Timing the Market in mid-July 2021

Well, the stock market continues to be driven up, especially the S&P500, with the tech stocks leading the way, The other 495 stocks of the index are doing OK, but the five Tech Stocks have really driven up the price. Should we be worried.

I turned back to the Ben Stein book that I’ve written about before – “Yes you can Time the Market.” Its pretty much the trends on stock price, P/E ratio, and bond yields. I used it to determine how well I would have done if I followed it since I graduated (Roughly 8% – 11% better than straight dollar cost averaging over last 35 years), at the end of 2019 (where it predicted a drop) and in mid-March 2020 (where it predicted you should jump back in). The overall lesson is that, if you have a long-term outlook, you can do a little better than just following the market.

So how are we looking right now, in terms of the trend lines and ratios spelled out in the book?

Well, the concept is there are four (4) areas where you can follow the trend and determine if you should be purchasing stocks, or purchasing bonds.

  1. Price of S&P500 vs. 15-year average: July 14, 2021 = 4,380 vs.15-year average of 2,328. Signal says stocks are overpriced, do not buy more
  2. S&P500 P/E ratio vs. 15-year average: July 14, 2021 = 46.55 vs. 15-year average of 26.9. Signal says stocks are overpriced, do not buy more
  3. S&P 500 Dividend yield vs. 15-year average: Jul 14, 2021 = 1.32% vs. 15-year average of 2.00%. Signal says stocks are overpriced, do not buy more
  4. Earnings vs. AAA corporate Bonds. Jul 12, 2021 = 2.15% (1 / PE ratio of 37.74) vs. AAA bond yield of 2.64% (very low yield). For the first time since Jan 2010 (remember the 2008-2009 explosion), this signal is saying stocks are overpriced.

So all 4 of the 4 signals say stocks are overpriced! Note that the concept does not suggest you should sell all your stocks, or sell all your bonds. What it is saying is that in the current environment, the stocks (or bonds) are too high priced, and you should focus your purchases on another asset class. Relook at it later on, and potentially change your purchases with the new data (I look at it once/year).

My personal belief is that we’re long overdue for at 20%+ drop in stocks. Since most of my investments are automatic with the 401K, I will probably just leave them as is (see current allocation) but I am preparing myself psychologically for a large stock market drop. I guess we will see….

How are you guys doing with the run up?

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Mr. 39 Months

Dividend Account results – 2nd Qtr 2021

Well, July is here, and we’ve gone halfway through the year. If you’ve been reading my story, you know that this is an inherited IRA from my father, that I set up as a sort of “experiment” for an old-time dividend paying account, which would generate regular income – something a person could use once they retire.

I’ve had some ups & downs with it, and it has generated roughly 4% in dividends annually – but it hasn’t grown very much. Thus, in this era of growth fund investing and low interest rates, it hasn’t been able to generate the sort of returns necessary for someone to live off of in a long-term retirement. Still, its an interesting experiment, and good to know.

I started it back in 2016, and the fund was setup with 50% bonds, 25% dividend stocks and 25% REITs. After 2-1/2 years, I decided to divest from bonds, because with the low interest rates, they were only paying about 2% in dividends and dragging down the performance of the whole fund. Since then, its been a roughly 50/50 split.

In 2020, I started a “dog of the dow” investment strategy, where you purchase the 10 stocks with the highest yield on the Dow (i.e. their price vs. the dividend they are paying is lower). Its an old time strategy, and I’m not sure how its going to pay off long term. 2020 was a bad year for dividend stocks, but they’ve bounced back.

Now for the 2nd quarter, we generated a significantly larger amount of dividends, which is fairly typical for 2nd and 4th quarters. The value of the fund on July 1 was $138K, so we’ve regained all the ground lost from Covid back in March 2020. For the 2nd quarter, we coming in around 3.58% with a significantly higher stock valuation. I still don’t think this is a valid strategy for 100% of your retirement funds, I do believe the dividends can provide some value, especially with a solid tax strategy.  

stockDetailsInvestment valueYieldDividend
AMGNAmgen$9,750.002.89%$70.40
CSCOCisco$7,950.002.79%$55.50
CVXChevron Corp$5,237.005.12%$67.00
DOWDow$6,328.004.42%$70.00
HRHealthcare Realty Trust$15,100.004.01%$151.25
IBMIBM$7,329.504.48%$82.00
KOCoca Cola Company$5,411.003.10%$42.00
MMM3M Company$9,931.502.98%$74.00
MRKMerck & Company$3,888.503.34%$32.50
ORealty Income Corp$13,348.004.23%$141.00
PFFIshares Preferred$9,207.544.74%$109.10
SVCService Properties TR$7,560.000.32%$6.00
UMHUMH Properties Inc$24,002.003.48%$209.00
VTRSViatris$2,143.503.08%$16.50
VZVerizon$5,603.004.48%$62.75
WBAWalgreens$5,261.003.55%$46.75
$138,050.543.58%$1,235.75

I believe the “jury is still out” on whether the shift to stocks & REITS was a good decision or not. With the current US Fed and its interest rates, I don’t think Bonds will be a good return any time soon – unless you are willing to go into some very risky bonds. If I had additional capital, I might invest more here, as I think these dividend stocks are undervalued.

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Mr. 39 Months

Are the 2020’s the decade of Value Stocks?

With all the craziness of the speculative stocks right now (AMC, Telsa, etc.) you would think that Growth stocks in the US were going to continue the dominance they’ve shown for the last 10+ years. The 10-year S&P return for the last 10 years was 13.6% annually vs. 10.32% for the Russel 1000 value index (VRVIX).

However, there is “growing” (ha ha) evidence that value stocks are getting ready to make a comeback (similar to what they were after the dot.com bust). You’ve seen me write about value trading in the past, and Kiplinger’s just came out with an article arguing that 2021 might be the year of value stocks.

One of the key arguments of the Kiplinger’s article is that low interest rates have a negative effect on value stocks in comparison to growth stocks (who can use the low interest rates to borrow cheaply and grow faster).

My value stock index fund (VVIAX) has grown an average of 13.54% annually over the last 5 years vs. my S&P Index has growth an average of 17.13% annually over the last 5 years. However, for year-to-datte, it has reversed: Value 18.18% vs S&P 13.84% – even as certain speculative stocks have skyrocketed.

I’d like to think that undervalued stocks (energy, utilities, etc.) are going to do better in the next decade. I’ll continue to put them as part of my portfolio, and I hope you’ll consider them as well.

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Mr. 39 Months

Dividend Account results – 1st Qtr 2021

Well, April is almost over, but I wanted to take the opportunity to go over the 1st quarter performance of my dividend account. If you’ve been reading my story, you know that this is an inherited IRA from my father, that I set up as a sort of “experiment” for an old-time dividend paying account, which would generate regular income – something a person could use once they retire.

I’ve had some ups & downs with it, and it has generated roughly 4% in dividends annually – but it hasn’t grown very much. Thus, in this era of growth fund investing and low interest rates, it hasn’t been able to generate the sort of returns necessary for someone to live off of in a long-term retirement. Still, its an interesting experiment, and good to know.

I started it back in 2016, and the fund was setup with 50% bonds, 25% dividend stocks and 25% REITs. After 2-1/2 years, I decided to divest from bonds, because with the low interest rates, they were only paying about 2% in dividends and dragging down the performance of the whole fund. Since then, its been a roughly 50/50 split.

In 2020, I started a “dog of the dow” investment strategy, where you purchase the 10 stocks with the highest yield on the Dow (i.e. their price vs. the dividend they are paying is lower). Its an old time strategy, and I’m not sure how its going to pay off long term. 2020 was a bad year for dividend stocks, but they’ve bounced back.

At the end of 2020, using the “dogs” strategy, I sold off Caterpillar & Pfizer, and purchased Amgen and Coke (they had a higher yield). The value of the fund was only 123K at the end of 2020,  buts it already up to 133K for 2021, while throwing off roughly 3.3% in dividends. Not too shabby!

stockDetailsInvestment valueYieldDividend
AMGNAmgen$9,952.402.83%$70.40
CSCOCisco$7,756.502.78%$54.00
CVXChevron Corp$5,239.504.92%$64.50
DOWDow$6,394.004.38%$70.00
HRHealthcare Realty Trust$15,160.003.99%$151.25
IBMIBM$6,663.004.89%$81.50
KOCoca Cola Company$5,271.000.00%$0.00
MMM3M Company$9,634.003.07%$74.00
MRKMerck & Company$3,854.500.00%$0.00
ORealty Income Corp$12,700.004.43%$140.70
PFFIshares Preferred$9,024.003.12%$70.48
SVCService Properties TR$7,116.000.34%$6.00
UMHUMH Properties Inc$21,087.003.96%$209.00
VTRSViatris$2,095.500.00%$0.00
VZVerizon$5,815.004.32%$62.75
WBAWalgreens$5,490.003.41%$46.75
$133,252.403.31%$1,101.33

I believe the “jury is still out” on whether the shift to stocks & REITS was a good decision or not. With the current US Fed and its interest rates, I don’t think Bonds will be a good return any time soon – unless you are willing to go into some very risky bonds. If I had additional capital, I might invest more here, as I think these dividend stocks are undervalued.

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Mr. 39 Months

OK, I’m out!

That’s it – I’m moving out of my bond funds!

As many of you know, I changed by allocation at the beginning of the 2020 to reduce my bond portion from 30% to 20% of my portfolio. My reasoning was that the US Fed was keeping rates for borrowing low, so the yield I could expect from fixed assets would be low.

Of course, my timing sucked (as usual) and within 2 months of purchasing more stocks, the market tanked and the bonds became more valuable. Still, I held my course and even rebalanced In July, selling bonds and purchasing underpriced stocks – even though the market wasn’t going anywhere. That is why I have been very happy with the Nov/Dec. recovery

The US Federal Bank continues to keep rates low. The yield on the 10-year treasury is running at 0.947%! Thus, if you loan the fed $100, at the end of the year, you will have made $0.95. In ten years, you will get back $109.89. How can anyone make money in this?

So, with the S&P 500 paying a 1.6% dividend, and my Income account paying 4.19% dividends for the year, my thought is that I am going to take those bond funds in my 401K/IRAs, and convert them to mutual funds that focus on Dividend growth. For 2020, my bond funds returned about 2.2% growth and 3.0% in dividends – total of 5.2%

For my IRA/401K/Mutual Funds, I’m looking at three funds:

  • Wife’s IRAs (Trowprice): PRDGX (Dividend growth) – 13.93% 1 year / 14.49% 5 year
  • My IRAs (Vanguard): VDADX (Dividend Appreciation Index) – 15.46% 1 year/ 14.92% 5 year
  • My 401K/Deferred: VIMAX (Mid-Cap, my company does not offer a dividend growth fund, and I’m already invested in S&P500, small cap and international here) – 18.24% 1 year/ 13.28% 5 year

The plan here would be to use my rebalancing step, which I normally do in early January, to shift out of bonds and move into these new dividend growth stock funds. I’ll try and do that later this week.

Of course, knowing how well I time things, I’d expect a major market correction/crash shortly after I do this – so you’ve been warned.

So what changes are you guys making at the start of the year?

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Millennial Revolution

Mr. 39 Months

Do you use Robinhood?

Robinhood is a “Commission-free trading platform” which is fairly user friendly, especially with phone applications. Since its inception, it has been surrounded by a lot of controversy. The idea of commission free trading brings up the question “how are they making money?” Their level of service has been spotty (at best) and at key moments, the site has shut down or not let people make trades which may have cost them significant money. They’ve had a lot of legal issues as well, further confusing the issue.

The solution to many of these issues is a simple one. As laid out by the Motley Fool, the solution is to use the application to invest, not the try and time the market (i.e. don’t use it to day trade). Robinhood plays up its ease of trading, but its performance in quick trades has been poor. However, its ability to make stock trading easier to start is laudable.

I was thinking about this after reading an article by evidence investor about “Why most robinhood traders get lousy returns.” The article pretty much lays out that people are using it to day trade, not invest for the long-haul, and are thus using having their emotions drive their investing decisions. It’s a good article and worth a read.

I personally don’t use Robinhood. Most of my investments are in mutual funds/ETFs. I gave up stock picking (I sucked at it) and chose just to stick with those. I’ve heard it said that it really doesn’t matter that much getting the optimum return – its getting started with regular investing and sticking with it. In that sense, if Robinhood gets you to do that, it can be a worthwhile option.

Hope your holidays are going well!

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Mr. 39 Months

Dividend Account results – 3rd Qtr 2020

Sorry I didn’t post over the weekend. Went backpacking up in New Hampshire, where it dropped down to 32 degrees with a 15 mph wind blowing. Made the hike a little more “exciting” than I wanted.

As noted back in April, I altered my Dividend/Income account to reduce the bond allocation to 0, and increased the dividend stocks and REITS to a 50/50 split. The idea was to increase my dividend yield, as bonds had been performing poorly for the 3+ years that I had been using them. With Interest rates the way they appear to be, I don’t see bonds performing that well in the near future.

The first quarter was somewhat successful (an 18.7% increase in dividend $) but a real bust as far as value (I dropped almost 30% in value) due to the market volatility. Yield was up to 6.13%, but this was primarily due to a drop in the underlying value of the investments. For the second quarter, the investments recovered somewhat, and my yield dropped won to 4.67%. The actual $ amount of dividends for 2020 vs. 2019 was just about even.

For the third quarter, the value of the underlying investments has gone up about 2% (still not where they were at the beginning of the year) and the dividend payments are only 3% higher than the same period last year. A slight improvement.

stockDetailsInvestment valueYieldDividend
CATCaterpillar$7,457.502.76%$51.50
CVXChevron$3,600.007.17%$64.50
CSCOCisco Systems$5,908.503.66%$54.00
DOWDow$4,705.005.95%$70.00
XOMExxon Mobil$3,433.0010.14%$87.00
HRHealthcare Realty$15,060.003.98%$150.00
IBMInternational Business Machines$6,084.005.36%$81.50
PFFiShares$12,029.005.39%$162.04
PFEPfizer$5,505.004.14%$57.00
ORealty Income Corp (REIT)$12,150.004.61%$140.10
SVCServices PPTYS TR$4,770.000.50%$6.00
MMM3M Company$6,407.003.67%$58.80
UMHUMH Properties$14,894.005.32%$198.00
VZVerizon$5,949.004.14%$61.50
WBAWalgreens$3,592.005.21%$46.75
$111,544.004.62%$1,288.69

Again, if I was using the account to live off the dividends, I could “let it ride” and let the investments build back up, while spending the dividends. I believe the “jury is still out” on whether the shift to stocks & REITS was a good decision or not. With the current US Fed and its interest rates, I don’t think Bonds will be a good return any time soon – unless you are willing to go into some very risky bonds. If I had additional capital, I might invest more here, as I think these dividend stocks are undervalued.

Let’s see how the 4th quarter goes.

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Mr. 39 Months

Dividend Account results – 2nd qtr 2020

As noted back in April, I altered my Dividend/Income account to reduce the bond allocation to 0, and increased the dividend stocks and REITS to a 50/50 split. The idea was to increase my dividend yield, as bonds had been performing poorly for the 3+ years that I had been using them.

The first quarter was somewhat successful (an 18.7% increase in dividend $) but a real bust as far as value (I dropped almost 30% in value) due to the market volatility. If I had kept the bonds, I wouldn’t have dropped as much. As usual, my short-term timing is poor.

For the second quarter, I had to shift my account from my bank (USAA) to Vanguard, because USAA was spinning off their investments to Schwab, and I didn’t want to have my investments in multiple companies (I currently use Vanguard, and Mrs. 39 Months uses TRowePrice). I may have missed a few dividend payments on this, so the numbers are a little suspect. For the 2nd qtr 2020:

stockDetailsInvestment valueYieldDividend
CATCaterpillar$6,325.003.26%$51.50
CVXChevron$4,461.505.78%$64.50
CSCOCisco Systems$6,996.003.09%$54.00
DOWDow$4,076.006.87%$70.00
XOMExxon Mobil$4,472.007.78%$87.00
HRHealthcare Realty$14,645.004.10%$150.00
IBMInternational Business Machines$6,038.505.40%$81.50
PFFiShares$11,431.205.91%$168.97
PFEPfizer$4,905.004.65%$57.00
ORealty Income Corp (REIT)$11,900.004.70%$139.80
SVCServices PPTYS TR$4,254.000.56%$6.00
MMM3M Company$6,239.602.83%$44.10
UMHUMH Properties$14,223.005.57%$198.00
VZVerizon$5,513.004.46%$61.50
WBAWalgreens$4,239.004.32%$45.75
 Bonds   
$109,718.804.67%$1,279.62

For 2nd qtr 2019, I received 1,280.21 in dividends on $131,994 of investments – so 2nd quarter appears to be a “wash.” I’ve managed to gain back about 12% of the value back from the 30% that I lost, but still have a ways to go to build it back up.

Again, if I was using the account to live off the dividends, I could “let it ride” and let the investments build back up, while spending the dividends. I believe the “jury is still out” on whether the shift to stocks & REITS was a good decision or not. With the current US Fed and its interest rates, I don’t think Bonds will be a good return any time soon – unless you are willing to go into some very risky bonds.

Let’s see how 3rd and 4th quarter goes.

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Mr. 39 Months

Have you changed your asset allocation?

I tend to re-balance every six months (In July and January). Re-balancing – make it regular and timely. Its helped save me some money (I didn’t suffer as much in Feb/Mar as others, as I took a share of my stock increases for 2019 and purchased bonds with them). So now its July and time to re-balance again.

Now, my standard allocation is:

  • 30% Index Bond funds
  • 17.5% S&P 500 Index
  • 17.5% Small cap Index
  • 17.5% International stocks index
  • 17.5% REITs index

I have found in the first six months of 2020 that my bonds were up to around 33% of my investments, while my REITS were down around 15%, and the stocks were lower as well. Usually, I’d just rebalance everything to the numbers above, and be “on my way.”

However, the Chinese Covid virus and the market volatility had me thinking. The “Fed” (US Federal Reserve Board) in an attempt to keep the market afloat, has dramatically dropped interest rates, and begun buying debt again. The result is that, as before, savers got punished and folks looking to increase their debt could find easy money. It thus made bonds less attractive, as any new debt issued is going to be at lower interest rates for the foreseeable future.

What is someone to do as they close in on retirement? Typically you pull money away from the volatile market and embrace safer investment alternatives – but you can’t do that with rates this low. I’ve tried experimenting with an income account for years, and I just can’t make it work with dividends. So I am stuck, like so many others, in shifting my allocation to more stocks.

In early July, I returned to the allocation that we had for most of the last 20 years:

  • 20% Index bond funds
  • 20% S&P 500 Index
  • 20% Small Cap Index
  • 20% International stocks index
  • 20% REITS index

Based on my previous horrible timing, I’m assuming we’ll have a stock collapse in the next 3 months, so be ready.

Have you made any changes to your investment allocations recently, based on current events?

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Mr. 39 Months

Dividend Account results – 1st qtr 2020

I’ve been tracking my dividend/income account for some time, to see how I could create an income stream out of my investments, rather than just depending on growth stocks and selling them off as I move through retirement and use my  bucket system. The old traditional way was to use dividend paying stocks and bonds to live on (reinvesting some of them to keep up with inflation).

This worked for many years, until the dot.com bust and the “great recession,” when the US Fed dropped interest rates to try and keep the economy out of recession and to fend off deflation – A terrible economic situation, where prices tomorrow will be cheaper than today. When you get a continuous time period of deflation (see America’s great depression of the 1930s) its hard to get the economic engine going again. Folks wait to purchase, because it will be cheaper tomorrow.

Well, due to low interest rates, US stock dividends and bond dividends have been small pickings, and the result is difficulty for folks who want to follow traditional ways of investing their retirement money and drawing down. As I noted at the beginning of the year, my attempts haven’t been that good.

In the early part of the year, I chose to ditch my bonds in the account (which made up 50% of it) and go to a 50/50 split of dividend stocks and REITs. Yes, I know, great timing! So how has it gone for the first quarter? Not bad from a dividend standpoint, but sucky from a stock value standpoint.

Dividend Account
stockDetailsInvestment valueAnnual YieldDividend
CATCaterpillar$5,695.000.00%$0.00
CVXChevron$3,762.256.86%$64.50
CSCOCisco Systems$5,870.253.58%$52.50
DOWDow$2,800.4010.00%$70.00
XOMExxon Mobil$3,971.008.76%$87.00
HRHealthcare Realty$12,570.004.77%$150.00
IBMInternational Business Machines$5,400.006.00%$81.00
PFFiShares$9,807.604.36%$106.95
PFEPfizer$5,004.004.56%$57.00
ORealty Income Corp (REIT)$9,086.005.10%$115.75
SVCServices PPTYS TR$2,604.0024.88%$162.00
MMM3M Company$4,035.302.91%$29.40
UMHUMH Properties$10,802.007.33%$198.00
VZVerizon$5,457.004.51%$61.50
WBAWalgreens$5,457.003.35%$45.75
 Bonds  $132.95
$92,321.806.13%$1,414.30

So I cashed in $1,414 in dividends in 1st qtr 2020 versus only getting $1,192 in 1st quarter 2019 – an 18.6% increase in income (not too shabby). However, 1st qtr 2019 investments were worth $132,151, so that was painful. However, if the objective was to get and live off the income, I could let the investments sit there and move back up. I’m not sure if these companies will cut their dividends in the new year, we’ll have to see.

So the experiment continues.  Right now, I still think investing in index funds and going for growth is the better way to go, and that is where the lions share of my investments are.

Othalafehu dividend performance for 1st qtr

Mr. 39 Months