YARP™ update + thoughts on latest trades
YARP™ update + thoughts on latest trades
You can learn a lot just by looking around
I’m paraphrasing an iconic line from Matthew Broderick in the 1986 movie “Ferris Bueller’s Day Off.” Coincidentally, that was my first year in the investing business. And all the things I’ve learned, one of the most valuable is this: the market is always trying to tell us a story. We just need to listen to it as best we can.
That was the backdrop for the latest trades I made today in the YARP section of my total portfolio. Paid subscribers get those trades in detail right after I make them in my own account, whether they are in the YARP (Yield at a Reasonable Price) hedged stock portfolio, the CORE ETF portfolio or the MacroTraxx strategy that combines T-bills and aggressive short-term investing.
But since we have a wider audience beyond that group, which we affectionately now call the “Sungarden Investment Research Group (SIRG), from time to time I see an opportunity to help that audience better understand why we think what we are doing is uncommon.
This is the latest installment of that “blog-style” learn-as-you-go experience I mentioned to our audience here and over at ETF Yourself last week. I hope it helps.
Today in the YARP portfolio, I added to 4 stocks
3 of them are part of the Dow Jones Industrial Average. I am about evenly split on the Dow 30 right now: about half of them either have weak price charts and/or don’t pay any or much dividend. So for either or both of those reasons, they are not YARP-able.
But among the others, to my slight surprise, there are some emerging comeback stories. The S&P 500 is up about 18% this year, but half the Dow is up less than 10%, and 7 of the 30 stocks are still down year to date. But the “gap” I am finding in my YARP dividend stock work since we formally started tracking and discussing this portfolio on May 1 of this year, continues to show itself, even as the broad stock market shakes around.
What I’m seeing in the current stock market
I am finding some very attractive stocks within the dividend space
However, as per YARP’s tactical style, simply buying and holding them often means that we succumb to the reality of modern stock markets: there are many more stocks that gyrate up and down over weeks or months, than those that go “up and to the right” for years at a time. I’ll show what I mean below.
Before I do, I do want to reiterate that what drives YARP stock rotation. For those new to YARP, I aim to identify roughly 40 stocks that I think are reliable fundamentally. That allows me to focus less on WHAT to own and more on HOW MUCH of it to own. And that figure (% of portfolio allocated to each stock) changes, sometimes often.
YARP’s goal for the stocks held: outperform a buy and hold approach, and earn 7-10% annual dividend yield
It is all part of a methodical, consistent process I apply with the goal of outperforming a buy-and-hold approach to the same stocks, over time. To me, buy and hold is optimal, but highly unrealistic in today’s market climate. And as quickly as I quote that 7-10% yield range, I’ll also add that I won’t go to any lengths to “chase yield” to get that. The way I rotate the YARP portfolio provides lots of dividend yield. But total return is more important.
What good is a high yield if you consistently give back all of it and then some in principal loss? That’s where I break from the long-term, high yield investing crowd.
YARP decision-making combines many coincident factors, including:
Dividend yield level
When the stock next goes “ex-dividend” for the quarterly payment
When the stock next announces quarterly earnings
The risk level I perceive in the chart pattern over the next 2-6 weeks (approximating)
If there are any known fundamental or macro risks that might shift the balance between reward and risk for the stock soon. A good example right now might be energy stocks, given the increased tensions in multiple oil hot spots.
How much I have made or lost on the stock since purchase. Yes, this matters, because while I like to be a dividend “hog,” simply getting yield in exchange for losing that much or more in price change terms is not a good habit.
As with much of the YARP stock activity during each quarterly dividend cycle, my positioning adjusts as frequently or as seldom as I see fit. I don’t get hung up on “trading turnover.” I just want to make money and not lose big in the process.
Since this is a time of the quarter where several current YARP portfolio holdings have their ex-dividend dates approaching, any stock that has a low weighting in the portfolio (all stocks held are between 1% and 5% of the total portfolio) is a candidate to be increased…but not if the chart or other factors prompt me to shy away. I particularly focused on 5 stocks today, all of which will go ex-dividend in the next week or so. In 4 of 5 cases, I added to the position, and 3 of those 4 were lifted to the maximum 5% portfolio weighting.
There’s an “up escalator/down escalator” thing going on here at all times. As I am looking for low-risk opportunities to grab more dividend yield, I am also looking at what is several weeks from going ex-dividend to see which ones might be good candidates for larger positions than they current occupy in the YARP portfolio. And, if something went ex-dividend recently, it automatically is slightly less attractive.
However, the charts rule with me, and so I can point to many stocks that won’t offer a dividend payment until well into next quarter, but which merit holding, say 3%-5% positions simply based on their price trend, valuation and other factors that made them attractive enough to make the cut and be part of the stock portfolio to begin with.
CURRENT EXAMPLES OF EVERYTHING DISCUSSED ABOVE
Below I’ll present a set of charts of single stocks, to help visualize what drives a big part of my YARP decision-making framework. As I do in some educational posts like these, I will refrain from indicating which stocks I am citing. I will show the charts but not the tickers or prices. This is simply to allow me to discuss what I’m doing in my own accounts conceptually, while not compromising the value we provide to the paying subscribers.
STOCK 1: increased from 3% of portfolio to 5% today
This Dow Industrials member might have just lifted off from a trading range. Even if it doesn’t turn out that way, I’m up 15% since my initial purchase only around 2 months ago. Like the chicken-shxt investor I am, I only bought a 1% position. The nice thing about our service is that it is research, not portfolio management. So a subscriber might have looked at that initial purchase and decided to buy a lot more than I did. Or to buy a little and pair it with a call option purchase for more upside. Or any number of other routes one can take when the find a stock they want to buy.
I increased this one to 3% not long ago and went all the way to 5%. That means my 15% gain on that first purchase is now a 3% gain across the full 5% weighting. So I have less margin for error here. But this is one of nearly 40 stocks I own, so I think the reward potential of seeing additional appreciation, plus getting 5% worth of dividend income into my portfolio instead of 1% or 3% is worth the risk. This account is one source of income to us, so as noted above, any time I can grab more dividend cash flow with reasonable risk, I tend to do it.
STOCK 2: increased from 1% of portfolio to 5% today
OK, so just typing that I went from 1% to 5% in one fell swoop on any stock makes me rethink the accuracy of that “chicken-shxt investor” self-characterization above LOL. Seriously though, this stock has been a laggard, and the ex-dividend date is coming up soon. But this is a case of a lot of bad news being out already, no apparent crises or earnings announcements, and my sense that a lot of sellers recently had their way. That clears the decks a bit for some upside, and that’s an optimistic chart to me, tipping up from the bottom of a long trading range.
So think of it this way: I’m down a bit over 10% on my 1% stock position. By going to 5%, if the stock even chips up higher by a few percentage points, I grab a lot of yield and that loss can be erased. The math behind this is a key to making YARP investing fruitful, so hopefully my explanation was clear.
STOCK 3: Not traded today, remains at a 3% position
This one could go either way, but after recovering from the depths of its 2023 plunge, it has made it a long way back. More importantly, the approaching ex-dividend is less important to me because the yield on this stock is toward the lower end of the universe I follow. So as noted above, there are many factors that go into YARP analysis, including some that butt heads with each other at times.
And, this is already a 3% position, and I think that’s about right, given the chart view I have. Dividends are good, greed is bad.
STOCK 4: currently a 1% holding, but what do we have here? A looming breakout?!
This is a pretty boring company, but if it is in the YARP portfolio, I’ve judged it to be one of above-average quality. It has been sitting at a 1% weighting since I first added it to the portfolio a few months ago. I’ve passed up the chance to own more of it when it went ex-dividend about a month ago. There is no big fundamental news around it. And I don’t care, because there might be some big technical (chart trend) news about to break. As in, a breakout from a seemingly endless and narrow trading range.
This may all sound like trading talk. But remember that my goal is to own most of my stocks for years if I am able. I just don’t want to own them at a static position size. Using this one as an example, it has gone nowhere for a year in buy and hold terms. Yet with all stocks, there are opportunities every quarter and every year, to go bigger or smaller on any position. That’s “tactical management” but without flipping out of stocks A, B and C to buy D, E and F, only to swap those for G, H and I soon after. That’s swing trading, and I have no issue with it. I do a bit myself on the side, with ETFs and some stocks.
But YARP is about first selecting a solid universe, then working that universe for total return and sidestepping as much risk as possible. The ETFs and options I add to the YARP portfolio take that a step further.
NEXT UP
If you enjoyed this “discussion” of some of the techniques and “looks” I go through in my ongoing investment process, let me know. If you have questions, let me know that too. And if this all seems like “hogwash” or just not interesting to you, there will be other content here, certainly. But this is YARP, at least as I created it to be used.
Later this week, we’ll provide some performance updates and other aspects of the process. And tomorrow we will announce a series of live sessions, in which I’ll cover these and other aspects of my approach to stocks, ETFs, charting, macro market analysis and a lot more.
As with what you see above, it will be culled directly from what I’m doing with my own portfolio. That’s what we aim to offer that is different. We see Sungarden as more of a growing community than a “subscription newsletter.”