My Wild, Wild Life in the Stock Market (Part II)

(If you did not read last week’s post, of which this post is a continuation, you may want to do so first.)

After opening up a Scottrade account, I was now free to invest in the stock market in any way I wanted and not just certain T. Rowe Price mutual funds.  I decided that I would start by putting put some money into something  fairly “safe.” I decided on the Vice Fund, where my IRA is but which I cannot add to now because…I have no “compensation.”  (The “cash is king” folks may want to read this.)

So my first purchase was Vice fund shares, even though now there was no tax deduction as there had been with my IRA because…I have no “compensation.” (There are some advantages to working but not enough to make me want to go back!)  As long as the Vice fund’s value continued to increase, then those gains would help offset any losses from other investments.

As I researched where to put my remaining funds, I learned about an interesting hybrid: exchange traded funds (ETF).  And after looking into these, I discovered an ETF index fund (Market Vectors Gaming) that invested only in gaming stocks.  I had invested in the Vice fund only after not finding a fund focused only on gaming.  Now that I had found a gaming fund, I decided to fulfill my original plan.  Between the Vice and gaming funds, one third of my money was in “vice. (So if you gamble, smoke, drink, or support U.S. military action abroad, I thank you for helping this retiree!)

Next, I turned my focus to individual stocks.  I had originally invested in the Vice Fund because I visit Las Vegas a lot (over 25 times since the late 80’s) and wanted to invest where I spend my money.  I initially took the same approach to which stocks I would buy.  And since I was planning on holding the stocks, I wanted to find stocks that paid dividends so I’d have some regular income.

When I thought about where I spend money, grocery shopping was the first activity that came to mind.  I shop at a Florida-based grocery called Publix.  But when I looked into Publix, I learned that it is owned by its employees and only they can buy and sell its stocks.

Another place I shop at regularly is Walgreens.  As the baby boomers age, we are going to buy more and more medications and “health care” companies will profit so Walgreens looked attractive.  As part of my “due diligence” I looked into CVS (where I do not shop) and also Express Scripts, which I do business with because it is the pharmacy benefits manager under my health insurance plan.  I passed on both because…

I think Walgreens will edge out CVS because the Walgreens Rewards program is tied into AARP, the largest senior organization in the U.S.  And, seniors get an additional 20% off all Walgreen brands during the monthly senior days.  Express Scripts looked interesting but it does not pay dividends.

While researching Walgreens, I came across this very promising fact: Walgreens has paid quarterly dividends for decades.  Enquiring minds are no doubt asking: how many decades?  And I’m glad you asked because the answer is…80 years!

Although its dividend yield (annual dividend amount as a percentage of stock price) is a modest 2.6%, Walgreens is one of the Top 25 SAFE Dividend stocks. Since its price was near a 52-week high, I waited for the price to drop so I could follow the prime directive to “buy low.”  (Generally, I wanted to buy a stock when the price was at least 15% below its 52-week high.)

On to another stock…

Even with a Corolla, I have to buy gas.  But many Americans are in love with gas guzzling SUVs.  So why not profit from that by investing in an oil company?

But I was concerned about the high cost of oil exploration.  Not only can a company lose millions unsuccessfully looking for oil but the BP well disaster was on my mind too.  I wondered if there was a company that was not involved with exploration, just refining and distribution.

A bit of research turned up Marathon Petroleum (MPC), a spin off from Marathon Oil.  (There’s  Marathon gas station near me;  it also owns Raceway gas stations.)  Marathon’s  dividend yield about the same as Walgreens.  MPC’s stock was also near a 52-week high, so I again waited until it dropped before buying.

Next, I thought about financial services, as in credit cards.  Lots of folks don’t pay their entire credit card balances each month and that generates some nice profit for the credit card companies.  But, most of those credit cards are issued by banks and I was a bit worried about the non-credit card side of banking.

Then I remembered that I don’t leave home without American Express.  My very first credit card was American Express and I still have one of their cards – the Blue Cash Rewards card (because I get 3% back at grocery stores and 2% back at gas stations).  And I liked that American Express is neither a bank nor just a credit card but a full travel services company.  It has a strong business and upscale consumer clientele who are less sensitive to economic ups and downs.

I was impressed that in early 2012, its stock was about $50 and by last May  it was over $70.  In 2012, its value increased 26%.  Its dividend yield is a paltry 1.2% but I was focusing more on it’s capital gains potential than dividend income.  I also felt it was a fairly “safe” place to invest since it is one of the 30 companies in the Dow Jones Industrial Average.

Next, I began thinking about utilities.  Everyone uses electricity and they are a regulated monopoly guaranteed a “reasonable” profit.  I like “guaranteed” profit!

I couldn’t invest in my own electricity provider because it is owned by the City. Nor I was aware of all the various electricity providers.  But I figured that somewhere on the Internet was dividend information for many companies.  A Google search confirmed my belief and I found a list of companies, in dividend yield order, at….dividend.com (of course).

There, I found American Electric Power with a dividend yield of about 4.6%.  It provides power in eleven states in the south and mid-west.  I liked that its 52-week price spread was fairly narrow (between about $42 and $52) and I could buy cheap at $42.50.  Their website showed that it has paid dividends for over 100 years and the quarterly dividend has been over 40 cents since 1971.

Another “utility” is telephone service.  Cell phones are very widespread and service is not cheap.  I had an ATT $30 (before taxes) plan that they let me continue without a contract for years just to keep my business.  But I rarely use the phone and decided I could do better than $30.  Now, I have a Tracfone and spend just $200 a year for more minutes than I can use.

Since I was once an ATT customer and it also is one of the Dow 30, I looked at them.  It’s recent dividend yield is about 5.4%.  As with American Electric Power, ATT’s 52-week price spread was fairly narrow at between $33 and $39 (cheaper than Walgreens and double the dividend yield).  And, I could buy cheap at $34.  So I did…

My next purchase came from a fortuitous conversation.  While getting a haircut, I got into a financial discussion with another customer who mentioned that he works as a corrections officer. That reminded me how Florida, and many other states, are moving to privatization of prisons.  It seemed to me that the companies involved in operating prisons are a growth market.  Since my taxes are paying for operating those prisons, here was another area where my money is being spent that I could invest in.

I knew of two prison privatization companies because while I was working I had projects involving them. Florida was expanding one prison operated by GEO Group and building a new one to be operated by Corrections Corporation of America (CCA).  (My program was providing the small rural towns where the prisons are located the funding for the required sewer expansion. )

So I checked out GEO and CCA.  GEO’s price was about a dollar lower than CCA and the dividend yield of 6.7%was  slightly higher than CCA’s 5.9%, so I bought GEO.

While scanning the higher dividend yield companies at dividend.com, I saw that a company called Consolidated Communications Holdings had a dividend yield of over nine percent.  That was approaching a level typically associated with higher risk investments but I decided to see what the company was.

To my surprise, it is a 100 year old telephone / Internet / TV company serving six states, including Texas, California and Pennsylvania.  Its 52-week price range of $13-$19 was fairly narrow and I appreciated that it was half the price of ATT while it’s recent dividend amount was two thirds that of ATT.

This was a bargain I could not pass up and so I bought a second communications stock even though its $16.73 price was only about 12% below the 52-week high. I wanted to get in on the next dividend because the cutoff date for owning shares to receive a dividend is in about a month.  The declared dividend of 45 cents means that my effective price was discounted by that same amount.

Unfortunately, by now I had no available cash in my Scottrade account.  But I could sell some holdings and use the proceeds because the sale value is immediately available for use.  I decided to sell my smallest holding – American Express.  Its dividend yield was minimal and selling it all would give me just enough to buy the number of shares I wanted of the second telecommunications stock.

Even though I’m in these stocks for the long term, enquiring minds are wondering how I’m doing so far.  The stock market has been fairly volatile over the last three months, with the Dow sometimes gaining or losing 100 points in a day so it’s been a bit of a wild ride.  But remember that the Dow is based on just 30 stocks.  Just because the Dow has a big swing does not mean that all other stocks are similarly affected.

I experienced that fact during my final stock purchase.  Right after I sold American Express at about 10:30 for a penny more than I had paid for it, the price began dropping and an hour later its price was down 60 cents from what I sold at and ended the day about 80 cents below what it started at in the morning. (The next day, it gained back all the loss and last Friday it was at over $75, or $2 more than I sold it for.)

On the other hand, the stock I had wanted to buy began increasing from the $16.73 I wanted to pay.  I decided to wait until later in the afternoon because that is often when prices drop.  Sure enough, after reaching almost $17, the price dropped back to $16.73 about an hour before the market closed and I bought then.

Now that I had bought all the stock I was going to buy for this initial period, it was time to wait for the results.   After a bit more than 100 days, the verdict is…

First, the micro analysis.  I own eight stocks or mutual funds and as of last Friday the price of seven of them are higher than the price I paid. Unsurprisingly (to me), the best performing investment has been the “gaming only” fund which is up 9.6% from when I bought it.  At number two is Walgreens, which is up 8.4% from the price I paid for it.  Those two investments alone have a gain of over $1,100. The other gains give me a total gain of about $1,750.

But of course, the “bottom line” of macro analysis is crucial.  And the eighth stock has not performed well…

My oil stock, Marathon Petroleum, has been a “problem child” dragging down my portfolio.  After buying it at $82.34 in mid-June, the price began declining.

So I turned to the solution I mentioned last week: dollar cost averaging. When the price hit $75.18, I bought more.  Again when it dropped to $72.37 and finally when it dropped to $68.80.  My average cost is now down to $75.16.

Friday, it closed at $67.89.  This stock is about one-third of my portfolio so its health has a significant impact on my bottom line.  It has had a loss of about $2,182 for an overall loss of $432.  All on “paper” only of course.

There is a bit of good news.  Earlier this week, Marathon paid dividends and my share is about $126.  I’m also receiving $46 in Walgreens dividends.  In November, I’ll receive $77 from Consolidated Communications.  If the other stocks pay dividends similar to their most recent amounts, I should receive another $162 by the end of the year. That would bring total dividends to just over $400, which is “real” cash.

Overall, I’m satisfied with my first 100 days in the stock market, even though it’s been a wild, wild life.

And no, I’m not wearing fur pajamas… 😉   (I don’t know about John Goodman.)

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5 responses to “My Wild, Wild Life in the Stock Market (Part II)

  1. Well if you liked your first 100 days ya gotta love whats happening since Putin stepped up in Syria (for whatever reason) and Summers stepped back from the Fed, cause the market loved both. Yesterday was a very good day for me and so far today looks good too.

    But even before recent events I saw evidence in the Spring that our manufacturing sector was strengthening and “re-shoring” due to increased domestic energy capacity, falling energy prices. and stable labor and wages. Unions are waning which bodes well for right to work states. Companies like Airbus, Catepillar,GE, Honda, Siemens and Whirlpool are examples of manufacturing expansion.

    If the Feds don’t screw it up and banks don’t get too greedy then I see the Dow well over 16. That is why I made the change I did to more equitys earlier.

    • Unfortunately, there’s a black lining in this silver cloud… Marathon Petroleum dropped another 74 cents to $66.21. The “lemonade” is that if it keeps dropping I can come in and buy very cheap to bring that average cost down enough so that it won’t take too much of a price recovery for me to break even.

      The other bad news is that my sick leave payment, which was supposed to be made Sept 3, was not made. They had to redo it because the payroll clerk forgot about a deduction. So it was made today. Since the balance is going to my deferred comp account, the buying will happen Wednesday.

      If it had been paid as originally scheduled, the buying would have been when the Dow was at 14,930. Now, the Dow is 600 points higher so I’m buying “high.” For example, the TRP Health Sciences Fund was $55.73 on Sept 4 and closed today at $57.44. And I’m buying about 40 shares of that. I suspect the three other funds that I’m buying are also up…

  2. And speaking of “reshoring”…keep an eye out for Home Source International bedding products (sheets, comforters, etc.) at upscale places like Bed, Bath & Beyond. They had been producing in China but decided to come back to the U.S.

    Florida was competing with the usual suspects but they ended up choosing Marianna, where they are going into a building in the Industrial Park that used to be a manufacturing facility. Scott made them an offer they couldn’t refuse. My program threw in about $2.5 million as well. Job projection is 300 in two years.

    That was my project; too bad I retired before it completed because it would have been a nice way to end.

    We’re mentioned in paragraph 7:

    http://www.jcfloridan.com/news/article_f2948215-61ec-5e0c-8b21-c85cedffe0f9.html

  3. Well if you bought Wednesday before 2 you were better off than if you bought after the magnificent rally Bernake precipitated.by announcing the Fed will continue the bond buying. I had the best day I can remember since 2007. My Pembina (PBA) was already scorching the earth (due to a capacity expansion announcement on Monday) and then it continued with the rally. Everything else I have went for a rocket ride as well.

    • Apparently, TRP executes “after hours” because the share prices for two of the funds I checked were the “closing” price. Still, today’s price for the “telecommunications” fund is up 68 cents and for the health fund it is up 24 cents. But buying two weeks ago would have been much better…we’d be talking “dollars” increase, not cents.

      And as of about 11 AM, Marathon has dropped another 31 cents to just below $66. If it drops to the low 60s, I may buy more. I’m taking the “long” view…I’ve no choice!

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