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
I write several articles a week for Seeking Alpha, covering stocks, ETFs and macro market analysis. Some of those articles have a tight range of focus, in that I’m drilling down to one security. Others, like one I wrote late last week, are more like “anthems” to me. In the case of that one, which you can link to HERE, the subject was the myth of buy and hold investing. To show it visually, I researched the performance of all 30 Dow Industrials stocks, and determined that 11 of them have produced zero return including dividends for periods of a few years to more than 2 decades.
The article contains several charts that quickly help readers visualize this situation. Since Seeking Alpha is a subscription service (albeit not a very expensive one), non-subscribers can view a small number of articles per month to try it out.
For those who read our weekly letter here on Substack, here is a capsule summary of the article to help you decide if you want to see more over at Seeking Alpha.
From 'Buy And Hold' Myth (published 10/6/24)
I have nothing against buy and hold investing in individual stocks. I just think it is as risky as I've ever seen in my 38 years in the investing business. And I view part of my mission in semi-retirement, given that long history of stock market-watching, and lots of mistakes and successes that lead to perspective, as trying to point out where I truly believe the "conventional wisdom" can be hazardous to wealth.
11 Dow Industrials stocks have gone nowhere for years
Specifically, the risk of buying high and producing little or no return for many years. Anyone who navigated the dot-com and global financial crisis eras as I did (as an investment advisor and fund manager at the time) is probably aware of this.
However, in all the euphoria of the present day stock market, the simple fact is lost on many: stock picking is about more than just "one decision" (buy and never sell).
4 key conclusions about this research study
1. The Dow is still a great hunting ground for investors
2. Tactical management of position sizes is one helpful defense against the inherent cyclicality of the prices of most stocks.
3. The malaise in many stocks in the Dow is not isolated to that index. And that further emphasizes just how narrow...and deceiving...the current stock market is.
4. This is all data and analysis. But having it in my arsenal allows me to make better decisions on what to own and how much to own at different times.
3’s Report LIVE: a new weekly session for all!
We tried it last week and it worked well. So we’re going to try doing it every week. Every Tuesday at 4:30 PM Eastern Time, join us as Rob Isbitts walks subscribers through the weekly 3’s Report he just published. This is a fast-paced, weekly review of markets, perspective, charts of interest and Sungarden news.
Click HERE to join us.
ALL SUBSCRIBERS (full and ETF-only subscription levels): the weekly technical scores for ETFs have been updated in the shared research deck.
SIRG SUBSCRIBERS ONLY: we expect to add the stock technical ratings and a full YARP™ dashboard later this week. It covers our 40-stock portfolio plus another 35 stocks on our watchlist, but not currently in the portfolio. Stay tuned!
ROAR Score weekly update
Drops from 30 to 20 (first change in more than 2 months)
This means a 2-ETF portfolio that can only allocate to SPY and BIL would now be 20/80 instead of 30/70, as it has been since late July (7/30 to be exact), when I dropped it from 40 to 30. SPY is up about 5% since that time. But between the US election, bond yields reversing higher and the wildcard of a wider war in the Middle East, the risk is easy to spot in the charts.
The question is whether that risk will turn into something significant enough in market terms to matter to investors. I can’t predict that, but I do know that 20% exposed to the stock market is more comfortable than 30%, given those risks. The rule around here is “avoid big loss, then make as much as you can.” But without a strong technical catalyst present, I’ll always lean toward caution. Thus, the move today.
Chart after chart I go through shows everything looks risky, with possible exception of energy and defense stocks. Yield sectors like REITS and Utes appear to be topping or rolling over, signaling that the yield stock rush is over for now.
Bright side: longer-term (weekly) charts still in order. But that's always the case early in a major decline. More on all of this in the charts below.
3 Quick Thoughts on markets
This is one of those times when I think risk of loss is high, but there’s also a good chance it won’t follow through. After all, it has failed to follow through so many times that “buy the dip” types have a very good record in recent years.
That’s why I NEVER ask myself “should I be in the market or out of the market?” I think that’s a very costly and frankly naive question. A big part of my work is helping investors realize that a lot of that conventional wisdom is bunk.
Instead, better to always pose the question like this: how much direct exposure to the stock market do I want now? If you are like me, you are constantly considering that question, and you build a system to help make confident but not overconfident decisions. Or, you “rent” my system and ongoing process, as our subscribers do. Just knowing that I am helping some people frame their investment process with perspective, logic and humility, versus the piles of dung that flies at us every day in the media and in our inboxes is a reward to this semi-retired fellow!
3 ETF (or index) charts I’m watching
TREASURY RATES: T-BILLS STILL LOOK JUICY
Here’s a great look at the US Treasury yield curve. Blue is as of last Friday, red is as of 9 weeks ago. T-bills have fallen by quite a bit, but still yield more than 4%. Not a bad rate to wait things out. From 5 years to 30 years, no net change. But long term rates show stronger signs of moving higher. To me, that’s the market slowly building a narrative that the US government debt is becoming an issue.
WE DESERVE A BREAK TODAY?
In my Seeking Alpha article today, I referred to this same chart in a different time frame as looking like I walked into a McDonalds restaurant. That color scheme! Anyway, the more I look at it, the more I see potential for this to go from a rising market that never quits, to a trading range (5100-5700). Until it breaks.
REIT-TURN
Real Estate Investment Trusts (REITs) have been the biggest contributor to the YARP dividend stock portfolio’s return the past 5 months. I’ve been shaving the position down, and on Monday made a more pronounced move that direction. Yield stocks are challenged with bond rates rising again. But that’s why YARP works for me. It is not the stocks as much as it is what I complement them with, and how I rotate the position weights in the portfolio. As I did Monday.
3 stock charts I’m watching
ENERGY STOCKS FINALLY BREAKING OUT?
Please join me in welcoming the former biggest public company in the world (before it was kicked out of the Dow Industrial index years later) to the YARP portfolio!
DRUG DOWN
Merck was the subject of my Monday article in Seeking Alpha. As the late great Warren Zevon sang, “it ain’t that pretty at all.”
THE CHAMP IS ON THE ROPES
Old boxing expression: to defeat the champion, you can’t win on points, you have to knock them out. AMZN looks like it is teetering again. But champions don’t fall easily. When buy-the-dip is finally defeated, it will be something to see…especially for those of us who can capitalize on it, not simply hope it doesn’t happen. That said, I’ll expect my latest order on my porch in a few hours…
Sungarden Founder Rob Isbitts to speak at Money Show Orlando next month
I am part of the Money Show’s educational provider group (i.e. not paid for as a sponsor), and after a few online sessions earlier this year, my first live session will be at the huge Money Show Trader’s Expo in Orlando next month. My focus: DIVIDEND INVESTING. Our subscribers know well that my views on dividend investing in modern markets are quite a departure from the “same old” and I’m grateful to the Money Show crew for inviting me to be part of this long-running event.
Registration for the 3-day conference is HERE and if you will be there, let us know. Dana and I will be there most of the day Friday and all day Saturday, the day I speak. We’ve love to meet any folks from the Sungarden community there and say hi!
