Saturday, May 30, 2020

The Final Frontier?


I really enjoyed watching today's SpaceX launch of two astronauts on a mission to the International Space Station.  I have to admit, I was a little nervous, since I still have vivid memories of the Space Shuttle Challenger's (1986) and Columbia's (2003) failed missions.  Especially since we have had such a rough year so far in 2020.  But as it turned out, the launch went as planned and the astronauts are on their way to the ISS.  With this launch, a new era of America's space program begins as well, with a private / public partnership hopefully making space travel safer and less costly.  Missions to the moon and Mars seem to be well within our reach now.  It's a very exciting development indeed.   In thinking about the opportunity that commercial space flight offers, I did a little research into ETF's that can give you exposure to this emerging growth area.  Not surprisingly, many of the stocks tracked by these ETF's are in the aerospace and defense industry and are mostly industrial companies, which is important to keep in mind when looking at your overall portfolio diversification.  See below for the screener results:


While all of these ETF's have performed poorly looking back 3/6/12 months, over the past month, they have seen some life as the stock market has rallied.  The best performer has been the Procure Space ETF, with a one month return of 15.5%.  It also has the highest expense ratio of the group at 0.75 and the lowest dividend yield of the group at 0.61%, both of which aren't great.  However, if the superior return can be sustained maybe that's not such a big deal.  The ticker symbol for this ETF is appropriately "UFO."

Here are the top holdings of UFO:


Virgin Galactic, DISH Network, Garmin and Sirius XM Holdings might be familiar names, but here's a summary of the top three companies, which might not be that familiar to you:
  • ORBCOMM, Inc. engages in the provision of network connectivity, devices, device management, and web reporting applications. Its products are designed to track, monitor, control and enhance security for a variety of assets, such as heavy equipment; fixed asset monitoring; government and homeland security; and in industries for manufacturing, warehousing, and supply chain management. It operates through the following geographical segments: United States, South America, Japan, Europe, and Other. The company was founded on April 4, 2001 and is headquartered in Rochelle Park, NJ.
  • Maxar Technologies, Inc. provides space technology solutions, delivering unmatched end-to-end capabilities in satellites, robotics, Earth imagery, geospatial data, analytics and insights. Its segments include Space Systems, Imagery and Services. The company was founded on February 3, 1969 and is headquartered in Westminster, CO.
  • Trimble, Inc. engages in the provision of positioning technology solutions. It operates through the following segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation. The Buildings and Infrastructure segment serves architects, engineers, contractors, owners, and operators. The Geospatial segment offers solutions for the customers working in surveying, engineering, and government. The Resources and Utilities segment caters customers working in agriculture, forestry, and utilities. The Transportation segment covers long-haul trucking, field service management, rail, and construction logistics industries. The company was founded in 1978 by Charles Robert Trimble and is headquartered in Sunnyvale, CA.
Unfortunately, SpaceX is still a private company owned by Elon Musk so until he decides to take it public like Tesla, you'll have to find other ways to invest in the Space Economy.  Hopefully this ETF list gives you some ideas.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  Stay safe, healthy and positive.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.









Saturday, May 23, 2020

A Simple Option Trade

I recently discovered a simple, high probability option trade that so far I have really liked.  If you have read my past posts, you will know my journey with Robinhood option trading and the crazy ups and downs of buying calls and puts and also more complex strategies like straddles, strangles and iron condors.  Like most people who try these strategies, my results weren't very good and resulted in mostly losses.  I'm not sure experience really helps, since you are pretty much relying on luck when you enter most of these trades.  That's why I compared it to gambling in my post entitled Free Trades May Cost More Than You Think

Staying with the gambling analogy, there is another strategy where you are more like the "house" with the odds in your favor and this is selling covered calls.  Selling a covered call is basically selling the right for someone to buy shares of a stock you own at a set price that expires at a certain time.  The buyer pays a premium to you for this right in cash.  The calls are "covered" because you own enough of the underlying shares to sell, should the contract expire "in the money" and the shares are purchased.  You can also sell calls "naked" or not covered, but I don't recommend that at all.

Say you want to own a dividend paying stock like Coke, which currently yields about 3.6% and has a strong likelihood of being able to continue to maintain that dividend, even in the current recession.  While that's a nice dividend, you'd like to make a little more.  Coke currently trades at $45.11 per share, so you can buy 100 shares for $4,511.  You will earn $162 a year in dividends - passive income without you having to lift a finger. 

You can also sell a covered call on Coke with a $47 strike price, expiring in about two weeks on June 5 for $0.18 per share (one contract is 100 shares so you would get $18 of premium for selling the call).  If Coke is trading below $47 on June 5 (86% chance of this happening according to Robinhood option quote), you keep the premium and nothing happens to your shares.  Another way to look at this is there is a 14% chance that the option expires in the money and you have to sell your shares.  If you did that every two weeks, you could make an extra $468 per year, almost 3x the dividend!  There are calls that have a higher probability of profit, but you get a lower premium since they are lower risk.  For example, you could sell a call with a $49 strike price and same expiration date, but you would only get $11 for that one and a 93% chance of profit.  If you can get 90%+ probability of profit and a premium you are happy with, then it's likely a good trade. 

If the stock is trading above the strike price on the expiration date, then you will get "exercised," which means your shares will be sold for $47 per share at that time.  You still get to keep the premium of $18 plus you will get the proceeds from the sale of shares ($4,700) and have a gain on the sale of your shares of $189 ($4,700 - $4,511), so you would have made a total of $207 ($18 + $189) and you still have your original investment money.  As long as you don't sell calls with strike prices below your cost basis, you will make money in the unlikely event the option is exercised.  If you sell your shares for a loss and buy them back right away, you could lose the ability to deduct the loss on your tax return (called "wash sale rules") so that's something to be aware of and to talk to your CPA about. 

I like this strategy for earning extra cash flow on stocks I want to keep long term.  If you keep the duration of the option short - like only one or two weeks, you'll have a higher probability of keeping the premium but of course will earn less of a premium.  The only "loss" you incur if you are exercised is the opportunity cost of being able to sell your shares for a higher price (the difference between the market price and the strike price at expiration).  In a declining market, this is a great way to make extra money above your dividends.  In a rising market, while there's a higher chance of getting exercised, you have the option to repurchase your shares (albeit at a higher price) or buy something else and repeat the process.

At certain times, like around earnings, stocks become more volatile and option premiums can be higher than they are normally, but so can the risk of exercise so you have to use judgment when selling calls into earnings.  There's a great covered call screening tool at Barchart.com.  You can study the different trades to see which ones have the best return probability.  Of course, there's a chance you buy a stock and the price drops significantly, which could be a problem if you aren't willing to hold it, but at least you would keep the premium.  Hertz was high on this list a week or so ago and now they are in bankruptcy and the stock is down significantly, so you do need to be careful and do your research on stocks that pop up on screeners like this.  I prefer to invest in solid, conservative dividend yielding stocks so the call premiums may not be that great, but overall it's less risky.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  Stay safe, healthy and positive.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.


Saturday, May 16, 2020

Top 25 ETF's Last Week

I did a quick scan of the top performing ETF's last week (Top 25) and wanted to share this information with you - not necessarily as recommended investments, since many of these are inverse and / or highly leveraged, carry a considerable amount of risk and are generally speculative in nature (i.e., "trading" vs "investing").  Instead, I thought it would be interesting to see the themes and trends that are emerging in the markets.  In particular, what sectors have been performing poorly (as demonstrated by the out-performance of the inverse ETF's that track the underlying indices).  3x Inverse Natural Gas is top of the list (DGAZ) with a 41% return last week, followed by Inverse US Treasury ETN (TAPR) with a 34% return, US Big Banks Index 3x Inverse Leveraged ETN (BNKD) with a 29% return, the Real Estate Bear 3x (DRV) with a 28% return and again a Natural Gas Short (KOLD) with a 26% return, rounds out the top 5. 

Here's the Top 25 ETF list for last week:


What's not surprising to see is long silver and gold funds (3 funds or 12%), short oil and gas funds (7 funds or 28%) and short banks (4 funds or 16%).  Precious metals have been performing well with all the government stimulus and monetary easing recently and fears of deflation followed by major inflation.  Also, the recession's impact on the economy and dramatically reduced demand for energy and the impact of very low interest rates and the economic disruption on financial services companies are also well understood.  There are 7 funds (28%) that short various stock market indices, which is also not too surprising given the recent stock market volatility and popularity of "shorting the index."  One semiconductor short and one US Treasury short round out the mix and again, not too surprising given recent market action in the wake of the COVID-19 pandemic and onset of a recession.

What is surprising is that there are two real estate short funds on the list (8% of the total).  Typically in a recession, real estate is considered a defensive play, but in this recession due to massive impact the pandemic has had on almost every type of real estate asset, there are expectations that real estate values will plummet more broadly and perhaps worse than during the Great Recession. 

Lodging / Resorts (YTD Return -45.81%)  Many hotels have closed due to lack of travel resulting from the pandemic.  As the country reopens and travel slowly resumes, social distancing measures will make the process very slow and some hotels may never reopen or if they do, it could be years before they are profitable.  It's hard to imagine business travel will quickly return to normal due to the cost and difficulty of travel (many companies have been forced to cut back expenses in the wake of the recession) and also the ability to conduct remote video conferences to accomplish the same tasks.  Even leisure travel could take some time to come back (no doubt some travelers will be lured by low prices). 

Retail (YTD Return -41.16%) For retail, tenants are going out of business and those that remain (other than the "essential businesses" like hardware stores, grocery stores, etc. who have been doing quite well recently) will struggle to pay their rent.  There have also been many high-profile retail bankruptcies recently, most recently J. CrewNeiman Marcus and JC Penney and many more retailers are in jeopardy.  All of these bankruptcies mean lots of empty spaces at shopping centers and malls, which will make it very hard for property owners to cover their expenses including paying the mortgage. 

Office (YTD Return -22.63%) In the office sector, there are similar issues with tenants who are going out of business and / or are struggling to pay rent.  What's more important, however, is the longer term trend that many companies may have much of their workforce work from home if not all of the time at least part of the time.  Indeed, many tech companies such as Google, Twitter, Amazon, Facebook, Microsoft, Slack and Zillow have already allowed an extended period of time for employees to work from home, some until the end of 2020 and for Twitter, "permanently."  If this trend continues, it could dramatically reduce demand for office space in the future which could again put pressure on property owners being able to cover expenses. 

Residential (YTD Return -18.05%) Even residential real estate is facing challenges with tenants still paying rent, but struggling and without a rebound in job growth or continued government assistance in the form of unemployment benefits and stimulus checks, paying the rent will only get more difficult over time.  Landlords will not be able to evict for many months due to recent eviction moratorium legislation at the federal, state and local levels.  Landlords could face a large number of non-paying tenants building up over time.  However, it's clear that the residential space is performing the best right now.

For more information on real estate sector performance check out NAREIT's website here

Legendary investor Carl Icahn is "short commercial real estate" and says he hasn't seen this good of a risk/reward opportunity in many years.  This is a little scary, since many investors view real estate and the relatively high, steady yields produced as safe.  Indeed, many sellers of commercial mortgage fund products tout their relative safety and yield compared to US Treasuries, which clearly is not the case in this recession.  Mortgage REITs are down -47.61% year to date, with home financing (-49.1%) performing slightly worse than commercial financing (-44.3%)

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  Stay safe, healthy and positive.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.

Saturday, May 9, 2020

Bitcoin - Volatile, But Still a Great Idea



As Bitcoin continues to grow in popularity, and especially as it has garnered more attention with the upcoming halving on May 12, the investment thesis continues to be strong for this digital asset.  The halving is when the reward for Bitcoin miners will be cut in half on that date (as it does about every four years), which basically reduces the amount of Bitcoin going into circulation, which should in theory increase the value of Bitcoin over time assuming demand remains the same or increases.  By maintaining scarcity in its algorithm, Bitcoin avoids the problem that fiat currencies face when more money is put in circulation, resulting in inflation or a long term decline in the purchasing power of the currency.  


Below is a chart of the value of the US dollar from January 1985 through April 2020.  As you can see, depending on who you believe, the dollar now buys somewhere between 60% and 70% of what it did in 1985, due to the effects of inflation.


The main reasons for investing in Bitcoin include:
  • Store of value that may even be superior to gold due to Bitcoin's liquidity compared to gold, especially physical gold which is difficult to buy / sell, handle and store
  • Privacy and ease of completing payments and transfers, even for large amounts, without an intermediary like a bank
  • Hedge against dollar and other fiat currency depreciation which will be inevitable result of recent monetary actions taken to combat the COVID-19 economic downturn (Fed  has implemented many programs that simply amount to accelerated money printing)
  • Programmed scarcity (halvings) will continue to drive value up as long as demand remains constant
  • Has outperformed many, if not most, other investments since it's inception at +6,300%



I still think the best approach is to keep your Bitcoin investments small and dollar cost average over time - maybe $100 to $200 per month or a little more if you can afford it.  If you invest consistently, you can take advantage of price decreases, since Bitcoin is very volatile and can experience significant price drops in a short period of time.  The key is to continue to accumulate over time and don't sell - this is truly a long term buy and hold investment.

I have invested in the so-called "alt coins" in the past, including Litecoin, Ethereum, Ripple and others but I believe Bitcoin with the largest market capitalization ($160Bn) is the best bet for long term adoption and ultimate success as an investment and medium of exchange.  As such, I have limited my cryptocurrency investing to only Bitcoin starting about a year ago.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  Stay safe, healthy and positive.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.







Sunday, May 3, 2020

File Cleaning For Spring

Once a year, usually when I'm finished filing my taxes as I have done recently, I go through my home office file cabinets and perform a "Spring File Cleaning."  This has several benefits, including:

  • Helps create room to file bills for the new year and makes the file drawers easier to open and close
  • Allows me to archive last year's stuff in case I need it for some reason later
  • Allows me to check to make sure I have all my critical documents in order
  • Can trigger financial reminders and "to do's" that would otherwise get overlooked
It's a really good process and I highly recommend it.  I used to keep several years of records in the garage, which was causing a lot of clutter.  IRS rules only require you to keep three years in case of audit, subject to some exceptions of course (states may differ from the IRS requirement, for example California is 4 years).  I do keep copies of all my actual tax returns going back many years prior to 2017 "just in case," since they don't take up too much space (two boxes).  Also, as I discuss below, since 2017 I have been archiving my tax returns electronically, but I do keep paper copies of supporting documents in storage.  For the cleaning process, I usually just get a banker's box and go through all the old bills / statements individually and drop them into the box more or less in alphabetic order since that's how my filing cabinet is setup.  I am now down to just a few small boxes in the garage, which is great!  In going through the filing cabinets, here's how I usually approach it:

  1. Keep statements and bills for the current year (2020) and archive everything else except as discussed below
  2. Make sure you keep a copy of the current insurance declaration page for all policies including homeowner's, personal umbrella liability, personal articles, rental property and auto (for auto, make sure you keep the second insurance card they send you in case the one in your car is lost); if you refinance your properties, you'll need to have the insurance declaration pages handy
  3. Make sure you keep your most recent property tax appraisal for your home and rental properties along with the most recent tax bills; this triggered me to think about looking at property values in my area post-COVID19 to see if I should appeal my property's value like I did back in 2008 in the Great Recession
  4. Make sure you have a copy of your most recent IRA statement; this can help remind you to plan for your current year contribution and possibly to review your investment mix
  5. If you have one or more Homeowner's Associations at your properties, make sure you keep a copy of the current annual budget and audit (if you sell or refinance your property it helps to have these handy)
  6. Keep your most recent life insurance policy premium payment and invoice
  7. For memberships, keep the last bill where you paid the annual fee (i.e. Costco, AAA, etc.)
  8. I have been trying to go with more paperless billing on all my accounts, so the amount of paper in my file cabinet is a lot less than it used to be many years ago
  9. For the past three years, I have kept copies of my filed tax returns electronically in a iCloud folder and I no longer print paper copies (except for the filing instructions and authorizations to file electronically which have to be manually signed)
Stay safe, healthy and positive.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.

Sunday, April 26, 2020

Solid Dividend Plays for Inflation or Deflation

There is currently much speculation about whether we will witness a deflationary period followed by inflation as the post-COVID-19 recession / depression unfolds.  With all the monetary and fiscal stimulus being put forth by the Federal Reserve and the US government, we could very well see tremendous inflation down the road.  Either way, investing in solid dividend yielding stocks can be a great way to ensure a steady source of income and provide superior returns in either environment.

The simple math is that the more dollars there are in circulation, the less each one is worth.  Global demand for dollars, the safest currency in the world, has continued to be very strong in this downturn which has resulted in the dollar appreciating recently, oddly enough.  Still, the dollar is worth between 30% and 40% less (depending on who you believe) than it was back in 1985 due to inflation.  So the long term effects of inflation on the value of cash are still very much in play.  See chart below:


Here's a longer term view of the growth of the money supply since 1960.  The money supply growth has spiked significantly recently due to the Federal Reserve's historically unprecedented actions:


I have written about dividend stocks as a passive income strategy a few times and have screened some great names previously.  If you're interested, here are links to my previous posts:


I recently updated the screener to focus on those stocks that have a 50-year or longer history of increasing dividends, with a payout ratio of 80% or less (for safety of dividend) and without regard to industry or market capitalization.

Here are the top 6 stocks that screened and also seem poised to continue to do well in the current economic environment:


  • 3M (MMM) / 4.07% yield / 70.5% payout ratio 
  • Coca Cola (KO) / 3.64% yield / 80% payout ratio
  • Procter & Gamble (PG) / 2.65% yield / 63.7% payout ratio
  • Target (TGT) / 2.54% yield / 39.8% payout ratio
  • Colgate-Palmolive (CL) / 2.47% yield / 60.7% payout ratio
  • Johnson & Johnson (JNJ) / 2.44% yield / 51.8% payout ratio
In addition to collecting the dividend, if you own enough shares, another strategy to increase cash flow is to sell covered call options.   Best case is the options expire out of the money and you get to keep the premium.  Worst case, is you have to sell your shares at the contract price and then use the money to either repurchase the same shares or move funds to a different stock on your target list.  If you sell calls that are sufficiently out of the money, your chances of profit can be very high (80% - 90%).  You should make sure you are comfortable holding the stock you buy for the long term, since price decreases may occur which will enhance your chances of a profitable option trade, but will result in losses in the underlying stock.


Stay safe, healthy and positive.

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.

To see all my books on investing and leadership, click here.

Disclaimer:  I use affiliate links where I get paid a small amount if you buy the service or product. This helps support my blog.