Buying into Weakness

“Widespread fear is your friend as an investor because it serves up bargain purchases"

- Warren Buffett

The Portfolio

The portfolio is up around +6.00% YTD.

Our benchmark index, the S&P 500 is down around -7.00% YTD.

If you're interested in the stock market, are looking for diversification or growth please feel free to connect me. I'm always available to talk, maybe provide some new ideas or to present to your group. clay@claybaker.com

What I'm doing today

​​Today I bought more shares of Facebook (FB), Boeing (BA) and started a new position in Avalara (AVLR). This is simply a continuation of my investing plan. While the market is exhibiting extreme volatility, I'm staying true to our investing discipline and the companies in our portfolio by adding on significant declines. Can these stock prices decline further, yes and I suspect they will; but I have no way to know for sure. Since I liked these companies at higher prices, I have to like them more at lower prices.

At some point I'll need to do some selling in order to raise cash. I'll be looking to do one of two things, trim existing positions or sell an entire position. If I sell an entire position it will be because the price ran up too high, or the thesis for why the company should perform better no longer exists. Either way, consolidating the portfolio to fewer stocks would be a good thing to do.

Bought 5 FB @ $187

Bought 10 AVLR @ $78

Bought 2 Boeing @ $280

What's Happening?

Markets were up this morning and then reversed quickly in a broad sell-off after Federal Reserve Chairman Jerome Powell announced a 50 basis point cut to the 1.00-1.25 target range. At one point today 10 year rates declined below 1%. ​​Typically when the Fed lowers interest rates the stock market rallies, but in this case the cut was ill timed. In fact I commented this week that I hoped Powell would leave rates alone. The market divined that the Fed knows something we don't. The majority of the selling looks to be orderly, which simply means that selling is occurring at technical levels that algorithmic traders have programmed into their trading systems.

However there is some buying that doesn't really make a lot of sense. For instance Tesla was up today, as was Enphase and several other growth stocks. If I had to guess it's because the owners of these stocks are not sellers in any environment and there are about 10 million investors on Robinhood that actively trade these names but with Robinhood offline due to technical problems some of the trading has been curtailed.

With all the selling, one might wonder, is anything working, where is the money going? With the emergence of the Corona Virus we also saw the emergence of the 'Plague Trade'. The plague trade invests in companies that may benefit from the virus because they have products and services directly connected to the outbreak. Todays biggest percentage gainers were in fact part of the plague trade.

Allied Healthcare: maker of respiratory equipment (+27.8%)

Alpha Pro Tech: maker of face masks (+19.94%)

Genmark Diagnostics: testing reagents and equipment (+22%)

Inovio Pharmaceuticals: immunotherapies/vaccines for cancers and infectious diseases (+69%)

What Should You Be Doing?

In general I think all investors should be looking to reduce highly speculative stocks and increase their investments in high quality companies that have declined by 15%-20%. The market is now full of great companies that have declined by up to 20%. I'm not recommending any specific companies, but I'll point out a few names to give you the gist of what I mean by quality:

  • MasterCard at $292 declined 18.9% from its high (0.52% dividend)

  • Nvidia at at $265.89 declined 18.9% from its high (0.23% dividend)

  • United Technologies at $132.54 declined 19.5% from its high (2.19% dividend)

  • United Healthcare at $261.40 declined 17.3% from its high (1.58% dividend $4.32/share)

  • Caterpillar at $124.38 declined 21.04% from its high (3.23% dividend)

  • Johnson & Johnson at $135.59 declined 14.0% from its high (2.71% dividend)

  • Merck at $79.13 declined 17% from its high (3.0% dividend)

Another holding I always like to keep in the portfolio is gold in the form of the GLD. From low to high year-to-date the GLD gained 30%. When the dollar declines, gold goes up. When fear increases in the market, gold goes up. While gold produces nothing and has very little industrial value, gold is a stabilizer for all uncertainty within a stock portfolio. The GLD is a fund that hold physical gold and has the best liquidity of any gold fund available. I feel that 10% of a portfolio is a normal holding and increasing that to as much as 20% in uncertain times is reasonable. I've pegged the Stay Invested portfolio at 15%. We're currently below that level and need to do some allocation work, reducing stocks and building up our index funds and gold.

"Markets don't go to zero, Portfolio's do.

Buy quality, be patient...and look twice for motorcycles."

- Clay Baker

Stay Invested,

Clay Baker

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Keep Me Honest 2019

  1. S&P 500 declines to 2,350 or more (1-3-2019)

  2. Healthcare and Biotech sectors outperform (1-3-2019)

  3. S&P reaches 3,000 by year end (1-11-2019)

  4. CSCO reaches $60/share (1-18-2019)

  5. VEEV reaches $145/share (2-14-2019) (achieved $145.23 on 5-10-2019)

  6. CVS reaches $91.50 (2-27-2019)

  7. Bull market takes another leg up (4-7-2019)

  8. The Fed will lower rates 1-2 times (5-13-2019)

Clay's Rules

Rule #1: Don't lose money

Rule #2: See Rule #1

Rule #3: Portfolios go to zero, markets don't, Stay Invested

Rule #4: When a good stock you own drops 10% below your cost basis, add shares

Rule #5: Bull markets aren't sustained without the Transports

Rule #6: When Forward P/E is lower than TTM P/E, expect earnings to increase

Rule #7: When an investment bank sells below book value, buy it

Rule #8: Tips are for waiters. Do your own homework.

Rule #9: Don't sell a stock because you're bored with it. Do your own homework.

Disclosure: I am personally invested long in some or all of these stocks or funds that appear in the Stay Invested portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the Stay Invested portfolio but may be mentioned or related to this article. It is not my intention to advise or encourage the purchase or sale of any security. I am invested long in these securities mentioned in this post:

HD, AMRN, BSTC, CVS, CSCO, VEEV, STZ, AMZN, NVDA, BCRX, GS, BDSI, VEEV, VTI, GLD, HD, AWR, XLNX, MRVL, NBRV, ENPH

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved