checking and was going to travel to the Midwest on a trip to meet an individual that was involved in printing and distributing his newsletter. Since Ted was going to be close, we asked if he could visit our campus at GMI in Flint Michigan. We offered to buy his plane ticket and he agreed! Talk about excitement!
Our meeting with Ted went great. We had become true ambassadors to Ted's approach, but were hungry to learn every ounce of his experienced knowledge. Our investment philosophy had mirrored and included almost totally the recommended stocks from Ted's newsletter. Ted took a friendship to his two young disciples and we enjoyed the privilege's of getting Ted's phone number for an occasional call. In truth we only called during general market sell offs, as we were encountering margin calls and account draw downs. We escaped having to sell off shares, but had margin calls several times. We were young and aggressive and wanted wealth quickly! Like most young folks, it could not happen fast enough. LOL
So in a quick recap our investment club fractured in time after we graduated and went our ways. That being said everyone got a bigger check than they had originally contributed in. After many years my friend and I decided to split the remaining funds after we had payed off all other members. I had been assigned to Chicago working for Chevrolet and he had been assigned to Cadillac in Detroit. Marriage, home buying and life got busy and getting together for tax reporting was a chore.
We had learned some tough lessons and had some big multi-baggers. Clabir went broke due to too much debt. MEI gave us a multibagger that grew the account in a way that our broker in Downtown Detroit (OLDE DISCOUNT) gave us access to very large margin capabilities and sent us some older wealthy clients that wanted us to manage stock selection of their accounts. For a while it looked like our jobs with GM might be a lesser opportunity. By that time, we had worked for our GM divisions and had 8 to 10years of service in, and the income kept getting better.
After the split most of the companies that we had, became mergers and or buy outs. We never had a lot of shares in different companies. Ten to fifteen companies in holdings and again as many on a watch list. Back then news and daily charts were hard to come by. I traveled with a big brief case full of my daily charts, and Wall Street journals. Daily charting was time consuming, but it made one write down the volumes every day which is a good lesson. Back then Ted told all his investors that a subscription to MC Horsey Daily Charts was a must. They came out monthly and when they arrived it was a multi day study of all the stocks included in that month's issue.
As I gained experience, I came up with several rules/belief's to follow:
1) all stocks were based in the USA. I did not want to guess what was going on in another country. Staying on top of the US corporations was huge enough for me.
2) I developed a bar bell investment approach. Half the funds in midcap growth companies (focused on semiconductor and semiconductor equipment makers). The other half large cap dividend payers - most of which were Dividend Aristocrats, but not in favor and suffering from a stock price decline.
It was a balance of my firm belief that the future was a world with far more semiconductor chips in it, and those companies with mature markets that focused on paying a solid continuously increasing dividend for the last 25 years (definition of a dividend aristocrat) would be a great way to build continuous account equity and a positively increasing revenue income stream from dividends.
3) All stocks I buy had to pay a dividend - probably was the first rule in importance.
4) When convenient and affordable, introduce myself to the investor relations person and request a visit and tour of the facility and management team. I excluded this rule when I began accumulating large cap Dividend Aristocrats.
5) Upon reaching retirement, I slowly and still do add preferred shares of US Corporations. This was my way of securing my wife's steady and reliable income in the event I died. It negated the need for life insurance. I currently have enough fixed income from prefereds shares that my annual real estate taxes, insurance, and utilities are covered. This allows me to reinvest the dividend streams from the common shares I hold.
6) I track my holdings on TD Ameritrade's (now Schwab) "Think or Swim" trading platform.
7) I do occasionally buy a stock on a dip. I do much prefer to have a stock assigned to me through the assignment of a put option. If I've had enough money from selling puts expire to zero, I'll take those funds and buy a stock on a dip (using the funds retained from the sale of the put that had expired, and then buy it at a price that my desired dividend yield is what I had to have/wanted when I sold the put. It is my mental justification for buying the share at a net price (actual cost less the sold put premium accumulated) based on cashflow from past expirations. It is NOT mathematically correct, as taxes must be paid on the expired put premium. It keeps my account growing and in the market at all times.
8) NEVER sell a put on a stock that you do NOT want to own. Never sell a put that upon assignment, it does not meet your minimum yield requirement.
9) Have a long term preference to stocks that have very little or no debt at all. They are out there! I don't invest in meme stocks, momentum stocks, or IPO's or companies that have no appreciation of its stockholders. MANY COMPANIES have managements that think the company's profits are solely the result of their brilliance and not a product of the stockholders original funding. TOO MANY!
10) Buy in by thirds. None of us are so good in selection that we know where the bottom is. I don't, you don't and no one knows. To think such is saying you know what the specialist's book looks like and who the insiders/manipulators are and what their positions are. It's at best an informed decision. If you like the stock, management, and dividend, don't be scared to double down on your position if it gets cheaper.
11) Last and not least, (this took me a long time to diversify to, as Ted never mentioned it). It is my best gift to this thread. Utilize time decay. Set up an account where you can have cash that collateralizes selling put options. on shares you would like to own.
When a put is sold, the money goes directly into your account. It will have an expiration date. If the price of the stock is above the strike price on the expiration date of that put, you keep the money. If you couple that with a dividend yield on the underlying stock, it very dynamically compounds your revenue income stream. One must keep enough cash in your account to be able to buy the put contract if it is below the strike price on expiration date. THAT is how and when you want to buy your shares as they are very often below the market price achievable by an out right market purchase. If you go out in time the premium gets larger. If you go down in strike price the premium goes down. Determine the return/yield on the dividend you need to be happy investing in the stock. The strike price less the put premium = net purchase price. The dividend divided by the net purchase price = your yield of the dividend determined by cost. That percent divided into 72 tells you how long it will take to double your money. If you get the fun of riding a mult-bagger up, you will lose the dividend upon a sale. Hold the stock 12 months and that gain will be taxed the same as a dividend. Low income earners can actually enjoy a tax free capital gain. Capital gains can range from 0% to 20% depending on income levels. Work taxes so you keep your slow and steady gains from the market in your account, not in the government's coffers.
12) Get your money out of a 401K ASAP. Roll it into a self directed IRA (I think that can happen at 59.5 years of age - it did for me back then). Be sure that self-directed IRA will allow selling puts. Then begin to complement a good dividend yield with the selling and retention of put premium. It will become hard to get the stock assigned. Most dividend aristocrats get buying pressure when the dividend yield approaches 7%.
shoot for 7% yield if assigned. You'll have to catch a dip with luck to choose a month that by chance coincides with a dip in the market. Once you get that lucky assignment. you'll need a nice profit to justify rolling out of a nice dividend stream. It is after all investing to become an Investolater!
Ted is 100% on the money on this one. It takes a long time to accumulate shares at a low cost basis such that you can become an insider and manipulate the shares to do what you want the stocks price to do! I've done well over my years and have never had such a large position and/or money to attempt to manipulate the price. It simply takes institutional size money. I have owned several stocks with a 1 to 3 percent position of all outstanding and more than the board of directors own - it is a pittance for manipulating the price of a stock.
WE RIDE ON THE COATTAILS OF VERY POWERFULLY RICH PEOPLE!
Those rules of mine, have now in this very old bull market just about wiped out my high growth bar bell.
My high growth stocks are now 10 to 20 percent and my Dividend Aristocrats shares are 75 to 85 percent. I also am 5% preferred shares and 1/3 in cash, CD's, or Treasury notes/bills. It has been a 53 year long road for me.
Ted believed in investing. He held a disdain for speculating. It was an earned disdain, as like all investors, Ted did not like to lose money. That is why he says an "Investolator should never sell a stock at a loss". Its very natural for a stock to go below your purchase price or average cost. There are manipulating forces at work trying to get your shares at a discounted "deal" price . They use price action, scripted news flashes and fear to scare you out. Know that going in. That is why it is so common for a final shakeout to happen just before the fast price markup stage begins!
Some say with the electronic trading the market will never be the same as back in Ted's day. I totally disagree. Fear, greed are the big drivers of this market. Know that they move in cycles. Cycles of fear, and cycles of greed. It is in the cycles of Fear that puts should be sold. A put premium can triple just from fear in the market. Watch for when the bid/ask spread doubles or triples for timing the sale of a put on a stock you'd like to buy and hold forever , because the dividend is making you richer. Fear and Greed are alive and well in today's market. The Climax studies show this clearly. It is simply the best timing device I've learned. We have in this market today all of the ingredients for a robust market!
There are tools to use within these cycles.
Elliott wave studies will take you decades of experience to see them evolve. With experience it really helps wave recognition and sleeping at night.
OBV or Climax studies will mathematically define the swings of the specialist's need for fear to enter the market to assist him in accumulation of discounted inventory and moments of greed to assist him in selling his inventory at a fast price mark up phase. Those needs swing the market if our country is in an innovative growth phase or a financial crisis of corporations and/or banks. The stories or scripts change, but it is just a business of retailing shares and feeding the desire of investors who strive to become wealthy.
Fractals and harmonic investing also measure the above shorter term swings.
All the requirements are constantly there for winners to prevail in a given market time. FEAR and GREED.
It is often I say a prayer to Ted, for the very solid long term guidance he gave me early on in life.
Ted's approach was a long term diversified plan of buying low and selling high. It is a valid approach.
We each need to have one to three multi-bagger fast price mark up phase experiences to achieve economic security. Positions where 10,000 shares is a good start and 50,000 shares will get you there quickly. Three of those and your buying CD's and diversifying into other assets. Fixed income, real estate, alternative investments: art, older vehicles for example. Of course getting completely out of debt is the first goal. Wives, kids, education, homes, cars, boats, motorcycles, vacations all have their way of interrupting the perfect portfolio. <smile>
Balti welcome to this thread. You are doing all the right things.
I hope you devote yourself to Ted's views and ways of becoming an "Investolator".
I have my book that Ted signed on the inside of the first page:
To Robert Furman Jr.
As an "Investolator" You Should Succeed.
Best wishes
Ted Warren
I never go anywhere with out that book!
On big down days I turn to page 35 and to the last paragraph:
To be a successful Investolator you must learn to recognize what kind of action is discouraging and then form a contrary opinion. You must learn to ward off the pessimistic sentiment that is bound to rub off on you.
When you have mastered this you have stepped out of the jungle of uncertainty. SELF CONFIDENCE WILL HAVE ARRIVED. It will be a big milestone in your life! A milestone in your life will be when you learned to immunize yourself against the influence of market actions and are able think in terms that are opposite to the general public.
THANK YOU TED WARREN for sharing the biggest secret that Wall Street never wants to be mentioned.
He will forever always be a great man to me.
Pardon my long rant. <smile>
Bob |
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