Updated: May 14
by Robert Holman | The DefensiveAdvisor.com | May 12, 2020
Bullish … rating of 7 (0 - 4 is bearish, 5 is neutral, 6 - 10 is bullish) but cautious.
As of the end of April, our moderate risk accounts are up +11.4% YTD and we have a small cash reserve. The S&P 500 is down <8.9%> YTD. So, versus the broad market, our accounts are more than +20 ahead of the S&P 500.
I received an investor question about why I sold one-half of our S&P 500 ETF recently and invested the proceeds into a certain security. I will discuss this without naming the new security, in preference to my clients who pay for their portfolio.
We owned 3 securities as we rolled into May. We bought them at the following discounts under their 2020 Highs:
· Security #1 – discount of 25.4 points increased 21.3% by May 8
· Security #2 – discount of 30.9 points increased 30.5% by May 8
· #3 S&P 500 ETF – discount of 23.8 points increased 12.9% by May 8
The 2 securities came from my monitored list, and I believed then, as I do now, that they could outperform the S&P 500, so I bought them (on different days) in late March.
On May 8, the S&P 500 ETF was plodding along – it had increased less than the two individual securities. I was looking for something that was selling for a larger discount, to make more profit for us, and to make it more quickly, if possible.
I found another opportunity with a stock selling at 19% below it’s old high. If both return to their old highs, we will make more money with the one at 19% under its high than with the S&P 500 at 14% under its high. So, I sold ½ of the S&P 500 to buy what I believe is the better opportunity. I believe there is a good chance all 4 of these investments will return to their old 2020 highs before year-end.
That is not the whole story. Security #4, bought on May 8, has not yet broken through “resistance”, although it is attempting to do so once again. That is a “technical trading” term. When it breaks through “resistance” convincingly, technical traders will run the stock up from there. That’s called a “breakout” and technical traders believe that a stock can move up substantially from a “breakout above resistance.” Many will not buy until after the breakout, but I had good reason to go ahead.
See, there was more. The company’s primary competitor, which is a slightly better company, has already broken through its “resistance point", and continues to move up on days when the market is up. There’s more – the competitor is now 14% below its old high, and I believe our company will perform similarly. I believe our company will “break through” it’s “resistance” next week, or possibly even this week.
There was more – owning 4 securities diversifies our portfolio a bit more, and that reduces our overall level of risk a bit more, which is good. There’s still more – all the analyst’s reports on the company have a higher target price (they believe the company should be selling for a price) that is 15% more than it’s current price. Compared to other stocks on my monitored list, that was super, because most of my monitored stocks are at or near their target price, already. So, I believe with conviction that this stock is a great value.
I have another company that I am looking at, waiting for more evidence before making a decision.
We will be making other moves as we go further down the investment path, but I want you to become familiar with our work and our processes so far.
Please allow me the opportunity to serve you. For more information, visit http://www.defensiveadvisor.com
Opinions voiced in this post are for general information only and are not intended to provide specific advice or recommendations for any individual, without complete knowledge of that individual’s total financial profile. No strategy assures success or protects against loss. Past performance does not guarantee future results.