The point is that it may be easy to see a storm coming and sell before it hits. The tough part is the 2nd leg i.e when to get back in. It has to be lower than when one sells after paying gain taxes else nothing is gained. Worse is loss of div income. Most of my divs are qualified capped at 15% tax rate or thereabouts. Very high div stocks like MREITS with unqualified divs are all in my Roth with no tax. They form about 4% of my total portfolio but about 15% of my total divs (substantial). To lose my sole (qualified) income stream (Divs) and pay much higher tax rate on lower interest income stream to boot is daunting. Fortunately I don't have to sell stock to pay bills. The unspent divs get ploughed back in more stock so if they are lower in price so much the better as long as the divs are not cut (a risk in MREITS but not much in the remaining 96%). So its not stock price fall but div cut which matters to me. In fact my reinvested divs in Jan and Feb got me a 10-12% bigger bang for my reinvested buck. Its unclear why the sharp Jan-Feb fall and even sharper March recovery. Probably profit taking and market timers. Nothing fundamental changed xcept "the Donald" scare.
Remember its the gains tax and 2nd leg which foils most market timers. 2 verrry tough mountains to overcome. I know I can't handle them.. Loss of qualified div income stream is the 3rd hill. Cheers.
Do I still need to apologize seeing my portfolio is now UP about 3%.? About a percent per month.
What a difference a few weeks in March make!
Hope those who heeded the advice to sell jumped back in time after paying gain taxes.
Shows timing the market ain't easy.
Lets show some "masterly" inactivity and go fishing.
And it jumped up just before close. Contradiction?
Resignation announcement comes just 1 day before earnings but it jumped up just before close. So 2 contradictory events. What say you gracie?
Obviously nobody really understands much about Mreits in general. Wmc in particular.
Best to sit back and collect the div. If oil recovers everrrything will also recover...but gold.
Bad advice coz
It said stocks meaning stocks in general. I am heavily into defensive stocks most closely represented by XLP and these are almost flat for the year (down about 1/3 of one %) Overall I am down about 5% for year. Had I sold I would have paid capital gains taxes of 15% or more of portfolio (some gains are are short term and even long term can effectively go up to 25% after obamacare and state tax) leaving me 10% or more in the hole. Next I would need to be smart enuff to get back at the right time else I get locked out of stocks permanently. Bonds are unstable too and can fluctuate a great deal.
Market timing is extraordinarily difficult coz one has to first overcome the tax hit and next make 2 right decisions CONSECUTIVELY meaning 1st when to sell and 2nd when to get back in. Even Buffet does not try it and few are smarter. They think they are till they get their head handed back to them. The only "timers" who did well like Steve Cohen and Rajaratnam got nailed for insider trading. The latter is in jail and the former lost his license and paid a huge fine.
Hey mark I used to be a Repub TILL they became dumb warmongers. All wars are not dumb and at times necessary like WW2, but wars based on lies are and hence self destructive.
Now I always said that "show me a Dem and I will show u a knave or a fool" and I still say that. There is no such thing as a smart AND honest Dem. Now some Repubs are both smart and honest but they are becoming rarer. Most have become either stupid warmongers or religious, anti science fanatics and will be poison to the economy ala Bush Jr. Still some are still OK. As for stock divs: True Bush began the low rates but stupidly time limited them to 10 years. It was Obama , a less dumb Dem who made them permanent or at least without time limits. So who should get MORE credit? I think Obama. No? Plus he dialed down the stupid wars and that is why we have had this recovery since 2009. Bad as Hillary is, and she will be bad, The leading Repub crop will be far worse. Kasich a good man has no chance and Rubio is a huge question mark. So I am an economic, pro science Repub who may hold his nose and be forced to vote for the lesser evil, Hillary. I suspect u don't agree with me. But in politics I say "Lets agree to disagree" and let go at that. Its not worth wasting time on political matters and stick to economic and investment issues.
Some of my tech stocks went to zero and some I did sell. Its not that I never sell but I don't that I never sell, just not that often. I do have a relatively small position in Conoco so I took a hit. I will probably convert it to CVX. Divs ARE occasionally cut but overall they grow every year except for one year out of 35. That was in 2008 thanks to Bush and his stupid wars ( to finance which Greenspan drastically cut fed funds rate in 2003 and set off the housing bubble which ate up the economy). But they (the divs) have more than recovered since. Yes when stocks drop yields go up but u should be smart enuff to realize that what I pay attention to is the dollar amount of divs. The yield is just for comparison with that of SPY (S&P 500 ETF). If my yield was not over 50% higher I might just as well buy SPY as per John Bogle, go home and stop stock picking altogether. But I like the over 50% greater divs and because of them I outperform the S&P 500 (no mean feat). Yes I also benefit from selling "insurance", I mean puts.
I was checking performance figures in Fidelity. Over past 5 years my taxable portfolio (in which I can sell puts) grew at 15.01% vs 12.57% for the S&P 500 and 3.25% for Barclays Aggregate Bond index. For 10 years which includes the horrendous 2008 crash my portfolio grew @ 9.69% vs 7.31% for the S&P. Bonds improved growing at 4.51%. This does not take into account the much more favorable tax treatment of stock divs versus bond yields so u can see why I don't invest in bonds. The combination of defensive stocks and Industrials in much higher percentage than the S&P (70% vs 21%) seems to be working out. Prior to 2005 I was with another broker which was bought by Fidelity so figures are not available but an over 9% CAGR ain't too shabby despite the horrendous 2008 crash.
Past year or so I have stalled in terms of stock price but the divs, not withstanding Conoco and our MREITS are still climbing overall tho perhaps somewhat slower.
Well the rise in stocks from 2009 to 2015 had to do a lot with recovery from the massive 2008 crash. Now they are not going up fast. Instead they are drooping. That suits me as a re investor of unspent divs. It may continue in this vein as Obama departs replaced by bozo warmongers. However the divs are likely to continue going up tho more slowly. Of the about 80 stocks in my portfolio the distribution is not uniform. In terms of Dollar value about 40% are in defensive staples, much higher than in S&P and 30% in industrials, also higher than S&P. All are div paying. The remaining 30% are spread over Energy (now only 5% due to their shellacking) Tech 9-10% (Lower than S&P) Financials 7% (less than S&P) Health care and Reits at 3-4% each. So basically a Staples/Industrials portfolio with a combined 70% between them.
The reason for a largish number of stocks is that my portfolio value is pretty substantial. I mean my divs were such that in 1999 after about 20 years of investing,they exceeded my earned income allowing me to take early retirement and they have only grown since then doubling every 8 years or so (So almost 2 doubles in past 16 years or so despite the horrendous 2008). The average yield is 3.5% versus 2.2% for the S&P and that is a big difference. Otherwise I would be all in SPY or VTI. Its coz almost all my stocks are div payers.
To me diversification means "I don't know" hence one spreads risk or "bets".
If one "knew" then one would be far more concentrated but I know that I DON'T know.
I have never taken a broker's advice and use Fidelity merely for executing orders and holding my portfolio. Now their comparative tables only go as far back as when they got my account which is only fair. Why (or how) should they project before they got my account? The best decades were the 80s and 90s. Since 2001 the gains have been much more modest. Mostly from dividends. The divs however have been steadily increasing which is what matters to me. (Not those from MREITS of course but they represent only about 4% of my portfolio as an exotica).
As for earlier times I read that had Trump put his inheritance in the S&P 500 when he got it in 1974 he would be twice as rich. Now does it speak well of the S&P or
merely indicate that he is lousy in his business. In any case it is said that most of the gains are from reinvested dividends anyway. That is certainly true for me as I look back. A flat or slightly droopy market is the best as long as the divs keep rising. My divs grow at about 8-9%/year compounded (CAGR). This growth is much more dependable than stock prices (MREITS excluded of course). A rapidly rising market is no good for someone like me who steadily re invests unspent divs.
In a flat or somewhat droopy market the re invested divs are more valuable and their CAGR higher. Counterintuitive huh?
No. I don't keep anywhere near the amount of un invested cash needed to own the amount of puts I sell. That would be a very large sum. I am NOT trying to buy stocks on the cheap at all. However if assigned, which happens in less than 10% of cases, I just forward re sell or recycle. Each forward re sell earns me additional premium. Mathematically it HAS to. Its impossible to take a loss
Yes a stagnant or mildly declining market is ideal. A rising market is no good as premiums decline.
So basically I am selling insurance to "nervous nellies" and if one is selective and careful it is the seller of insurance who makes money and not the buyer. When one BUYS puts one is buying insurance and that is usually expensive to the pocket book. Its a nice side business esp if one has a large margin capacity. Without a largish margin capacity and loss carry forward it is not worth it.
Over the years I did try selling covered calls only to regret it as I got stopped out or had to buy back at a loss. Its not as easy as it appears at least not for me.
Now I have never bought put "insurance" but u might be interested that a conservative diversified buy and hold type like myself has frequently indulged in SELLING insurance to nervous nellies by selling discounted puts on rock solid "defensive" stocks like Pepsico, Kimberly Clark, PG, Kellog, Home Depot, Visa, MCD, etc on the theory that in general it is the "careful" insurer rather than the insurance buyer who comes out ahead. The vast majority of times I have "won". On occasions I get "assigned" but then I have a well developed forward "recycling" (re selling) technique and provided I don't sell puts on absolute dogs which just disappear or virtually disappear, I win in over 90% of my transactions. Its a nice bit of extra income. Yes the gains are always treated as short term But in 2000 I racked up some losses during my dumb foray in techs and they are coming very handy. Once I run out of those losses I guess I will stop selling puts since I am in an otherwise very high tax bracket and I absolutely hate paying those exorbitant rates. I know "naked" puts are considered highly dangerous but not if one is careful, selecting only very stable stocks, discounted strike prices and understand thoroughly the concept of forward reselling or "recycling" (as I call it). BTW it is mathematically impossible NOT to keep making additional money during recycling. So "assignment" is not a terrifying experience. I think selling naked puts is actually very conservative if one understands what one is doing. The only problem is that all gains are short term no matter what.
I have been buying and holding since the early 1980s so I have accumulated a lot of cap gains which would be taxed upon selling. Secondly, since I took early retirement I pay my bills from my stock dividends, which I term "eggs" (which BTW are also taxed much more lightly than most other income). I don't have to sell (devour) stock, which I term "chickens" to pay bills and in fact I generally keep reinvesting the unspent divs thru thick and thin. So the price of chicken is irrelevant as long as the number of eggs keep rising. Actually the chicken price is relevant in one way. Since I reinvest unspent divs what do u think benefits me more? Buy chicken at increasingly higher prices or the reverse? In a way I am "heartbroken" stocks did NOT fall 20%. Maybe they will and I can reinvest cheaper. The ideal scenario is that divs keep rising while stock prices keep falling. Hope springs eternal. BTW I have never bought any bonds and would have been much poorer if I had. My broker Fidelity, keeps tabs on my portfolio performance vs. S&P and bonds over the decades so I know.
I am diversified over about 80 stocks skewed towards the defensives/staples and as of today am down less than 5% since beginning of 2016 counting the drop today 2/2/16. This is much smaller than the cap gain tax hit I would take on selling, not to mention loss of about 3.5%/year dividend income on which I depend upon to pay bills. I don't own the FANG stocks.
Despite the apocalyptic predictions by some the S&P is down about 5% year to date. Bad but not disastrous.
The defensive dividend paying Defensive/Staples etf XLP is actually a bit UP for the year. The high flying Nasdaq probably took the biggest hit.
Proves that the market loves to make a fool of the LARGEST number of prognosticators possible.
If no one knows how it will all shake out then why not just stop there and not add any other opinion about BV discounts or big market drops? Seems marklibera and perhaps others are still counting on your supposed 20% market drop prediction. Maybe that happens and maybe not.