Today I added 20% trailing stops on all my holdings of monthly dividend stocks and other securities in order to help protect my capital base. I'm convinced that virtually any good bullish trading strategy is going to necessarily involve some stop loss orders, and I also believe that the market is still on relatively weak ground. Much of the rally up to this point seems to me to be speculative, and we could very well see another round of capitulation if there is a decent run of negative economic news or if there is a major catastrophic event such as 9/11. While total global financial meltdown no longer seems imminent, it does appear it came very close to happening, and it could do so again. However, now that banks are outrageously profitable thanks to low interest rates, they do indeed seem to have the capability to absorb significant loan and credit losses going forward. This gives me a greater sense that the financial world is stabilizing, however, there are still many variables that could pull it crashing down in a hurry. I do believe that the entire market in general is definitely going up slow and steady long term, but if everything should suddenly come crashing down again, the market will test new, even lower lows, and I don't want to be caught watching all my unrealized capital sink to half of its value or less. I also don't want to trigger a stop loss amid short term volatility. Therefore, I decided a 20% cushion would be the appropriate amount at which to set trailing stops. If the all-out armageddon finally arrives, my portfolio is ready for it. If a stop loss order gets automatically filled here and there when I would have chosen to hold instead, it's not the end of the world... then I just have to decide if I want to keep the cash or reinvest it.
For more information on Tony Farrell's Monthly Dividend Stocks go to http://www.monthly-dividend-stocks.com
Friday, July 24, 2009
Monday, July 20, 2009
Diversification, Dollar Cost Averaging, Dividends Paid in Cash, Portfolio Watching, and Tracking Monthly Dividend Stocks
My investment strategy with high yield monthly dividend stocks incorporates a variety of investing principles I have learned over time along with the capability to produce and maximize returns.
First is dollar cost averaging because it is important as it relates to market timing, which is really anybody's guess. I find some of the freely available analysis stuff to be interesting for sure, and I receive a bunch of the free ones in my email. However, whatever the analysis stuff says the market is going to do, rarely does my portfolio follow it. There are a number of good reasons for this, with the primary one being that the securities I have invested in are mostly removed from the securities which make up the major market indices. In addition, volatility is still high right now, though not as bad as it was earlier this year, and thus any one security can quickly rise or fall rather inexplicably. That is, money is still being moved around a lot, and if I start to think I can follow those movements, chances are I'm going to be wrong. Thus the need for dollar cost averaging, or incremental investing. Rather than trying to time a a market bottom, I simply incrementally add to my positions over regular time intervals as cash becomes available to do so regardless of what the market is doing at the time. I also tend to add to my positions twice a month - once when mid-month dividends roll in and again when end-of-month dividends are paid - in order to accelerate the portfolio growth with bi-weekly compounding (26 compounding periods per year). However, I do not just buy blindly, but instead I do my best to make the best buying decision based on portfolio watching and tracking monthly dividend stocks.
Portfolio watching is of importance to me because it lets me know how much cash I have on hand to buy additional securities, and it alerts me to when securities I already own are good buys. For example, if I buy a certain security at a certain price which I thought was a good price, and it later drops by say 30% or 40% or 50% of the price I bought it at to begin with, then it comes onto my radar for consideration for buying additional holdings of that security. If I have cash available to add to my portfolio, I would consider adding to one of these I already own while it is such a good deal. However, I would also research it a bit and make sure I'm not buying something which seems to be, for example, on the verge of bankruptcy (though sometimes I may take that risk anyways hoping for significant reward). Along these lines, I recently added to my holdings of Harvest Energy Trust (HTE) after the price dropped by about 50% below what I originally paid for it because HTE is a great long term buy right now, in my opinion. If everything in my existing portfolio is looking good, then I would leave it alone and instead acquire new positions in other securities, for which tracking monthly dividend stocks becomes important.
I track about 150 high yield monthly dividend stocks (securities), of which I own 28 at the time of writing this. Each of the monthly dividend paying securities I own was deemed to be the best buy available to me at the time I purchased it based on my proprietary formula involving highest price in last five years, highest regular monthly dividend paid out in last five years, current price, and current dividend (or last dividend paid). I have developed an automated way to keep this list current so that at a quick glance at any given time, including during the trading day, I can easily see what my next best buying decision would be. Then I go on my online trading account, fund it if needed, place a limit order, and it's done. This is quick and easy and has so far yielded really great results for me. However, I only buy about $200 or so of each security at a time in order to stay well diversified and because it correlates approximately with my ability to make regular cash infusions from my income from my computer service business.
Diversification is necessary here because high yield monthly dividend payers are by their nature more risky, sometimes even with outrageously high yields that can't possibly be sustainable, because they pay out capital as dividends first and foremost. As a result they have less capital to work with for activities which make the security more valuable such as buying back shares, reducing debt, accumulating cash, and so on. Therefore they are not as strong as companies that sit on piles of cash, for example, and their market price often moves more based on demand and less based on performance of underlying securities and assets. As such, to a degree, they are all speculative, and some more than others. Therefore that inherent risk needs to be spread out, hence smaller positions in many securities. This way, if one of my holdings goes all the way to zero, the overall impact on my entire portfolio would be minimal. It also helps if I buy securities which are themselves holders of diversified securities for a compounding diversification effect to further reduce risk. In addition, when stocks are moving up in general over the long-term bull market, this diversification helps ensure portfolio appreciation from that rally, and when inflation starts skyrocketing, the diversification will help the portfolio keep pace with it.
Finally, getting dividends paid in cash is really great for added flexibility and increased diversification. Instead of reinvesting dividends to add to my current positions, I can choose how and where I want to reinvest my dividends, for which I am consistently acquiring new positions. I can also choose to keep some of them, for example, to pay income taxes on all the dividends I have received. In addition, receiving cash dividends significantly maximizes my return over the long run even in bad scenarios. For example, maybe the price of a certain security I own goes bankrupt in five years from now. However, during the five years up until that time, I was paid out a total of 120% of my original investment in cash dividends. So now five years later it is only worth almost nothing, but I have been reinvesting the dividends on a monthly compounded basis for five years in other securities, and now my overall return is well over 200% of the original investment just on that one security despite it going bankrupt. In fact, I may even consider that to be buying opportunity to add to my position in that security, or I could sell low and take the losses to offset some of my dividend income for tax purposes.
For more information on Tony Farrell's High Yield Monthly Dividend Stocks go to http://www.monthly-dividend-stocks.com/
First is dollar cost averaging because it is important as it relates to market timing, which is really anybody's guess. I find some of the freely available analysis stuff to be interesting for sure, and I receive a bunch of the free ones in my email. However, whatever the analysis stuff says the market is going to do, rarely does my portfolio follow it. There are a number of good reasons for this, with the primary one being that the securities I have invested in are mostly removed from the securities which make up the major market indices. In addition, volatility is still high right now, though not as bad as it was earlier this year, and thus any one security can quickly rise or fall rather inexplicably. That is, money is still being moved around a lot, and if I start to think I can follow those movements, chances are I'm going to be wrong. Thus the need for dollar cost averaging, or incremental investing. Rather than trying to time a a market bottom, I simply incrementally add to my positions over regular time intervals as cash becomes available to do so regardless of what the market is doing at the time. I also tend to add to my positions twice a month - once when mid-month dividends roll in and again when end-of-month dividends are paid - in order to accelerate the portfolio growth with bi-weekly compounding (26 compounding periods per year). However, I do not just buy blindly, but instead I do my best to make the best buying decision based on portfolio watching and tracking monthly dividend stocks.
Portfolio watching is of importance to me because it lets me know how much cash I have on hand to buy additional securities, and it alerts me to when securities I already own are good buys. For example, if I buy a certain security at a certain price which I thought was a good price, and it later drops by say 30% or 40% or 50% of the price I bought it at to begin with, then it comes onto my radar for consideration for buying additional holdings of that security. If I have cash available to add to my portfolio, I would consider adding to one of these I already own while it is such a good deal. However, I would also research it a bit and make sure I'm not buying something which seems to be, for example, on the verge of bankruptcy (though sometimes I may take that risk anyways hoping for significant reward). Along these lines, I recently added to my holdings of Harvest Energy Trust (HTE) after the price dropped by about 50% below what I originally paid for it because HTE is a great long term buy right now, in my opinion. If everything in my existing portfolio is looking good, then I would leave it alone and instead acquire new positions in other securities, for which tracking monthly dividend stocks becomes important.
I track about 150 high yield monthly dividend stocks (securities), of which I own 28 at the time of writing this. Each of the monthly dividend paying securities I own was deemed to be the best buy available to me at the time I purchased it based on my proprietary formula involving highest price in last five years, highest regular monthly dividend paid out in last five years, current price, and current dividend (or last dividend paid). I have developed an automated way to keep this list current so that at a quick glance at any given time, including during the trading day, I can easily see what my next best buying decision would be. Then I go on my online trading account, fund it if needed, place a limit order, and it's done. This is quick and easy and has so far yielded really great results for me. However, I only buy about $200 or so of each security at a time in order to stay well diversified and because it correlates approximately with my ability to make regular cash infusions from my income from my computer service business.
Diversification is necessary here because high yield monthly dividend payers are by their nature more risky, sometimes even with outrageously high yields that can't possibly be sustainable, because they pay out capital as dividends first and foremost. As a result they have less capital to work with for activities which make the security more valuable such as buying back shares, reducing debt, accumulating cash, and so on. Therefore they are not as strong as companies that sit on piles of cash, for example, and their market price often moves more based on demand and less based on performance of underlying securities and assets. As such, to a degree, they are all speculative, and some more than others. Therefore that inherent risk needs to be spread out, hence smaller positions in many securities. This way, if one of my holdings goes all the way to zero, the overall impact on my entire portfolio would be minimal. It also helps if I buy securities which are themselves holders of diversified securities for a compounding diversification effect to further reduce risk. In addition, when stocks are moving up in general over the long-term bull market, this diversification helps ensure portfolio appreciation from that rally, and when inflation starts skyrocketing, the diversification will help the portfolio keep pace with it.
Finally, getting dividends paid in cash is really great for added flexibility and increased diversification. Instead of reinvesting dividends to add to my current positions, I can choose how and where I want to reinvest my dividends, for which I am consistently acquiring new positions. I can also choose to keep some of them, for example, to pay income taxes on all the dividends I have received. In addition, receiving cash dividends significantly maximizes my return over the long run even in bad scenarios. For example, maybe the price of a certain security I own goes bankrupt in five years from now. However, during the five years up until that time, I was paid out a total of 120% of my original investment in cash dividends. So now five years later it is only worth almost nothing, but I have been reinvesting the dividends on a monthly compounded basis for five years in other securities, and now my overall return is well over 200% of the original investment just on that one security despite it going bankrupt. In fact, I may even consider that to be buying opportunity to add to my position in that security, or I could sell low and take the losses to offset some of my dividend income for tax purposes.
For more information on Tony Farrell's High Yield Monthly Dividend Stocks go to http://www.monthly-dividend-stocks.com/
Monday, July 13, 2009
High Yield Monthly Dividends - Focus on Harvest Energy Trust
Recently after watching the dividends get cut and the value of my holdings in Harvest Energy Trust (HTE) drop almost 50% and approach its 52 week lows, I became absolutely convinced it was time to buy. Therefore, instead of acquring a new position in a different high yield monthly dividend security, I doubled down on HTE. Looking around, it seemed the popular consensus was the same as mine, that by and large Harvest will outperform. There may be some additional short term pain, but the near-long-term gain should be significant. Nobody seems to think that oil prices will stay so completely supressed for very much longer, with the related stocks still trading at armageddon levels, and I have to agree. Even modest growth, combined with significant inflation, I think will send these energy stocks soaring. Harvest in particular is struggling to wade through the downturn, but has cut dividends to help eliminate debt and is very well positioned to benefit handsomely from the forthcoming rebound, which I believe is now right around the corner. This is one that could never trade this low ever again, or at least not until heavy dependence on oil is eliminated some 50 to 100 years down the road. Therefore, while I would by no means put all my cards in the HTE basket, I have added a few more to the bunch. I knew it was a great deal when I originally bought it, and after the price dropped 50% from that level, I just had to buy some more.
For more on Harvest Energy Trust see http://www.harvestenergy.ca
For more on Tony Farrell's Monthly Dividend Stocks see http://www.monthly-dividend-stocks.com
For more on Harvest Energy Trust see http://www.harvestenergy.ca
For more on Tony Farrell's Monthly Dividend Stocks see http://www.monthly-dividend-stocks.com
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