The 3's Report
From timely to timeless, the 3 most important points we can make about stocks, bonds, ETFs, markets and investing...updated weekly
SUNGARDEN YARP PORTFOLIO
NEW INVESTMENT GROUP COMING TO SEEKING ALPHA THIS NOVEMBER!
To quote Pat Monahan of our favorite band (Train), “if you knew us from the very start, or we met last week at the grocery mart,” this is as big an announcement as any Dana and I have ever had in our careers. As many of our followers know, I am an active contributor to Seeking Alpha as well as other publications. But Seeking Alpha is distinguished in that it is one of the few places left in the investment publishing industry that is centered on in-depth research, and presented to subscribers in an advertisement-free environment.
I’ve written nearly 400 articles for Seeking Alpha since I debuted there about 2 years ago. Some of our paid subscribers here found us there, where we write under the profile “Sungarden Investment Publishing.”
That relationship with “SA” just took a giant leap forward. They recently reached out to us and offered us an opportunity to become their newest “Investing Group Leader.” And we said YES! What does that mean?
Starting in mid-November, my investment process and my personal YARP active, risk-managed, dividend and total return portfolio will be available as a Seeking Alpha Investing Group subscription service. And the first wave of subscribers will get a significant discount.
This will be publicized quite a bit starting in a couple of weeks, but we wanted to let our existing followers know first. Details coming soon.
We’re having a live Zoom session Monday 10/28 4:00 PM ET
Sign up in advance HERE
Agenda:
The new Seeking Alpha Investing Group service: an overview, why we are doing it, what’s included, what’s not.
How our existing subscribers and followers can potentially save money on their subscription service with us.
How to compare/contrast what we’re doing at Seeking Alpha with the services we offer here through the Substack platform.
Answers to ANY questions you have about this big news.
The Yield At a Reasonable Price (YARP) portfolio is a different way to create and manage a portfolio of dividend stocks. This trademarked process is the culmination of Rob’s 30+ years of professional investing. Through our subscription service, investors learn how to scout for quality stocks with yield, analyze and rank them, and determine which ones to own and when. This is Rob’s personal “dashboard” which he now pairs with the current shared portfolio deck for subscribers to enhance our investment research service.
My Money Show educational investing on dividend investing was truly enjoyable! We recorded it, and will post some key segments of the presentation to our website later this week. We think this is the most up to date explanation of why and how investors need to approach dividend investing differently.
ROAR Score weekly update
Our Reward Opportunity and Risk (ROAR) score remains at 20 for the third straight week. This means a 2-ETF portfolio that can only be allocated to SPY and BIL would be 20% SPY and 80% BIL. More on my updated market views below.
3 Quick Thoughts on markets
You’d think there was an upcoming U.S. Presidential Election or something! I think that’s becoming an increasing market focus. It could become an obsession, depending in large part on whether we have a year-2000-style “we don’t know who won” event. It took until December 12 to decide that one.
That, plus earnings season and an upcoming Fed meeting (right after the election OMG) explain why the VIX volatility index has stayed stubbornly high (about 19 now) since mid-summer.
But the biggest influence might be the behavior of long-term U.S. Treasury bonds. The Fed may have cut “interest rates” but that has little to do with what happens at the longer end of the curve. That’s controlled by the bond market, and it is not happy. Fortunately, as our subscribers know, there are many ways to profit from that, rather than sit there and just watch the supposedly “safer” part of the portfolio sink. The market smells reflation, and is finally focusing on the U.S.’s massive debt pile and the cost to keep the doors open. That’s going to be an issue for the next President to deal with. Finally, something non-partisan!
3 ETF (or index) charts I’m watching
GOLD, SILVER, AND MAYBE FINTECH?
That’s a very lonely 6-pack when we consider that there are 90 ETFs on my US equity fund watchlist. Yet only 10 are rated below average, mostly in the energy sector and sub-segment of real estate. This is something I see even more vividly in the equity market: a lot of “grey” (neutral) ratings from my technical analysis process, with a smattering of better than average and worse than average mixed in.
The big issue here is NOT a lack of “good picks.” It’s that when it comes to what we call “correlation” (the degree to which investments move in sync) it has only increased over the past decade, and especially since the pandemic.
NOTE: this is why, while I will continue to track a ton of ETFs and always be ready, willing and able to field questions on any aspect of the investment landscape via ETFs, the best thing for effective decision-making is to dramatically reduce the number of ETFs I actually consider for the CORE portfolio. I have seen how this adds value (i.e. more return with lower risk) to YARP stock selection. So I’m going the same route with ETFs. We’ll update the ETF section of the shared research shortly, dividing it into:
“CORE portfolio-eligible” funds
Yield-oriented ETFs (for use in the YARP portfolio)
The rest: worth eyeballing, but best thought of as ancillary. The charts below will show why. Let us know if you have any questions.
BLUE DOES NOT MEAN “BLUE SKIES” HERE
This chart is easier to explain in writing than by looking at it in detail. This is a comparison of correlation across several tech industry ETFs that we’d hope would give us reason to choose one over another. I could add several more, but it is already hard to see, so I’ll just explain it:
More than I’ve ever seen, many ETFs move in sync, which reduces the benefit of tracking so many of them.
By no means does this imply that we can’t use ETFs and stocks to create “alpha” (more return for the same risk, or same return for lower risk). It DOES mean that it is MUCH easier for research efforts to become redundant.
And while having a zillion ETFs that move together is great for firms trying to sell products and “gather assets” amid a feeding frenzy/ETF glut situation I see developing, that’s an easy trap for self-directed investors to fall into. I’m not about to let that happen here.
WINTER FORECAST: BOND MARKET BLIZZARD?
As a chartist, I never know where something is going to go. But I do know what high risk looks like. And this is it. Especially since the fundamental rationale to back the case for much higher long-term rates is strong. Has been for years. But the market has chosen not to care for very long.
This is an updated version of a chart I recall showing in a live session earlier this year. The pair of black lines showed that the 10-year US Treasury Bond yield was leading up to “something big” in late July. Then “bang,” it fell from 4.2% to 3.6% very quickly.
But now the market is having second thoughts. That helps the yield curve return to normal shape, and in the past that would have led to a recession. All I care about is “where can I make money and not lose it?”
This chart shows that the threat of a 5.0% yield is back on the table. That means mortgage rates back at 8%. And that “double top” from last year is broken and rates move higher? 6.7% is the next major target.
I wonder what types of opportunities 10% mortgage rates and sustained higher rates on student debt and commercial lending will create for tactical investors? First, let’s see if this is a threat or the “real deal.”
3 stock charts I’m watching
WHY I HATE EARNINGS SEASON (part 1)
The problem is not the company announcements themselves. It is how this has turned into such a giant quarterly trading game. The great thing about the stock market is its ample liquidity…EXCEPT when a company announces earnings outside of market hours (as most do), and shareholders are left to deal with whatever chaos ensues before the market re-opens.
This works both ways, of course. But when risk-management and income are the top priorities (they are for me), this is one royal pain in the ____. Part of the modern realities of investing.
For instance, here’s Snap-On, the industrial stalwart. I added it to the YARP portfolio 8 days ago (10/14). I was considering a 3% or even 4% position. I settled for 2%, higher than my typical 1% “starter” position. Ah, but that earnings date risk was just 3 days away.
The market liked the earnings news last Thursday and the stock vaulted 9% higher. Great, right? But it just could have easily fallen by 20%. And there was absolutely nothing I could do about it, other than maybe spending money to buy put protection. But that gets old after a while. And I own 30-40 stocks at a time. So instead, this is yet another reason I believe strongly that POSITION SIZE is so critical in investing now. And why I’m doing more of it in the ETF part of my work, as explained above.
WHY I HATE EARNINGS SEASON (part 2)
This is Geniune Parts (GPC). Or, shall we say, genuine disaster for those who owned it last night when the market closed, and saw it plunge 20% TODAY on earnings news. This one is on my watchlist and I was considering a position in it, though not too seriously yet. And of course with earnings coming up, that automatically “downgrades” the stock to me.
Here we see a stock that had a lot going for it as a potential “contrarian” position following a 25% price drop since late 2022, and a failed rally attempt earlier this year. The chart was setting up nicely. “Just gotta get through earnings.” Nope.
Now what? We’ll see. I’m a happy non-owner for now. But if you are looking to understand how I view dividend investing differently, THIS IS IT. That 2.8% dividend yield is little solace for those who just saw GPC’s stock price get knocked back down to its April, 2019 level.
This can happen to ANY dividend stock, ANY stock. That’s why I operate as I do, though it largely flies in the face of “traditional” dividend investment approaches. For more on this aspect of what we do differently, see those video segments from the Money Show we are putting out later this week.
WHY I HATE EARNINGS SEASON (part 3)
Cisco (CSCO) has been in the YARP portfolio since we started it formally on May 1. However, I’ve owned it at my minimum 1% weighting, maximum 5% position, and in between over that time. Recently, it is up sharply, and I can’t help but think that is “praise by association” if you will. That is, tech stocks are rolling and this one rolls with it. Yes, there are always fundamental aspects of the puzzle. But sometimes, it is even simpler than that.
All of this is a picture show version of a lot of stuff that’s been going on in my research, and also what is increasingly our focus as we prepare to launch the Investment Group service with Seeking Alpha next month.