Diversified Bullish

Regression to the Sea

A market of stocks reminds me of a school of fish. They swarm in the same general motion, sometimes using their collective to protect each individual fish with natural deception. Some of the fish are stonger than others, use their competitive advantage to survive and help the other fish. But if a fish becomes too weak, it gets eaten. Same with stocks.

In January 2022, the stock market was bubbling up together in a cash injected, inflation-fueled blow-out. Then the direction of the tide shifted. After pulling back strongly into summer, a brief respite in July before getting hammered even more, with a possible bottom reached in late December. Warren Buffett once said, "Only when the tide goes out, do you learn who has been swimming naked." It's the weaker companies burning through cash struggling to survive. They get metaphorically eaten. Thankfully, stocks are starting to bounce back. It's now a "stock picker's market" or so I've heard. If you bought anything in December, you're probably up a decent amount on the investment. In a few cases, my new positions and DCA buys from within the past 6 months are up 80%. Of course, I'm still down 30%-60% or [gasp] more on too many positions. Regardless, I tend to buy and hold with an option to sell at breakeven if I don't like the company's power structure or earnings reports. I can wait a long time and intend to do so with all my stocks. Sidebar: did you know whales can live up to 90 years? They're probably good investors.

Like fish, stocks valuations are loosely tied together, especially at an industry level. If prices go up a lot, they'll probably reverse eventually. If they recently pulled back hard, there is a better chance for growth at a reasonable price. Sometimes you have to load up when a stock is down over 20% in a single day. When all hope is lost, yet another regression but this time upwards after you bought it if you chose well. It's not always going to work out, but lowering your cost average is generally considered a good idea in investing.

Nevertheless, no one really knows what the market will do. The stock market's short-term direction is about as random as a school of fish. When the market regresses to the mean and sells off: buy the fish that is consistently makes the right moves. It has these characteristics: quickly acquires customers and keeps them, protects or grows their product profit margin, survives economic drawdowns, socially responsible and guides earnings appropriately. That's a catch!

10 Ways I Keep Up With My Stocks

This post summarizes ways that I keep tabs on the companies I'm holding in my investment portfolio. I tend to hold stocks for a long time, regardless of stock price movements. It helps to see the whole picture, industry, customer mentality and metrics like free cash flow and profits. These are ways I try to glean insights into a company's future potential or lack thereof.

Here are 10 ways I keep up with my stocks:

1. Use a Charles Schwab investor checking account to buy assets + make trades.
2. Watch CNBC for free in the Charles Schwab mobile app.
3. Track dividends received in Charles Schwab account.
4. Use Google Finance to manage watchlists and monitor daily prices. Schwab also has a watchlist but I prefer Google Finance's UI for watching short term price movements.
5. Observe the company "in the wild".
   • If public, visit the company and observe what you see. Is it a well run operation? Are customers happy?
   • Note the frequency you see people choosing the company's products day to day.
   • Bonus points if you are the customer, you know intimately what value the company is creating.
6. Earnings calls: listen to the call live or most companies post the call transcript online.
7. Read investing blogs and books from the greats. I subscribe to my followed blogs via an RSS feed. Here are a few I recommend:
   • The Reformed Broker, Josh Brown
   • Of Dollars and Data, Nick Magiulli
   • Benjamin Graham, Intelligent Investor
   • Peter Lynch
   • Warren Buffett
8. Monitor sentiment with Twitter and Reddit. Read the Twitter cashtags for individual stocks and browse social media for overall sentiment monitoring. Beware there are emotional posters with an agenda, opinion or position that may contradict yours. I find it useful for gaining a sense of general feelings about the market or shares in a company.
9. Use finance Python libraries, like yfinance to see more complex financial calculation about a stock. I wrote in depth about the endless tools you can apply for financial calculation here on my other blog.
10. Talk to people about their investments. What are they investing in? What's working for them? What are they excited about? They have a perspective that differs from yours that exposes you to a new concept or industry.

Achieving $50 / Month in Investing Income

In March 2023, I achieved a new milestone of passive investing. Since beginning in 2018 with approximately $15,000 in savings, I've accrued a six figure portfolio of funds and stocks with a "DCA and buy and hold" long term mentality. I did this by holding a full time job and earning multiple pay increases along the way.

About 50% of my retirement funds are in a managed employer match 401(k) with a different bank. My primary bank is Charles Schwab. Most of my self-directed IRA is collecting dividends with Schwab index funds (SCHB, SWPPX and SWTSX) and MSFT. My self directed IRA has a smaller weight of non-dividend growth stocks also. In my taxable portfolio, the core dividend earners are stocks like MSFT, NKE, AAPL, F and NVDA.

Additionally, 3-5% of my investment portfolio is committed to cryptocurrency assets. After buying incrementally from December 2020 to 2022, I now have market value exceeding $5,500 staked in Ethereum. Approximately 60% of my crypto portfolio is in ETH, followed by 25% Bitcoin, which does not have a staking protocol. Over the past 7 months, my staking rewards netted me $12.48 per month by my calculations.

Passive Investing Income Breakdown
Stock Dividends: $38/month
Ethereum Staking: $12.48/month

Combined, they add up to a investment income of $50/month and counting with time. Hold dividend stocks and index funds. Stake Ethereum, if you can handle elevated risk that surrounds crypto. Then again, with the recent banking shakeout, maybe a more decentralized store of value is intriguing. Find a job or start a business, keep saving and reap the rewards of investing. This is how I achieved a new level of passive income. In both, their dividends are automatically re-invested.

This post and all posts on this blog are not financial advice. All investment decisions have personal risk and you should assess them thoroughly before taking any financial actions.

Volatility, Friend or Foe?

Volatility is scary because when a stock thrashes down, it hurts pretty bad. Investors need to set aside their emotions and ask themselves, "Has my thesis about this company changed?". If you still have conviction, the market's volatility has created a possible buying opportunity.

It sounds simple put into words, but observing the market in real time never goes so smoothly. Your perceptions of a "bottom" or a stock's range can be way off. Volatility is an opportunistic investor's friend, and a timid or inexperienced investor's foe. However, even a seasoned pro can get it disastorously wrong and get wiped out by a falling knife. Make volatility your friend, but be careful!

Should You Hold 5 Stocks or 30?

The topic of how many stocks you should hold is ambiguous. An old investing adage is 'concentration builds wealth', but is that true? I'm not so sure. It depends on the skill + experience of the investor and their conviction to hold the assets.

As a retail investor with less experience, I keep a diversified portfolio of stocks and index funds. I'm holding around 50 stocks and funds. Diversification lowers your risk and exposure to any given individual position. However, I do realize that concentration yields benefits like intricately focusing on the companies your money is riding with. Investing is an art steeped in allocation. When conviction (and profits) are high, I think it's acceptable to keep a higher allocation of such securities.

Gains Happen in Bursts

Gains tend to happen quickly in a short time. This is a reason to hold onto those shares a little longer. That sudden unpredictable catalyst might be around the corner.

When a stock moves, it can happen after years of stagnant price action. Don't miss your gains by exiting at the wrong time. If earnings are heading the right direction, the gains will come.

A List of Financial Cliches and Terms

1. "soft landing": implies graceful economic transition
2. "pivot": implies the Fed will switch its interest rate policy
3. "bottom": implies a time where the market will irreversibly swing to the upside
4. "short squeeze": price goes up due to short sellers being forced to cover their positions
5. "place to hide out": reference to a stock as a shelter or place unaffected by market drawdowns
6. "growth stock": stock that reinvests dividends to grow rather than paying to investors
7. "dividend stock": stock thay pays dividends to investors
8. "dead money": momentum of a stock has stalled and not changing anytime soon
9. "rekt": getting decimated by a position's losses
10. "falling knife": stock price is falling fast and risky to catch
11. "due dilligence (DD)": researching a stock's prospects to generate money
12. "money on the sidelines": reference to how much cash is waiting to be deployed into stocks
13. "dry powder": refers to amount of investable cash you have
14. "FUD": fear, uncertainty and doubt raised by a stock's haters
15. "whales": big shareholders that move markets when they enter or exit a position
16. "stagflation": reference to a stagnant, inflation plagued economy
17. "priced in": the price is all knowing, common catch-all trope
18. "forward looking": the market is out in future events and pricing accordingly
19. "overvalued": insinuates the market price is wrong about a stock, opposite of oversold
20. "oversold": implies the stock price has swung to the downside and is primed to bounce back
21. "valuation multiples": comparison of current price vs. earnings + cash flows
22. "trading at a premium": implies the stock commands its lofty valuation against its earnings
23. "long term": 1-5,10 or > 30 years, depending on who you ask!

Humans in the Balance Sheet

Corporations value humans, until times get tough. Then they start to cut.

I thought they were less brutal, deploying strategies so feudal. Employees are just a line item to them.

What's good for the company? They'll land on their feet. They don't care about a human in the balance sheet.

The Recession is Bullshit

I can't shake the feeling that we are being toyed with by invisible forces. First, a disease is manufactured and propagated. Then, a response to the disease is conceived. It includes locking down society and subsidizing the people with printed money.

This is all a tidy narrative for companies to retrofit to their own needs. A cycle of boom and bust is synthesized in the name of the greater good. Employers now have a reason to fire their employees and raise prices of their widgets. Stocks suffer because it's going to be difficult. Everyone knows a recession is coming!

Fear mounts. Worries pile up. The Federal Bank must curb inflation. They need to raise interest rates on borrowing money to get this nasty inflation monster under control. Now it costs more money for people to take out a loan and buy houses. Companies don't give raises. Inflation of consumer staples eat into our salaries. "The recession is coming!", they said.

In summation, we have a (natural?) phenomena, seized by world governments to extend their power in the name of protecting the people. Stocks go down for now. That's ok as a long term investor. However, I can't get over the idea that is all humans, all the way down. Humans doing human things: scheming, reacting and seizing an opportunity to claim the sky is falling. All along, fat cats padding their own pockets at the expense of their fellow man!

Do you think a recession will happen? Is it already happening? Or is it only our reaction to the idea of it? I, for one, find it amusing how humans can be so sure they know what is coming and what has already happened. I'm a skeptic! This recession is bullshit.

A Time Far Away

Investing requires seeing beyond the all around us. We are emotional creatures who fly off the cuff so easily. It helps to imagine a time far away from our current trials and tribulations as a species. This hypothetical time when the whole world cooperated for the greater good of commerce, prosperity and freedom for every soul on this damn planet. That is the admittedly optimistic bull case to juxtapose to the current environment. How much could the world change in 5, 10 or 20 years? War is disgusting, but I guess it's our current state of affairs.