The Stable Song

      Gregory Alan Isakov reorded this song on the album titled "Gregory Alan with the Colorado Symphony" in June of 2016. While the album and song is not well known, it drew critical acclaim for its lyrics and music. I also recomend watching the video while listening. A person can draw whatever meaning they want from the song but I felt that it related to stability in my portfolio during turbulent times. It also reminded me of the humble beginnings of many worthwhile endeavors.     

     When looking for investments to add to my portfolio recently, I have found that many well known stocks have appreciated considerably in recent months which explains why the market indexes are at or near all time highs. I am looking for yield and growth with stability over time. The tech sector is known to be volatile so I want to limit my exposure there. CD yields are inching up as inflation fears are increasing, making interest rates rise. While I can now get a taxable 4% on a short term CD, there is no growth there and in 7 months I will need to reinvest the funds in something else. So what is an investor to do?

     There's no easy answers and macro economic factors keep changing with every decision coming out of the White House so I am leaning on the stability of dividend paying stocks. Historically, dividends have accounted for about 33% of total return for stocks over the last 80 years or so. If you go back further, it approaches 80%. When screening for dividends, it pays to avoid traps such as an unusually high yield. That usually is a sign that the company is in trouble and the dividend will be cut or eliminated soon. Sometimes the yield on a blue chip stock seems paltry and is a turn-off to an investor but what is important is the history of dividend growth. When a dividend increases over time, the stated yield that you see published is not your actual yield. A more important measure is your yield to cost. If you divide the annual dividend by YOUR cost then you get an accurate picture of your return. This doesn't happen overnight but we are after stability, right?

     Income investing has taken a turn recently because of the war with Iran. The cost of oil has risen dramatically (the most in history) because of the disruption of supply flow out of the middle east. It seems to me that the inflationary forces of higher fuel will be with us for many months even if the oil starts flowing again in the near future (also unlikely). This in turn makes the decreases in interest rates which has been widely forcast also unlikely. Even  new FOMC chairman Kevin Warsch, which Trump appointed, may have to raise rates to tame inflation. Higher rates decreases the value of an existing bond portfolio. What looked like a winner in January is not so appealing now.

     Stocks in sectors like banking, utilities,pharma, and consumer staples are looking attractive to me now because I see growth, income, stability, and tax effeciency. At this point in my life, capital preservation trumps high current yields and high flying tech plays. The events of this year have shown how quickly things can change but dividend paying stocks are the ballast to stabilize a portfolio. Long term investing is less about making you rich and more about not "Turning diamonds straight into coal".

"Take it Easy"

"Take it Easy" was a song written by Jackson Browne in 1971 intended to be included in his own debut album but he just couldn't get around to finishing the song. Glen Frey, lead singer for the Eagles and a neighbor of Browne offered to finish the lyrics if he could record the song on the Eagles album. The rest is history. The song was released in 1972 as the opening track on the Eagles debut album and reached #12 on the Hot 100 chart in July of 1972. What makes the song unique is the banjo accompaniment played by Bernie Leadon. The song is listed as one of the Rock and Roll Hall of Fame's 500 that shaped Rock and Roll. There's good news and some not so good news going down in the investing world. The good news is that some things are getting easier. Starting with interest rates; Kevin Warsh was named as the new Chairman of the Federal Open Market Committee today. It is widely viewed that he will accomodate President Trump's demand that interest rates should be cut. In the near term that is a positive for the stock market and maybe a tail wind for the bond market. In the long term, cutting interest rates could reignite inflation which is bad for everyone. Easy money could cause the economy to run too hot in a world where supply chains are already thin due to trade tensions. At this time, there is confusion among analysts as to who will win the race to dominate the market for Artificial Intelligence. Recent market action suggests that the software companies such as Microsoft, SAS, Snowflake, Salesforce, and many others will suffer because AI will make coding so easy a kindergardener could do it. I believe the punishment is overdone because Enterprise Management Software is a very complex product and not easily replicated. Having used an Oracle system in a previous life, I was amazed at the amount of data the system held. I don't hold any of these software names and don't intend to buy until the dust settles. What is now easier to recognize is the probable winners in the AI world. Apple has avoided the massive capital spend that the hyperscalers have shelled out to date. Their wait and see approach has allowed them to pick and choose among AI platforms already developed by others. Apple is sitting on the delivery system for consumer artificial intelligence with a 2.5 billion worldwide installed user base. I still own some Apple and may add to my position. Another easy decision for me is to hang on the my stake in Alphabet, formerly known as Google. Unlike Apple, Google has a pretty decent AI offering on the Android phone which is Gemini. Many pundits believe that Gemini will end up on the Iphone. That saves Apple a ton of money and provides more revenue to Alphabet. It's not like Alphabet doesn't have a shortage of revenue streams because they own Youtube, Youtube tv, Google search, Waymo self driving, Calico life sciences, Android, Google Cloud, and many others. Alphabet has made over 260 acquisitions and has a market cap of 4 trillion dollars. I view their diverse holdings as a positive. Anyone who reads and listens to financial news know of the concept of "Universal Basic Income". This is the idea that when AI replaces the need for humans to work, somehow a check arrives every month {or direct deposit} for living expenses. No one has ever explained just who will send me the money, thats just a detail that need to be worked out in the future. Elon Musk has enhanced this notion by calling it "Universal High Income". I like his idea better for obvious reasons. Until this happens, I'll still be looking for bargains in the stock market and other investments but when the U.H.I deposit hits, I plan to "Take it Easy".