When the chips are down…

Credit to Motley Fool… Great Read…

I looked at my portfolio today…

I didn’t look for long. To say it was ugly would be an understatement.

All that money, up in smoke, in the twinkling of an eye.

All those hard-fought gains, wiped out in an instant.

Yesterday, the ASX plunged to a one-month low. It has fallen in seven of the last 10 sessions, lead by a rout in bank shares.

Worse, BHP Billiton shares have crashed to 2009 prices, its shares down 5% more today.

Santos is in a trading halt. Gold and gold stocks have been smashed. The ASX is close to dipping back below 5,100.

So much for those predictions of ASX 6,000 by the end of this year!

At the rate we’re going, the ASX will be lucky to hold on to 5,000… a level the market first broke back through almost three years ago.

Hard as it is to admit, I did warn you dark days like these would come…

So what do you do?

Let me guess…

You sit on the sidelines, too scared to make any move.

Too scared to sell in case the market recovers.

Too scared to buy in case the market falls lower.

Yet you know the share market STILL has been the greatest wealth creation vehicle on earth.

And you know interest rates are low, and likely STILL staying low for what could be years to come.

I get it. I especially get it if you are a retiree. You’ve worked hard to build your retirement nest egg. The last thing you want is to see half of it go up in a puff of smoke.

The problem is, leaving your money in the bank, earning just 2% per annum, may confine you to a miserly retirement, watching every cent, too scared to spend up on some of life’s luxuries.

There is another way.

A way that thousands of your fellow investors have already discovered.

A way that not only earns you a thoroughly decent return on your money, but also enables you to beat the taxman, potentially setting you up to receive a tax refund.

In this low interest rate environment, we believe dividend-paying ASX shares — particularly those paying fully franked dividends — are a truly compelling alternative to cash.

Below I’ll show you how you can get started, either by adding some of the ASX’s very best dividend stocks to your portfolio, or just get started earning a decent return on your money.

But first, before you get started, know these two simple yet critically important keys to investing success…

We think the ultimate secret to wealth creation, is having the discipline to…

1) Put money to work in the stock market every single month, no matter what the market is doing, either up or down.

2) Leave your money invested in shares for the long-term, no matter what the market is doing, either up or down.

Investing during a bull market is easy. Your portfolio only goes up. Happy days.

It’s what you do during the inevitable downturns — almost exactly like we’re experiencing today — that ultimately determines whether you’ll be prince or pauper.

If you’re the type of person to freak out at the first sign of share market volatility, you’re probably better off in cash.

I’m in cash.

I’m in shares too.

Cash helps me sleep well at night.
It also gives me options.

The option to buy shares whenever I see opportunity.

The option to pile a heap of money into the market when prices are cheapest.

The option to go on holiday, to repair the car, or to upgrade the TV.

You like a bargain. You like to buy a case of wine when it’s on special. Buy one, get one free. Half price on a block of Cadbury’s chocolate.

You’d think the same thing goes with investing. The cheaper they are, the more shares people will buy.

The strange fact is the exact opposite is true.

When shares are cheap — as many appear to be now, after the market’s recent correction — many investors head for the hills.

Worse, they sell, at the worst possible moment… like now, when the share market is going through one of its inevitable wobbles.

Risky.

Below is an article I read that puts the age old debate of ‘The Stock Market is so risky’ into perspective. I think most reasonable people get this article, once they’ve had a chance to weigh up the facts. The problem for most is working out just what shares they should buy. This is when you pick up the phone and we have a chat. Read on.

Credit to Motley Fool.

Now, I’m not about to put the boot into property investing — done sensibly, it is without doubt one of the best investments you can make. And I’m not going to preach on about how shares are so much better — each to their own I say.

But the difference in attitudes towards shares and property couldn’t be more stark, and is worth teasing apart. Especially when much of the perception is based on complete misconception.

Take the idea of risk.

Now a loss making mining exploration company with mountains of debt and an ever shrinking balance sheet is risky — super risky — but that says nothing about the long term risk associated with an established, profitable ‘blue-chip’ company.

Sure, all shares have a tendency to be volatile over the short term, but that speaks only to the risk associated with short-term price speculation. I’d wager that buying and selling properties in quick succession was equally risky — perhaps more so given the costs and difficulties of selling houses.

People also like to tell me that shares aren’t ‘real’; they are intangible assets. Bricks and mortar, on the other hand, is a solid asset that you can touch. And as such, its value is more real.

Obviously, these people have never been to a Bunnings warehouse, a Woolworths supermarket or a Commonwealth Bank. They all seem pretty real to me.

For some reason, people also like to tell me that property never loses value. Shares, on the other hand, can ‘crash’ and do so regularly.

I’d suggest these people open up a history book. Property — like all assets — does of course ‘crash’ from time to time. Ask an American or Spaniard if they think property doesn’t crash! Sure, we haven’t seen a significant pullback in price in an Australian capital city for quite some time, but right now there is a property crash underway in many mining communities. A few years back, many Gold Coast properties lost close to half of their value and have still yet to recover.

Here’s the irony.

That mate of mine, who feels I am being risky with my investments, has 2 properties; one is his residence the other an investment. Both are in the same geographic area (and hence face similar risks), and both are highly leveraged — about 90% of their value is in debt.

The investment property actually costs more in interest, fees and maintenance that what it generates in rent. He gets a tax benefit from this ‘negative gearing’, but even with that he is still losing money each year.

Every spare cent he manages to save goes towards servicing his loans. He loses sleep anytime he hears that interest rates might rise — and I don’t blame him.

Seems pretty risky to me!

Of course, if the value of his properties can grow enough over the coming years, it will all be worthwhile — he’ll likely make a great return. That’s what happens when a highly leveraged bet pays off.

But if his properties don’t appreciate in value fast enough, or if he can no longer service his obligations while he waits, he is going to get taken to the cleaners. In a BIG way.

And I’m the one taking a huge risk?

Now, what he is doing doesn’t mean that property investing in general is risky — it’s just the way he is going about it.

And it’s the same with shares. Invest in poor companies, with borrowed money and a short time horizon — well, you deserve what you get.

But if you buy a diversified range of wonderful businesses, with established and growing operations, strong balance sheets and the capacity to deliver regular and attractive tax effective dividends — and with the intention of holding tight for many years — you’ll likely do very well. Sure, you’ll face the inevitable bumps along the way, but I wager you’ll do better than most.

May Take On It All – August

It’s been a while since I have updated everyone on everything from this side of the desk and we seem to be as settled in the new office as we possibly can be given everything the market has thrown at us this year. Given the amount of time that has passed since I last updated everyone, I thought I would provide my view on the current state of play along with outlining some of the things we have been doing and what is currently in play along with some ideas going forward.

With the issues in Greece dominating the early part of the northern hemisphere summer it now seems to have stopped making the headlines of every media outlet available.  This has seen the Euro trade in a range between 1.0500 to 1.1500 against the USD.  European equity markets took the news badly on any negative news but were also very quick to rebound on any sign of an agreement or turnaround in the market. The sell offs provided good buying opportunities and we did so by purchasing some DAX calls through issued trade alerts. All trades that have been recently executed can be seen in the Performance Report that can be downloaded through the Performance Page.

Post Greece, the market then shifted its focus to China and the Federal Reserve in the US. The swings on a daily basis on the Chinese equity markets were significant to say the least but this was to be expected given the massive run up we had seen – 69.84% gain from the lows made in February this year alone!

In the US all eyes are on the September FOMC meeting in anticipation of a possible rise in interest rates. We have seen the USD strengthen against most currencies, combined with commodity prices, QE in Japan and Europe all pointing to more strength in the USD. The big question remains as to how far can this go? If we look at the Australian dollar, we have weaker commodities, slowing demand in China and the RBA still on an easing bias so holidays in the US don’t look like they are going to get any cheaper any time soon. The AUDUSD in on course to touch 70 cents this year in my opinion. On the holiday front the only positive is the lower crude oil prices which is benefiting the airlines but doesn’t quite seem to have made its way to the petrol pump for our benefit. Fuel Prices are higher now that when oil was trading around $100/barrel! – explain to me how this works?!

Looking forward I still have a preference for US equities over domestic equities but having said that, we have done quite well locally but better offshore. Stocks such as CSL have pushed to new highs, The banks have been steady and the miners have been hammered. I have been issuing investment recommendations on the ASX200 and we have simply been buying dips in the index. To date we are doing well with this strategy as you can see in the Performance Report on the Performance Page. Timing has been everything but my core view remains that we should perform better in the second half of the year as compared to the first half. With regard to the US we have also been on the right side of the currency move so not only has it been a case of calling the direction of the equity markets but the currency gains have also improved the returns.

From here, I continue to favour health care, technology, pharmaceuticals, biotechnology, banks and solid trending stocks which continue to deliver. The most notable example being Walt Disney in the US up until the overnight movements. Stock down circa 10%.

I will look to put a note out, post the close of each month with an update. Please use this as an opportunity to ask any questions you might have.

LP

Our Eyes Are On the Following….

Most of my focus at the moment is offshore, predominantly in the US as we are seeing a strengthening USD and a falling AUD, meaning that when we close trades in USD, our profits in AUD are even greater. In the last six months alone, if you were to hold your cash in USD rather than in AUD in your Australian bank account, you would have returned approximately 17% alone as the Aussie Dollar has fallen away.

In terms of US names we are predominantly invested in the following companies:

Apple Inc. (AAPL) – Target price $137.00.

Citigroup (C) – Target price $73.00.

Rackspace (RAX) – Target price $55.00.

Monster Beverage Corp. (MNST) – Target price $136.00.

Another huge focus of my client’s portfolio’s is getting exposure to the WTI Light Crude Oil price through United States Oil Fund (USO) and PowerShares DB Oil fund (DBO) Exchange Traded Funds. I am expecting to see a bounce in the oil price in the next calendar year and looking to take advantage of this through these funds.

On the local front the names I have in mind at the moment are all yield plays essentially:

Most of the banks.

Telstra (TLS)

Wesfarmers (WES)

Woolworths (WOW)

Flight Centre (FLT)

Woodside Petroleum (WPL) – again, to get exposure to the oil price on an expected rebound.

I think overall, the markets are due for a slight correction before looking to move higher throughout the latter half of the year. Feel free to contact me for any research on the above stocks and what I am basing my thoughts on.

LP

Shares as a Christmas Gift? 19.12.13

Have you ever thought about buying your loved ones/friends a parcel of shares for Christmas?

Investing in the stock market is a great way to build wealth over time. Records and history prove me correct in saying this. Purchasing a parcel of shares in a strong dividend paying company is a very sensible and thoughtful gift. Your view is not that it will make the beneficiary of this gift rich overnight but will gradually build wealth over time for them. Dividends can be paid semi-annually into a bank account or reinvested through a dividend reinvestment plan so that a ‘snowball effect’ takes effect and a greater return can be made over the years.

The Christmas Rally has begun! After the recent tapering decisions that have been made by the Federal Reserve in the US, markets have reacted extremely positively and the game has been changed. Money will pour into the markets from the sidelines now and we should see a prosperous 2014. I think we will see a pull back around March but then I think we will see smooth sailing through until next Christmas from July.

It may seem small or something that the person receiving the gift will look at and turn their nose at but when they are reaping the rewards of an investment that is yielding 5% and beating the banks they will thank you. Not to mention the capital growth over the years that a good company will produce.

Let me know if you are interested in this idea and I can help you facilitate this. Why not set up an online account so you can track the progress of the stock and its returns over the years?

Merry Christmas

 

Luke Pilkington.

P:03 8660 7260

E: ltp@bby.com.au

 

Eyes on the ASX.

Just thought I’d post a quick update on what I’m interested in at the moment:

I like the look of Telstra (TLS) in the low $5.00 range. Currently $5.05. I think we’ll see a surge back to the $5.20 level quite quickly. I was thinking about buying the stock and selling $5.20 call over it. With $10,000 for example we can purchase 1980 shares that will be in line for the 14 cent dividend in February so I think we will see a run up in price before this time. You will be able to sell 198 calls over the top of this generating $792. If the price goes through $5.20 and we get assigned in the month we will keep the $792 premium and make $297.00 on the stock holding totalling $1089 return or 10.8% in the month. Not bad if we can keep generating this. To learn about this strategy, please click the link read my post on ‘Covered Call Writing’

For greater returns we could employ the ‘High Yield Covered Call Strategy’ but would miss out on the dividend.

If worst case scenario comes into play and the stock falls, we will keep the premium written each month, get the 14 cent dividend in February and monitor the position from there. I see the stock reaching $6.00 in the longer term though.

I also like Rio Tinto (RIO), breaking this $65.00 level, currently at $65.48, pulling off with the market today. With strong iron ore prices and the company expanding their business operations, I don’t think $70.00 is far off.

G8 Education (GEM) is coming along. Seems to be topping out at $3.30 level but is still making higher lows. I think it will take off shortly. $4.30 is the price target we have on it.

Please contact me to discuss or look into managing or creating a portfolio for you.

Happy Trading.

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