One Piece At A Time | Week Ended 3/20/2020
My investment strategy has changed a bit now my that my brokerage firm, as well as most others out there, have moved to ZERO commissions. I had typically tried to purchase in dollar amounts that put commissions at 1.0% or less. I've always wanted to implement, at least partially, the dollar cost average method but commissions prohibited me from pursing that. However, now it's very feasible and reasonable to do so.
My focus has always been on quality businesses, but the problem was typically buying shares at good valuations, often I had to settle for good enough. The longer that I've been investing, the more that I've come to realize just how powerful hitching your investment wagon to great companies can be. That's why I've shifted my focus to dollar cost averaging to build up my positions; because the larger your purchases the more attention that needs to be paid to valuation and vise versa.
I'd still prefer to do larger scale purchases, but the problem is that quality businesses don't often trade at good valuations. In general valuations aren't exactly cheap; so I'll just keep building up my stakes in great businesses.
The downside continued last week and the major market indices all hit limit down circuit breakers multiple times throughout the week. In just 5 trading days last week the S&P 500 shed nearly 15% but the swings were pretty amazing. From the previous week's close the daily moves were -12.0%, +6.0%, -5.2%, +0.5% and -4.3%. So yeah...volatility is back!
I have no clue when the bottom for the economy or the markets will be and fully expect further downside as things play out. Without the gift of foresight, that means if I see something that I like I'm going to buy; although I am doing much more nibbling nowadays because I would love to have more cash ready to deploy.
I put a total of $1,942.69 to work across 3 of my accounts and increased my forward 12-month dividends by $41.86. That's an average yield of 2.15% across the entire capital that was put to work.
By account the investments in my FI Portfolio saw a 3.96% yield, with my Roth IRA at 6.51% and my Rollover IRA at 1.83%.
While the 52-week high isn't a good measure of the value of businesses, it can act as a reference point. Of course you have to make sure you're not anchoring to those highs and it still comes down to what the business is worth. That being said the purchases that I made were at pretty significant discounts to the 52-week highs.
The best purchase that I made last week in terms of % off 52-week high was Disney which is off by 48%. Meanwhile, the worst purchase for % off 52-week high was Ecolab which was still 28% off. On average my purchases last week were made at prices that were 39% off the highs.
From a valuation perspective things are looking a lot better now with the massive declines. Of course, if we look back at these numbers a year from now the P/E ratios are all likely to be much higher because the problem right now is that we have no idea what the "E" part of the P/E ratio is going to look like especially for the current year.
Looking ahead to this week with the stock futures limit down just minutes after opening for trading last night I expect to still put some more cash to work but will be playing it by ear. It's a delicate balancing act right now because the markets could very easily be down another 30%+ depending on how things develop or we could be near at least a short term bottom. The only thing I know for sure is that I don't know anything right now.
My FI Portfolio's forward 12-month dividends increased to $8,104.96 with my FolioFirst dividends at $101.61 My Roth IRA's forward dividends climbed to $669.70 while my Rollover IRA's dividends increased to $2,651.69. My taxable accounts can expect to produce $8,206.57 over the next year with all accounts providing $11,527.96.
Did you make any purchases during last weeks stock market decline? What businesses are on your radar to add? Do you think the selloff will continue or is the worst of it behind us?