Not much has changed since the Watchlist from April was posted. I’ve seen increased doubt and stress from market participants that indicate we are close to a huge correction. Some people argue that the recent selloff in the smart money index is a sign of a coming bear market.
Here at Stockles, I try to show you a rational and somewhat unemotional approach to the whole game. I don’t believe that the Smart Money Index is worth much. If it was able to predict the future market, that information would be consumed and used by the market, and the whole effect would be eliminated. I do believe that dumb-money exist and that markets aren’t 100% efficient, but that’s a topic for another post.
My 2 Approaches:
So what to do? Wait until the market crashes before buying stocks? here’s my answer.
- For my monthly index investing, I could not give a shit if the market goes up or down. I buy each month and that’s it.
- For my stock portfolio, I focus on not overpaying. This means that I try to buy at prices which correspond to the normalized earnings per share. I stress normalized and not just earnings per share because a company can do crazy stuff in order to boost EPS. A normalized EPS will always tell the truth (which is also Buffet’s most important metric). Of course, I also look at the classic metrics as well. Am I going to buy? Maybe, but I also want to have some cash in my stock portfolio too. Cash is King, you know.
For May 2018 I’m looking at:
- Kimberly Clark Inc: A classic DGI stock in my portfolio which I’ve written about before. The stock is in the trading range and I’m looking to buy at a yield close to 4% (because KMB isn’t really a huge grower, I demand a high yield). That corresponds to a price of around $98 – $100.
- Altria/ Philip Morris: Tobacco companies got hammered the other day. Some people claim it’s the small revenue miss, but I think there’s more to it. I read JPM comments and there are a few issues in Japan. I’ve been reading up on the macro in Japan and my conclusion is that Shinzo Abe, Japan’s prime minister, will most likely resign. Further, even though the central bank states that they will use monetary policy to reach CPI at 2%, I find the whole plan quite confusing. Since Japan has the most debt out of any developed country, I’d like to see them stress this factor a bit more. Interest rates are still so low that investors aren’t really keen on putting a lot of capital into projects. However, Altria shows better fundamentals than Philip Morris but Philip Morris has a wider pipeline.
People keep saying tobacco is dead, but I don’t think that’s the case. In Western Europe -> Smoking is replaced with snus, and 2017 was the first year when snus sold more than cigarettes. This replacement will most likely keep increasing, but the usage of nicotine is still there. Asia -> still has a lot of smokers, the US -> there are still holdouts.
Future potential: Altria and Philip changes their pipeline and becomes the new dominant player in marijuana and cannabis. That’s what I think will happen to MO and PM.
- Enbridge, Oaktree Capital, and Nordea: Same argument as in the Watchlist for April.
What stocks are you looking at? If you’re a frequent reader, please feel free drop a comment