Stay on the Roller Coaster

ok..the market was terrible last week.

There is no getting around it, the Dow was off 500+ points on Friday. And that was on the heels of a terrible Thursday.

As I write this, it sounds as though we may see more of the same next week as Asian markets and that the futures markets are looking even worse for Monday.

So what to do?

Well what do you do when you ride a roller coaster?  You only get hurt on a roller coaster when you jump off as it is still moving.  Once you are on, there is no point jumping off after the first big dip.

Unless something changes, there is no reason to believe this is anything other than a garden variety market correction.  Yes there might be more downside,  we might lose another 10% or so, but even at this point there are some stocks that I think are interesting.

I still like Disney, Apple, and KMI among others.  I might raise some cash in some other areas with the intent of buying some more of these stocks.  Especially if the markets continue to drop.

I think good high quality stocks who have great cash flow, high dividends (or the ability to increase dividends), and who have premium brand names in their market are the place to be.  KMI as an example is sitting at a 6.2% dividend and has committed to a 10%/year dividend increases for the next 5 years.  Even if they lower that guidance, you are still being paid a huge premium to Treasuries.  Plus you will get a stock price appreciation kicker if the dividend is increased.

Apple and Disney have huge cash flows and have a history of highly successful targeted stock buy backs, and both have huge product launches coming up (DIS with Star Wars, AAPL with a new Iphone).  They are both way off their highs, and both are best in class assets with ecosystems that can’t be duplicated  They will go up over time, and this pull back is giving you a good place to get in, and I like these companies enough I would double down if their stock price drops more.

When oil bottoms (I dont think its quite there yet) I may look at one of Exxon/Hess/Conoco/Chevron, and might double down on an existing position in EOG.

There are a few other positions I might try and increase as well over the next month or two.  Cisco, Financials, Defense, maybe some tech.

In our 401K account we have a larger than ideal percent of our portfolio in a money market fund.  Over the last month or two, I felt like the market was getting sluggish.  Since we have been making extra payments on our 401K loan, we decided it was best to have those extra payments mainly go into a money market and move them into various index funds over time.  The whole idea was to spread out the market risk, especially while the market was near a top.

Now that we have had a pullback, its time to get at least some of that money invested, I am thinking of maybe moving 25% of our cash into the market this week, and maybe another 25% for every 10% market drop. We might also consider additional moves at certain milestones.  For instance after the fed announces their intentions with rates, or after we get past October.

Basically the idea is to take this time of market panic and move into, not out of the market.  Short term the market might drop some more, history tells us that is a good time to buy even more, especially since we are talking a 15-20 year time horizon with retirement funds.  I have every confidence we will do well in the markets over any 20 year time horizon.

Its a roller-coaster, don’t jump off in mid ride.

Meet n Greet Time!!

Just a chance to meet and greet….

Dream Big, Dream Often

Per our usual agreement, here are the rules:

  1. Leave a link to your page or post in the comments of this post and/or in the comments of these MnG links: Meet n Greet from 7/12  and     Meet n Greet from 7/31
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Investing – My Investment Shopping list 8/10/2015

DIS

Last week was wild, a couple of words during the Disney conference call led to a huge sell off in all media stocks.  Disney went from $121/share down to $105/share before recovering later in the week.  The drop was caused entirely over fears of ESPN/ABC etc losing cable subscribers.

I purchased a little over $3000 @ $108.39/share. (I already owned some shares) I thought it was a great time to buy more shares for several reasons.:

  1. Its the top media company.  DIS has rich content in sports, animation, film, content etc.
  2. It reported a fantastic quarter.  EPS +13% qtr over prior year quarter.  YTD vs py YTD up 16%, 19% if you take out one time charges.  And the prior year comparison included Frozen.
  3. The next episode of Star Wars comes out in Dec and it may well be the most profitable film in history.  I expect we will see a huge blockbuster in Q4 and on into 2016.  Then an episode of Star Wars or a Star Wars spin off comes out every year for the foreseeable future.
  4. Disney China opens up shortly and will impact earnings in 2016.
  5. Disney has a history of being big buyers of their stock when the price drops, I suspect they will be big buyers here.

Look, yes we may see some cord cutting, but its going to take some time to happen in a meaningful way. And there is every reason to believe that Disney will be in a great spot to profit in this bold new world, they specialize in content and monetizing that content.  Disney will be well positioned in a cord cutting environment.

I could see some additional turbulence in the stock market, but Disney is now down about 10% and they will be in there buying.

DOW

I trimmed out half of my position in DOW.  I really like DOW over the long term, but the market is just hammering all industrials.  There seems to be a repricing going on that factors in a slowdown in China.  I think there is additional downside in the market that could continue to bring down DOW and I felt as though Disney had more  upside. (Plus we own a fair amount of GE, Boeing, and Berkshire Hathaway.B)

Verifone

I sold half of my position in Verifone.  Its getting hammered, clearly the market believes this is a company that is getting hit by the strong dollar.  When I bought Verifone, I thought it was a good time to get in as the credit card companies are pushing merchants to install smart chip readers, and I thought Verifone would benefit.  Buy selling some Verifone, I open up some cash to buy Apple as a play in part on the growth of Applepay.

My Shopping list:

  1. Raise some additional cash. I am going to look very closely at what stocks I own.  I really think the market is headed for some tough times between now and Oct.  There is a high probability that the fed tightens in Sept, Aug is usually a soft month, the averages arent acting very well, and October at least has the reputation for being bad.  Unless I really love a stock, I am going to get rid of it. I think now is a good time to have a little more cash than normal on hand to pick up bargains if we get a selloff.
  2. I may pick up some additional Apple shares.  Apple is cheap on a PE basis trading around 12x’s earnings, 10x’s if you back out the cash they have on hand.  They had a big quarter in terms of growth, earnings, and free cash flow.  Even if growth slows down there is a ton of free cash flow for Apple to increase dividends or buy back stock.  And Apple has a very good reputation for buying back selectively, I suspect they will be in the market buying after falling 14% off of their April highs.
  3. KMI – I bought some a couple of weeks ago at $35.15.  Since then its dropped to around $32/share.  If it is at that level tomorrow, I will buy some.  A 6.1% dividend is too tempting to pass up.  I talked about why I liked KMI in an earlier post.  Motley Fool weighs in: http://www.fool.com/investing/general/2015/08/09/3-reasons-investors-should-ignore-the-oil-crash-an.aspx?source=eogyholnk0000001
  4. COP/CVX and perhaps as a domestic spec EOG.  Oil has to bottom here soon, I may buy some more if we see it get into the $30’s.  This may be an area where I wait to see how the market shakes out over the next couple of months.
  5. Financials, I may add to my position in WFC.  I might initiate something in either GS or JPM.  If the fed raises interest rates, then the banks should benefit.  In addition GS &/or JPM should benefit from additional volatility in the commodity, currency and stock markets.

What stocks/mutual funds are you buying?

Where did I start? $70,594 in non real estate debt

Where did I start?

In Feb of 2008, I found myself without a job and had $70,594 of non-mortgage debt.  In addition on my condo, I owed $115,241 on a first mortgage and $19,855 on a second mortgage.

In July of 2008, I found a job and swore to myself that I needed to pay down my consumer debts as quickly as possible, I realized how much risk I put myself in by having a student loan, a 0% interest loan on a computer, a car loan, a second mortgage etc.  Add to it that the nation was going into a major financial crisis, so it was unclear if I was going to be able to keep my job that I desperately needed to make payments on my debts.

What did I do?

I went out and got a copy of Quicken and took the time to set up all of my accounts, loans etc into the software so that I could start tracking my progress.  (I loaded data back to 2007, in some cases if I had it back to 2005).

About 2008, I found out about Dave Ramsey and began to listen to his TV show (no longer on the air), and to listen to his podcasts (free).  I began to focus in on what debt was doing to me, and what situation it was putting me in.  I was normal, it’s not like I ever missed payment, and I paid off my credit cards in full every month but I was sick and tired of being sick and tired.

I followed the baby steps, I attended Financial Peace, I temporarily stopped contributions to my 401K, and I began making extra payments on my debts.

Results

By May of 2011 I had paid off everything except my first mortgage. (about +91K)

In 2011, I began to date the person who would end up being my wife. We grew up in the same hometown and knew each other as kids but it wasn’t until later in life that we reconnected.  We began to date long distance while I lived in Texas and she lived in the Midwest.  By being debt free other than my mortgages, I was able to cash flow trips back and forth every month.

Without having gotten serious about paying off my debts in 2008, there is no way I could have paid for a year or so to date long distance.  Therefore there is no way we would have ended up married.  So I thank Dave Ramsey, he truly changed my life.

Net Worth 2015-07

Total Net Worth in July: $318,592 (+$15,063)

A much better month than June.  We finally got some traction on the 401K loan (+3,522), and we are hoping to have it paid off by November.

It has been too long, but we finally broke thru the $310K milestone, and almost hit the $320K milestone.

Assets: (-$634)

Once again we are taking a conservative view of property price appreciation. I do not plan to update our property values very often (if ever).

I looked up the KBB values on our vehicles.  My vehicle went down in price, and the value has been updated.  My wife’s car supposedly went up in value, but I  left it unchanged in the net worth calculation.

Net Cash Accounts: (+$2,538)

This section contains the balances of all of our cash accounts outside of our rental property.  Emergency funds, banking, savings accounts, HSA, FSA and credit cards. (we do not include escrow balances in our net worth) We pay the credit cards off in full every month, but the balances obviously change from month to month.

The biggest adjustment to our cash accounts came from paying off our larger than normal June credit card statement.  We did have a decent sized car repair/maintenance bill in July, but otherwise the month was unremarkable.

I doubt this section moves much over the next few months as we hope to put all excess cash towards the 401K loan.

Net Cash Rental Accounts: (+$398)

In this grouping we have a rental checking account, a savings account for emergencies and big-ticket items, liabilities booked for the return of damage deposits.  Additionally, in this group we have a credit card for rental expenses that is paid off in full every month.

This was a better month for the rental compared to June as we had no major maintenance or repair expenses.

As of the end of the month we were still waiting on the August rent from one of our tenants.  It’s not late until 5 days after the beginning of the month,  and there is no reason to believe we wont be paid on time but I am pointing it out because of the impact on the rental account balance.

Hopefully we will get a chance to build some cash reserves in this area over the next few months after depleting them in June.

Retirement accounts: (+$8,557)

Ok, it was a good month here, I am pleased.  Even if a fair amount of the change was from our extra payments to our 401K loan.

We are in a little more cash than usual, and I would like to get it into the market if we get a pullback.  In addition its time to look at getting rebalanced.

Liabilities: (+$4,204)

We paid down $3,522 on our 401K loan. I am hoping we can have this paid off in Oct or Nov.

The pay-down on our mortgages will continue to be about $700/month over the course of the year.

Thanks for reading, how did you do this month?

Net Worth 2015-06

Total Net Worth in June: $303,529.  (-$5,057)

Ok, so its clear I cant be accused of beginning this blog on a high note.

June was an expensive month.  My wife graduated from school and had friends and family in from out of town to visit. So we spent a lot more than we would have.

In addition our rental property switched tenants.  So we spent some money on getting the place ready for the next tenant.  Items included painting the whole unit, a new dryer, a new refrigerator (unexpectedly stopped worked), pest control, we took out some old carpeting and installed some wood laminate in one of the rooms.  In addition we replaced a half dozen windows.

Assets: (+0)

Going forward I am going to assume the houses at conservative values.  Honestly I have one listed near the purchase price and another at an overly conservative value.  I dont think that I will update housing values very often (if ever).

Our vehicles are both paid for, and every few months I will update the KBB value on both. Vehicle 2 was added to the net worth calculation this year.  We always had it, but I just recently took the time to look up the value.

Net Cash Accounts: (-$3,021)

This section contains the balances of all of our cash accounts outside of our rental property.  Emergency funds, banking, savings accounts, HSA, FSA and credit cards. (we do not include escrow balances in our net worth) We pay the credit cards off in full every month, but the mid month balance will have an impact on this section.

As I said we spent a lot of money this month in order to celebrate my wife’s graduation.  In addition we had some family (kids) who came to visit for a couple of weeks and we spoiled them with concerts, nice meals, cloths etc.  Next month we will tighten the belt a lot.

Net Cash Rental Accounts: (-$1,731)

In this grouping we have a rental checking account, a savings account for emergencies and big ticket items, liabilities booked for the return of damage deposits.  Additionally, in this group we have a credit card for rental expenses that is paid off in full every month.

As I mentioned, this was a tough month for the rental.  We spent money on maintenance getting one of our units turned over for the next tenant and our reserves are a lot lower than I would like them to be.

Hopefully we will get a chance to build a respectable cushion over the next few months.

Retirement accounts: (-$1,087)

Nothing much to say here, we took a small hit on most of our accounts.  In the future I will lay out our view on investing.  In general we aren’t super active with trades or exchanges.  However I didnt like the overall market setup and we moved a month or so ago into a little larger cash position in our 401K and main IRA.  (25-30% in one, and about 15% cash in the other.)  Nothing drastic, but just a little more in cash that we will look to get back into the market over the next few months (if there is a sell-off).

Liabilities: (+783)

This is about the norm every month.  I may book two payments in one month, and none in the other.  But the pay-down from regular payments will be about $800/month over the course of the year.

Just a note, every one of these four loans is tied to one of our two properties.  The 401K loan was done last year to help get into our second property.  We have begun to pay it down early, and with our new income, I anticipate us becoming very aggressive about paying off this loan..

Thanks for reading, hope to hear some feedback.