The 3's Report (ELECTION DAY EDITION)
From timely to timeless, the 3 most important points we can make about stocks, bonds, ETFs, markets and investing...updated weekly
SUNGARDEN YARP PORTFOLIO:
SEEKING ALPHA INVESTING GROUP PRESALE NOW OPEN TO “SUNGARDEN FRIENDS”
It’s here! My investment process and personal YARP active, risk-managed, dividend and total return portfolio are now available as a Seeking Alpha Investing Group subscription service.
While the official public launch is not until this Monday, November 11, we arranged with Seeking Alpha to give our existing subscribers the first opportunity via this “presale” announcement.
The first 35 subscribers to Sungarden YARP Portfolio on Seeking Alpha, which replaces both the SIRG and ETFYourself Substacks, get a significant discount. These “legacy subscribers” get 35% off the regular $1,500 annual price ($975), and that lower price is locked in permanently. It’s looking those first 35 spots will sell out quickly, so we wanted to give our current followers advanced notice.
To be one of those legacy subscribers and lock in the current and long-term subscription discount, just click THIS LINK and you’ll be taken right to our new Seeking Alpha page.
(NOTE that while the new service is “live,” we are still doing some final prep work this week to fully build it out, including a new-look shared research deck and enhanced YARP equity research and portfolio tracking. Let us know if you have any questions as we ramp up, either about what you see or about considering the service itself).
Also note that with the move to Seeking Alpha, this will be the final “full” public version of The 3s Report. We’ll continue to post it here on Substack each Tuesday, but in an abbreviated form.
ROAR Score weekly update
Our Reward Opportunity and Risk (ROAR) score remains at 20 for the 5th straight week. This means a 2-ETF portfolio that can only be allocated to SPY and BIL would be 20% SPY and 80% BIL. That said, as I believe today’s U.S. Presidential election has a potentially seismic impact on the markets, I stand ready to raise or lower the ROAR Score at any time.
Nothing shows the story of the markets the past 3 years as well as this chart. The ROAR 2-ETF model has outperformed or performed in line with 2 separate measures of the “average stock” - RSP which is the S&P 500 equal weighted ETF, and EQAL, the Russell 1000 equal weighted ETF. T-bills (BIL) have outperformed EQAL as well. Translation: risk management has been essential the past 3 years, and I think it will continue to be going forward.
And while a 2-ETF portfolio is an interesting concept for newer investors and those with smaller portfolio sizes, when we take that simple structure, then build out the “offense” and “defense” components using a combination of stocks, ETFs and options, a wider range of “ways to win” is the result. That’s what my whole investment process has been about for 30 years.
More of my updated market views below.
3 Quick Thoughts on markets
I firmly believe that the stock market particularly has been like a “coiled spring” leading up to this week. But neither I nor anyone else knows what that will occur next.
That’s why the Sungarden YARP Portfolio is currently positioned as follows (paid subscribers, this is a sneak peek at one tab in the updated research deck we’re uploading to Seeking Alpha today). As you can probably tell, it is now a combined portfolio, where YARP stocks take the lead, but income ETFs, tactical (CORE and Macro Traxx-style) ETFs and put/call options play supporting roles.
One thing I think all risk-management-focused investors need to come to grips with is that for the first time in over a decade, cash is not just for temporarily sitting out stock market volatility to “wait until things get clearer.” Sometimes they don’t for a while. And when I look at the largest current holding in the Sungarden YARP Portfolio, it is a T-bill ETF that still yields over 4.5%. Until such time as there are a host of stocks with yields in that range and with strong reward/risk tradeoffs, I think that is a competitive holding. There are certainly some, as I do own several, but mostly in small position size, as implied by 44% across 30 stocks. Like any investor, I’d rather allocate more to stocks since they have more potential upside. But they also have as high a risk factor as I can remember, generally speaking. Perhaps the election aftermath will bring more clarity. But frankly, my goal is not to invest in dividend stocks as much as it is to make money, do so with low volatility and avoid major drawdowns. Whatever it takes!
3 ETF (or index) charts I’m watching
LUCKY 7?
Certainly there is no denying the historic success of the so-called Magnificent 7 stocks (Apple, Microsoft, Nvidia, Amazon, Meta (Facebook), Alphabet (Google), and Tesla). This ETF has nearly doubled since its April 2023 debut. And the chart looks stable, even powerful. We’ll see if the election or this Thursday’s Fed meeting (yeah, there is one) have any impact on this. I’ve written about several of them at Seeking Alpha recently, and described how I am trying to get exposure to them without owning the stocks outright or in large size. My chief concern regarding this group is that they will continue to be given “halo” status by the market, which means other stocks will be ignored, even when undervalued. That tide will eventually turn and turn hard, but we can only speculate about when that will occur. So for now, I respect and participate in them in a risk-managed way.
A NEW BOND AGE?
I love it when chart pattern history repeats itself! This is an ETF that targets 7-10 year U.S. Treasuries, and it has been slumping since 2020. Investors still have fond memories of the 40-year bull market in bonds, and the last phase of that epic run (lower yields/higher bond prices) likely ended a few years ago. Now what? I’m watching the right side of the chart to see if this multi-year trading range breaks one way or the other. Right now it is in “no man’s land.” But that big red circle on the left shows that following the 2008 financial crisis, a similar range persisted, then finally broke out (higher prices/lower yields). Given that either winning Presidential candidate will have to figure out how to combat the world’s growing impatience with the United States’ inability to control spending and debt, I am skeptical that bonds will have a significant new bull phase. The bigger risk is skyrocketing long-term yields, i.e. this chart breaking lower over time. We’ll see.
WHAT IF THE U.S. STOCK MARKET DID THIS NEXT?
Among an endless list of post-election market scenarios is one that looks like this, the path of an ETF that tracks China stocks that trade in Hong Kong (which is many of them). This has been one wild ride in 2024, with a nearly 100% range from top to bottom (or 50% if you measure it the other way - no matter, both are wicked volatile!).
Why did this occur? In large part because China’s forward-looking economic policy has been a series of moves to stimulate that have not worked well, and have been accompanied by mixed signals. This is one possibility for late 2024 and 2025 in the U.S. That’s why the smallest but potentially high-impact part of the Sungarden YARP Portfolio is in a pair of options on the broad U.S. stock market, such that a roughly 7-10% or stronger price move in either direction (doesn’t matter which one) could produce strong gains over the balance of this year. This is my answer to the “coiled like a spring” comment above. Because what happened in China’s stock market has occurred here before. I don’t know if it will again, but I’m willing to “risk” about 1/4% to 1/2% of my portfolio or so to set myself up to win either way.
This is the power of options as a complement to and surrogate for committing tons of money to equity exposure when markets are this historically uncertain. The rest of the money I would normally have spent on stock exposure goes where? U.S. T-bills or T-bill ETFs, yielding more than 4%. That T-bills/options combination has been a “go-to” for me in many past periods of market volatility.
3 stock charts I’m watching
Over the past 2 weeks I showed you 3 charts (6 in total) that all related to stock reactions to quarterly earnings announcements. Other than NVDA’s upcoming report, much of the season has passed. So this week, I’m borrowing from that old saying about weddings: something old, something new, something borrowed…but since this is The 3s Report, I will leave the last one (something blue) out!
And to help visualize the process I use to make these decisions, here is another sneak peek at a new feature. This is small swath from our enhanced stock research deck, which will be added to the new Seeking Alpha portal by this Thursday. We’ll have recorded tutorials and a couple of live sessions coming up soon, to help subscribers understand what this information is, and isn’t.
SOMETHING OLD (a stock I’ve held for a while and have no foreseeable plans to exit in full)
One of the features of my tactical position sizing approach to stock portfolio management is that I don’t fret about holding small positions in what I think can be long-term winners. But by freeing myself up to own between 1% and 5% of a single stock at any time, I can be a “long-term investor” without having to voluntarily suffer through the inevitable long dry spells that nearly every stock has. I don’t like to own “dead money” investments; it is that simple.
So with Chevron, I know that the energy sector has been weak. And while this chart tells me it is in a range, and at the bottom of that range, there’s no telling what it will do. But this is a giant, stable, sector leader and its dividend of more than 4% I judge to be quite solid. So while I own that minimum 1% position, whenever that quarterly ex-date approaches, I have the luxury of deciding whether to swap some potential unrealized capital gain more dividend/lifestyle income now, or play it close to the vest with that “entry level” position size. And if CVX does start to show signs of serious appreciation toward the upper part of that trading range, I have the choice as to whether to own more than 1%, up to 5% of the portfolio in the only energy stock currently part of the Dow Jones Industrial Average.
SOMETHING NEW (a stock I bought recently)
Is flat the new up? The more dividend stock charts I look at, the more I sense that some type of post-election jolt higher for stocks in general is the best hope for many to accelerate higher. Otherwise, the best charts could be those, like Nexstar (NXST), this media company that owns several local TV and news properties including the venerable WGN-Chicago, which yields 3.6% and has returned nearly zero the past few years beyond its dividend…like a ton of stocks that are not in the tech sector or Magnificent 7. Earnings are later this week, and since I view those quarterly announcements as potential “poison” for any stock portfolio, I have kept my position size at the minimum 1% weighting until that “event” has cleared. Not to mention the other events of this week.
SOMETHING BORROWED (a stock I owned hoping to hold it long-term, but which I exited out of completely, sooner than I hoped - i.e. I “borrowed” it.)
Starbucks (SBUX) was not intended to be a “rental” but as shown here, the announcement of a highly-respected new CEO in August, the very day after I upped my position from 1% to 3% of the YARP portfolio, popped the stock by 22% in one day. And that has been most of my return since I first bought it back in May. No, I didn’t know anything about the announcement prior to it being public information! But I did see a stock with a decent chart and approaching dividend ex-date. That’s part of the routine for me.
So I sold SBUX at a nice gain to focus elsewhere, and it is still on my watchlist (which I’ve reduced from 75 stocks to 50 for better focus). The stock still has an 86 YARP Ratio which means its dividend yield is still relatively high versus SBUX’s own history. But since I have identified several high-yield ETFs that complement the main stock portfolio, I am shedding some of the lower yielders with neutral price trends, like this one. But I’ll still drop by my local SBUX store daily to pick up my Venti Cold Brew/black while I look for an opportunity to return to the stock at some point.
Final thoughts: Happy birthday to my first mentor!
One final note for this week, and before we move the full version of The 3s Report over to Seeking Alpha as part of the new investing group platform. Today would have been my father Carl Isbitts’ 93rd birthday. Dana and I were both very close with him, and as many of our subscribers know, he was the one who taught me to chart stocks when I was 16 years old. 44 years later, I’m still doing that and a lot more.
My father was never was a professional investor. But he is one of the main reasons I was able to reach the point in my career that today, on his birthday of all days, we have announced our new service for aspirational, forward-looking investors with the wonderful support and encouragement from our friends at Seeking Alpha. Happy Birthday, Dad!