The stock market

[Mike Sixel]

 

I almost bailed on Shop at 86 but decided I'd hang onto it. Not sure that was the right thing but ...

 

I think we are in a leveling off spot right now. Unless you need the cash....

[Brock Beauchamp]

I'm about 90% sure I'm going to clear my stocks and pay off my mortgage.

 

I'm tech-heavy, as most of you know. The market just took a big dip last week. Earnings season is a little over a month away. If you were in my place, what's your exit strategy?

[Willihammer]

Do you own blocks? You could spin up some $$ with vertical spreads until you get called out. Could make a decent $$ if the market goes sideways.

If you don't own blocks I'd just sell, or set a trailing stop loss in case the market bounces.

[DaveW]

I'm about 90% sure I'm going to clear my stocks and pay off my mortgage.

 

I'm tech-heavy, as most of you know. The market just took a big dip last week. Earnings season is a little over a month away. If you were in my place, what's your exit strategy?

Dude don't do it. As long as you can make your mortgage payments on time just keep doing that, hold onto the stocks long term, as even if they dip in the short term they most certainly will go up mid to long term (or just re diversify)

 

If you want to go a safer route, sell the stocks and put it in a betterment account, its giving me back 11% YTD, and haven't seen it really dip below 6%.

 

Why give up solid returns to pay off a low interest (and tax friendly) mortgage?

[glunn]

 

Dude don't do it. As long as you can make your mortgage payments on time just keep doing that, hold onto the stocks long term, as even if they dip in the short term they most certainly will go up mid to long term (or just re diversify)

If you want to go a safer route, sell the stocks and put it in a betterment account, its giving me back 11% YTD, and haven't seen it really dip below 6%.

Why give up solid returns to pay off a low interest (and tax friendly) mortgage?

What does Betterment invest in?

[mikecgrimes]

 

I don't have much faith in this market. I'm not working right now so I'm considering selling almost every penny I have in stock and paying off the house.

 

It's a big decision but having a house paid off at 40 years old is really, really enticing.

 

Doubly so because without a house payment, we can live off the wife's income easily with money left over every month.

 

I've felt like a collapse is coming for a while.  If you pay off the house that's like a 4 to 6% return depending on the interest rate.  So it's not a bad move unless the market continues to be strong and even then not that bad of a move. 

[ashbury]

I've felt like a collapse is coming for a while.  If you pay off the house that's like a 4 to 6% return depending on the interest rate.  So it's not a bad move unless the market continues to be strong and even then not that bad of a move. 

If you believe volatility is an issue, regardless of a bullish longterm view, then paying off the mortgage lets you apply your old mortgage payment to buying new stock, taking advantage of dollar-cost averaging. Rather than ride out a bad patch with your portfolio, you say, "hey! they're having a sale on stocks this month!"

[Brock Beauchamp]

 

If you believe volatility is an issue, regardless of a bullish longterm view, then paying off the mortgage lets you apply your old mortgage payment to buying new stock, taking advantage of dollar-cost averaging. Rather than ride out a bad patch with your portfolio, you say, "hey! they're having a sale on stocks this month!"

That's the plan.

[Mike Sixel]

dollar cost averaging is a myth, or whatever you call a "theory that doesn't play out in practice".....just buy investments all thru your life, and try not to sell them unless you need the cash or a much better one comes along....

 

Brock, I don't think it's a bad plan, given your psychology/preferences. Possibly also your chosen life style of foster parenting.

[gunnarthor]

I don't think there's a "wrong" answer. Years ago, we got crushed by the housing bubble and it was really, really bad. We nearly lost everything and we're pretty well to do. So I do think there's a lot to say about not having to make mortgage payments. We own our house outright and it's great. Not having debt is a real weight off your shoulders, esp if you're worried about your income streams. There is some positives in low interest debt, of course, as others have mentioned but your money doesn't grow uniformly. Just because the stock market will probably give you a better return than the interest rate over the next 30 years doesn't mean it will over the next four years. And if you can kill debt in what you think will be a down period where your money wouldn't have grown anyway, do it.

[Mike Sixel]

Heh, would have been nice to buy Whole Foods yesterday!

 

But, they aren't doing well. I'm not sure I do this if I'm Amazon. I'm very curious about this move. I understand they want to be more vertical, and physically present, but I have my doubts about this.

[Mike Sixel]

Sold all my disney today (I think I got it all, I have 4 accounts....).

 

Bought some Shopify and am going to put some into preferred stock in a winery. 

[Willihammer]

My last buy was MELI at $288.54, right before the NASDAQ got slammed. Also picked up a couple LEAPS in SQ. I thought about SHOP but I like the FCF trends of SQ more. So, I fully expect SHOP to outperform in the next 18 months.

[DaveW]

Lite coin jumped to $48 yesterday for a bit, but settled at $44 today

 

Not a bad 80% ROi in one month so far.

Edited June 18, 2017 by DaveW

[glunn]

I bought SQ after reading this board and researching it elsewhere. So far so good. I thank my fellow TD members for putting it on my radar.

 

Question -- where do you go to research stocks and who do you trust?

 

I mainly look at seekingalpha.com and morningstar.com, then I carefully read the income statements and balance sheets for the past 3 years. 

 

I am wondering how the rest of you approach deciding on a stock.

 

 

[Mike Sixel]

How do I pick stocks?

Hmmmm...

 

Motley Fool, friends, even my sons....I listen to those three sources.

 

It's funny, I have a BBA in finance, and and MBA in finance, and I don't think I've looked at a BS or IS one time when making a decision. 

 

Now, my goals and approach are maybe different than many. I am trying to grow thru risk. I have a very high tolerance for risk, but if it goes bad, I bail and move on (DDD and Whole Foods are good examples....even with the bump I would not have made much/any money). 

 

I have some simple rules:

 

Invest in companies you have a decent understanding in

Have some companies that have moats (Amazon and Shopfiy, for example)

Take chances on companies that the market doesn't understand (Tesla) but are really aiming 5-10 years out.

 

It does help I have lots of stock from my employer, so I can be very risky elsewhere.

[gunnarthor]

 

I bought SQ after reading this board and researching it elsewhere. So far so good. I thank my fellow TD members for putting it on my radar.

 

Question -- where do you go to research stocks and who do you trust?

 

I mainly look at seekingalpha.com and morningstar.com, then I carefully read the income statements and balance sheets for the past 3 years. 

 

I am wondering how the rest of you approach deciding on a stock.

I talk to my banking guy but I also read a lot of articles off of yahoo finance and barrons (you can subscribe pretty cheaply to that). I agree with Mike that you should understand the idea of your stock, for the most part. I obviously don't have the ability to fully understand how Wells Fargo actually works of course but I can say "big bank" and understand a big part of it. You can find articles on motley fool, morningstar etc but you have to be careful to understand any built in bias - does motley fool want you to buy this stock? Compare it with how others are covering the stock. 

 

I prefer high dividend stocks with a long history of providing it. You can look at ratios like P/E or PEG and compare them to others in the same industry. I like doing that. And I think it makes sense to follow the news to see how things outside of the business will affect your stock - for example, China's economy tanked and that brought down Indian stocks as opposed to your company's CEO stole millions and set up a ponzi scheme. One scenario is far worse than the other. But at the end of the day, I'm not that smart so 'big dividend' is a good reducer of risk for me. 

Edited June 19, 2017 by gunnarthor

[gunnarthor]

We did make a purchase of HP in the low 50s. I like the dividend even though it might take a while for it to get back up where it was a few years ago.

[Brock Beauchamp]

Man, I chose the right day to bail out of the market. Had I not cashed out on Friday, I'd be down more than a grand in total value right now.

 

Spent the past several days trying to figure out how to get my money out of my stock account. Finally got the money into my bank today and called the bank to ask if there was a maximum payment limit on bill pay. They said there was not.

 

Well, there is. It's $10k a day.

 

So it'll take me a week to finish off the mortgage. Oh well. Progress!

[Squirrel]

 

Man, I chose the right day to bail out of the market. Had I not cashed out on Friday, I'd be down more than a grand in total value right now.

 

Spent the past several days trying to figure out how to get my money out of my stock account. Finally got the money into my bank today and called the bank to ask if there was a maximum payment limit on bill pay. They said there was not.

 

Well, there is. It's $10k a day.

 

So it'll take me a week to finish off the mortgage. Oh well. Progress!

Congrats! Are you going to have a mortgage burning party?

[Mike Sixel]

 

Man, I chose the right day to bail out of the market. Had I not cashed out on Friday, I'd be down more than a grand in total value right now.

 

Spent the past several days trying to figure out how to get my money out of my stock account. Finally got the money into my bank today and called the bank to ask if there was a maximum payment limit on bill pay. They said there was not.

 

Well, there is. It's $10k a day.

 

So it'll take me a week to finish off the mortgage. Oh well. Progress!

 

congrats, good luck with everything. I know it's a relief to you to be mortgage free almost.

 

It was a bad day yesterday, but a very good day today for the stocks we both like....

[Brock Beauchamp]

congrats, good luck with everything. I know it's a relief to you to be mortgage free almost.

 

It was a bad day yesterday, but a very good day today for the stocks we both like....

Yeah, I think the stocks will rebound but it would have taken at least a week, maybe more to get back where I was. Amazon and Google took a drubbing and they were two of my larger investments.

[Mike Sixel]

Sigh. this is the downside of risky investments......

[glunn]

I have been reading about selling put options as a good alternative for buying a stock that you feel is priced too high.

 

For example, I am interested in Shopify, but not at today's closing price of $86.90.  However, I would be willing to buy 100 shares of Shopify at $75.

 

I could put in a regular 60 day buy order at $75 and sit around waiting for the stock to drop that far, which may never happen.  Or I could sell one October put option at around $5.70 and put about $570 (less commissions) in my pocket immediately.  If Shopify drops to $75 or lower before October 20, then I will be required to buy 100 shares for $7,500.  But if Shopify does not drop to $75 before October 20, then I get to keep the $570.  Also, Shopify would need to drop below $70 for me to take a loss, because at $70 I could sell the stock at a loss of around $5 per share, which is what I already pocketed from selling the put option.

 

This seems almost too good to be true.  I realize that I could take a huge hit if the stock were to drop much below $70, but compared with an outright purchase this seems a lot safer. I also realize that if Shopify goes to $200, this strategy would not be nearly as good as buying the stock, but keeping the $570 would still not be a bad thing, especially if I could do it over and over.

 

Thoughts?

 

Is anyone here using this strategy?

[Willihammer]

And keep $7500 sitting idle in case your put is exercised? Or would you do a more fly be the seat of your pants approach. To me that is one important part of the equation. The 2nd is income tax rate which is what your premiums will be taxed at, versus long term capital gains/loss.

[gunnarthor]

 

I have been reading about selling put options as a good alternative for buying a stock that you feel is priced too high.

 

For example, I am interested in Shopify, but not at today's closing price of $86.90.  However, I would be willing to buy 100 shares of Shopify at $75.

 

I could put in a regular 60 day buy order at $75 and sit around waiting for the stock to drop that far, which may never happen.  Or I could sell one October put option at around $5.70 and put about $570 (less commissions) in my pocket immediately.  If Shopify drops to $75 or lower before October 20, then I will be required to buy 100 shares for $7,500.  But if Shopify does not drop to $75 before October 20, then I get to keep the $570.  Also, Shopify would need to drop below $70 for me to take a loss, because at $70 I could sell the stock at a loss of around $5 per share, which is what I already pocketed from selling the put option.

 

This seems almost too good to be true.  I realize that I could take a huge hit if the stock were to drop much below $70, but compared with an outright purchase this seems a lot safer. I also realize that if Shopify goes to $200, this strategy would not be nearly as good as buying the stock, but keeping the $570 would still not be a bad thing, especially if I could do it over and over.

 

Thoughts?

 

Is anyone here using this strategy?

I know a few people who do options but they are much better at the market than I am and, over the long run, they've made money but they've had big losses too. It's too much like day trading for me.

[glunn]

 

And keep $7500 sitting idle in case your put is exercised? Or would you do a more fly be the seat of your pants approach. To me that is one important part of the equation. The 2nd is income tax rate which is what your premiums will be taxed at, versus long term capital gains/loss.

Good points.

 

I am a very conservative investor and now have more than 50% in cash, so tying up $7,500 is not an issue for me. And I am going to do this in a retirement plan, so taxes will be irrelevant.

[glunn]

 

I know a few people who do options but they are much better at the market than I am and, over the long run, they've made money but they've had big losses too. It's too much like day trading for me.

I can see how this could lead to big losses if someone is greedy and sells puts within 5% of the current stock price or on stocks that he/she has not carefully researched.  But it also seems to me that if I was going to buy a stock anyway, this is a more conservative approach than a straight buy order.

[Willihammer]

Another thing you could do is buy 15 of the $70 puts, and sell 15 of the $75 puts to enter a vertical position. Premium gained would be about $2100 (less commisions) while capping your downside risk at $7500.

Edited July 2, 2017 by Willihammer

[glunn]

 

Another thing you could do is buy 15 of the $70 puts, and sell 15 of the $75 puts to enter a vertical position. Premium gained would be about $2100 (less commisions) while capping your downside risk at $7500.

That sounds interesting. I am going to continue to research this.

 

I have been writing covered calls for decades, with some success. But now I am wondering if I could have done better by also using puts.