Change

 One thing is certain in investing in stocks of companies and that is change. Change in the business of the company, change in the valuation, and change of management. I can't think of a single industry that isn't undergoing tremendous change right now. The computer industry is a perfect example. Back in the early 1980's, Apple computers were the rage. They had 64k of RAM and no hard drive. If you wanted to store your work, you bought an external 5 1/4 floppy drive. The whole outfit with a dot matrix printer cost well over $5000. Suddenly, IBM came out with the PC, causing the Apple 2E and 2C sales to plummet. I used to buy Apple computers at yard sales cheap and clean them up, add some software games, then resell them to people who thought they were left-out of the computer age. Then along came the Internet and some internet provider companies started offering  a free computer for signing a 2 year contract for dial-up internet.That ended my little enterprise abruptly.  Most midsize and large companies used to have what they called a"mini"computer to run their operations. It took up a huge air-conditioned room and cost hundreds of thousands of dollars. Now days, companies just contract with "cloud"providers who run the operations in huge data centers for a monthly fee. The makers of mainframes and minis had to scramble to find new businesses to keep the doors open. Any technology company that can't constantly reinvent itself will either be bought-out or die. Currently, some of the biggest names in tech are trying to stay pertinent by transitioning from a manufacturer or software provider to service providers. Microsoft, IBM, Hewett Packard,Cisco, Xerox and many others are searching for new sources of revenue. The auto industry is also undergoing a huge change. Soon, the autonomous car will be commonplace. It will run on batteries and get recharged from household current. Successsful investors of the future will have to determine which companies will benefit from the new products and changing consumer behavior. I have no idea who the winners will be but I will be watching to see how the established companies compete with nimble upstarts who will try to unseat them. Instead of trying to predict the eventual dominate player in a new technology, I would rather invest in the component supplier who makes a "must have" part that is critical to the technology. At the current time these component makers for cell phones are out of favor due to slowing growth in smartphone sales which has investors spooked. I don't see any alternatives to smart phones at this time so I will be adding to my positions of MU, LAM, and possibly NVDA for AI exposure and autonomous technology.

If You Want It Done Right............

      Maybe I am just getting grouchy and particular in my old age, but sometimes when I get "help" out in the garden, I am never satisfied with the results. My fellow gardener, who is 15 years older than me, feels the same way when I help him. Everybody has their own ideas about the way things should be done. I feel the same way when it comes to my investments. Nowdays, people have choices about how they go about tending to their nest-egg. One option is to have a "guy" who is supposed to act in your best interest and make you money. The fact is that this guy will make money regardless of whether you do. If you don't have the knowledge to invest yourself, how do you know he is selecting appropriate investments for you? Another option is to buy all mutual funds. Most mutual fund families actually hire an outside firm as advisor to select the investments for the fund. So your actually hiring a company who hires a company who hires some people to manage your money. Another choice is to buy a passive investment which tracks an index like the S&P 500. This can be a mutual fund or an ETF which simply buys the stocks contained within the index. When the market goes up you might make money and when the market goes down you lose. Your only decision is whether you should be in stocks or not. Another mutual fund option is the "fund of funds" portfolio. This is where your advisor sells you a mutual fund that contains other mutual funds, usually within the same family of funds. I believe in diversification but this is simply dilution and usually a losing position. My last option is to just do it yourself. It takes a little conviction and some homework but the rewards can be worth it. Picking your own investments can be profitable in both up and down markets. Selecting undervalued stocks when the overall market is high can limit your risk and provide income when the averages are declining. Knowing when to lighten up on stocks and select alternatives is something passive investing doesn't do. Most mutual funds are required by charter to have a certain level of stocks in their portfolio. I own some mutual funds, ETF's, passive investments, and even have a "guy" or two to lean on but I like the control I have by owning stocks that I selected myself. Tending to my portfolio is a lot like gardening. If you plan your garden carefully, buy good seeds and stock, then keep it weeded, it should produce good yields. Likewise, buy good stocks, monitor their progress, weed-out the losers, and reap the rewards.

2018 Mid Year Review

     It's that time of year again for me to review the picks made in the 2018 Forecast. Even though I did mention some individual stocks, I now use ETF's and some sector mutual funds to indicate my favorite sectors. The first sector I recommended was the Financial sector and I used the XLF as my benchmark. This ETF is off about 2.25% so far this year. I still like this sector for all the reasons stated in my forecast but the fact is that overall loan demand is low at this time and the fundamentals of the business is in question. To compensate for the slow growth, big banks are planning to return record amounts of capital to investors through stock buy-backs and increased dividends. My second choice was in the energy sector. I  referred to two investments: VDE which is a Vanguard mutual fund and XLE which is an ETF. VDE is up about 7% this year and XLE is up 6%. As expected, energy has stabilized this year and I expect this to continue for the foreseeable future. Another oil related investment was the Alerian master limited partnership ETF symbol (AMLP). This investment has a yield of about 8% but has not appreciated this year so far due to some technical issues within the MLP space. My last recommendation was the XLK, which is the S&P ETF invested in Technology. This fund returned over 9% so far this year. Some analysts  believe that there is some trouble coming to the technology area for the short term. If a trade war breaks out- and it looks like it will, then the global supply chain for many technology companies will be interrupted.
     I am still comfortable with all my recommendations but I am getting a little nervous about the market as a whole. My reasoning is that we are in a historically long bull market and something is bound to end it soon. The old saying that bull markets don't die of old age is true-some catalyst will cause a reversal in stocks and a trade war may be it. There is also the possibility that the Fed will raise rates to a point that causes earnings to decline and investors to jump into fixed income investments like CD's or bonds. Some of my retirement funds have already been moved into the best yielding CD's that I could find through my brokerage account. These CD's are federally insured but don't yield a lot, however, if the market sells-off I will sleep better knowing that my retirement is still on track.

Passing The Torch

    Something profound happened on Friday night June 22 at about 10:30 pm. The person who initiated this blog passed away at age 93. She had suffered from dementia for about 10 years and God finally called her home. This was my mother, Ella Mae Sheets. She would have liked for me to be a good student in school, but I wasn't. She would have liked for me to become a professional like a doctor or a lawyer, but I didn't. But something happened about when I turned 20 years old that created a bond between us that lasted for the rest of our lives.We began a dialogue about investing that created a spark in me that still burns hot. Our first investments were in South African gold mining stocks. I took time out from my partying ways every week to corroborate with her on the progress of our investments and to discuss other stocks for further research. This dialogue continued for many decades. It was our common bond. I seldom bought or sold a stock without informing or conferring with her. She often consulted me about what she was buying or selling. Something amazing happened during this partnership-we were making money! Not always of course, but over time, our gains exceeded our losses. Our disagreements were mostly just challenges to force a defense of a stated position. Over time, our separate portfolios grew, not because we traded often, but because we let our profits grow. After Mom became unable to manage her accounts due to the dementia, I assumed the management of her portfolio. I was surprised to see that many of the stocks that I had mentioned to her were positions she had taken. She was actually listening to me all those years! Neither my father or mother made much money during their working lives, but because my mother took a keen interest in her personal finances, she was able to retire comfortably and live out her life with the best care possible. I owe much to this woman for instilling in me the notion of saving for retirement, investing wisely and controlling my expenses. I just hope that the torch passes to future generations.

The Next Big Thing

     Everybody wants to be invested in the next blockbuster stock. Once the future craze is identified, an investor must figure what company(s) will benefit the most from it. Based on what I've been reading in Barrons and other financial publications, I have decided that artificial intelligence (AI) will be huge in the years to come. AI can be used for almost any application where large amounts of data must be analyzed and conclusions reached for efficiencies and problem solving. One easy example laid-out in Barrons uses two similar large retail banks- Bank (X) and Bank (Y).  They both notice that their delinquencies and charge-offs due to bad loans are increasing at an alarming rate. Bank X contracts with an outside firm who uses AI to analyze their data. Bank Y uses "In house analysis" and no AI. The Board of Directors at Bank Y decides to lower the credit limit by 50% for all credit card holders to control the bad debt losses. This also costs them millions in interest payments and lost accounts. However, Bank X has discovered through their analysis that most of the charged-off debts came from customers who had their direct deposits halted within the past 3 months. Yup, the direct deposits were paychecks and those customers had lost their jobs recently and were living on credit that they couldn't pay-off. Therefore, the Board of Directors of Bank X just had to get a list of the accounts with a stop on the direct deposit and act on only them. This is the power of AI. The way I see it , in the future, it's a must have for all successful companies. Not only that, but also consider autonomous cars and the massive amount of data that will use. The Internet of Things (IOT) is another huge developing technology where all new appliances will be wired to the Internet for monitoring and auto diagnosis.
     There are several stocks which are trading near their all-time highs because they enable these new technologies to function. I have owned several of them for a while and was tempted to sell this morning for some quick profits. However, I decided that the potential of these stocks far exceeds their current price, so I still hold them. There is no guarantee that these companies will be the ultimate winners in the technology space because there is always the potential for an upstart to unseat them with a better product. At the current time I just have to go with what I know. My picks include Micron Technology (MU), Xilinx (XLNX), Lam Reasearch (LRCX), and Nvidia (NVDA). As always I like to buy on dips, especially with high valuation stocks like NVDA but when the next correction comes, I'll be looking to add to my AI portfolio.

The Rollover

     At almost 66 years old, I decided to perform a rollover of my 401k retirement savings into an IRA at my discount brokerage account. According to the plan rules set-up by my former employer for the 401k, I would have to do this by age 69 1/2 anyway. My reasons for doing this were many, I didn't like the limited choices offered by the old plan, the customer service was sketchy, the website was clunky, and I wanted to derisk my portfolio by putting a substantial amount into federally insured CD's. I will still hold some stocks, mutual funds and ETF's in my rollover account but having guaranteed income without any loss of principle is attractive to me at my age. When it comes to customer service, my broker, TD Ameritrade, really impresses me. They answer the phone 24/7 and are knowledgeable and helpful. Sometimes in life, things happen during non-business hours that need attention immediately so it's good to know they have my back. Most employers contract-out the administration of their retirement plans to the lowest cost contractor. Your calls for assistance are often directed to third world countries. The people who answer the phone are trained to speak English and read the plan rules from a manual. They often have several companies to service thus several manuals to refer to. This can be confusing to them when trying to read and understand all the complex rules regarding rollovers and nuances of each particular plan. I also have trouble understanding some of these folks because I have poor hearing and they have heavy accents. What I have learned is that they can often give wrong advice which can cause major problems when trying to perform a rollover according to IRS rules. The last thing I need is a very large tax liability because someone in Malaysia or India gave me a bum steer. Over the years, I have challenged their instructions when what they were telling me really just didn't make sense or differed from what I read in the same manual they have. My advice is to question them if something just doesn't seem right. Plan participants of any age can elect to rollover into an IRA. My only warning is to check the rollover account for fees which can eat into your returns.  Anyone who is not happy with their current plan should consider the rollover option. The receiving firm should be able to walk you through the steps to complete the transaction.

Stock Splits, Stock Dividends, and Reverse Splits

     Seasoned investors have noticed something about the stock market that has evolved over the last 20 years or so: stocks just don't seem to split anymore. In the old days, when a stock approached the $100 mark, the board of directors would often approve a stock split to lower the price to a more affordable level. Retail investors like a lower stock price so they can buy a "round lot" which is 100 shares. Anything less than 100 shares was called an "odd lot" and the broker charged more for it in commissions. Nowadays, with all the discount brokerages offering cheap commissions, trading in odd lots is not expensive anymore. One example of a common split would be the 2for1 split. If you held 100 shares before the split, you would own 200 shares after. For every one share you owned, they gave you an additional share, thus 2for1. A look at the stock market page today shows more stocks over $100 than under. Some stocks are even trading over $1000 and have no plans to split. So why don't stocks split anymore? One reason may be that companies don't care if retail investors are buying their shares directly. With the popularity of mutual funds and ETF's, a lower stock price is irrelevant. Companies can still have a widely-owned stock and not incur the cost of sending every holder annual reports. The fact is that an investor makes no money in a split. Even though the number of shares held increases, the price is adjusted down to make the holding in dollars unchanged. Stock dividends are also a rare occurrence these days. It used to be that when a rapidly growing company needed to reward investors, they could issue additional shares instead of cash which was needed to fund their growth. A stock dividend would not result in the repricing of the shares and it usually was expressed as a percentage of shares owned.  A reverse split has the opposite effect as a forward split. It is used as a tool to increase the stock price and reduce the shares outstanding. An example would be if you owned 100 shares of XYZ corp and they declared a 1 for 50 reverse split, you would end up with 2 shares. Of coarse, the stock price would increase by a factor of 50 but your holdings in dollars will not change. Companies use reverse splits to boost their stock price when it gets so low that they are in danger of being removed from the index or exchange where they are trading. Another result of a reverse split is that many investors are forced out because their holdings are reduced to a fraction of a share which is automatically sold. This reduces costs for the obviously troubled company. Bottom line, healthy companies are reluctant to split their stock anymore.  In 2017 the total number of splits numbered in the single digits. So if you are hoping for a split of one or more of your holdings-don't hold your breath.