How come children have 4-H calves but not 4-H stocks? Odds are most 4-Hers won’t be running cattle, but most would likely benefit if they learned more about stocks.
We’re half way through 2009 and it might be a good time to review how the year is going with our investments, and yours.
You don’t need to be reminded that late frost, too much rain or not enough rain have put the boots to a lot of farmers this year. While some would say this is normal, there just doesn’t seem to be much normal when the Red River Valley is flooded and gets almost a foot of rain besides, while parts of Saskatchewan and Alberta had no rain until the middle of June, and parts of the Prairies had frozen water hoses around June 10.
If frost comes early, there will be a lot of feed grain, and maybe calf prices might come up and help out our beaten up cow-calf producers.
In the meantime, the stock market has been up after tanking in January and February — the worst two months back to back in history. I spread our money around to about 12 stocks in early January, up from about seven or eight in 2008. I did this to get more money into the sectors that I think are going to pay us well in 2009 and defend us against a rising U. S. dollar. And of course I’ve been selling covered calls all the time, month after month. I have not bought any emerging market stocks because I prefer to own stocks of companies that will be selling stuff to emerging markets.
Since January 1, many readers of our newsletter StocksTalk have set up their Tax Free Savings Account (TFSA), bought 200 or 300 shares in decent companies, sold calls and now are up 15 to 20 per cent and we’re only half way through the year. Many readers set their TFSA up with Questrade because the commissions are quite low. That way they can take in two or three per cent per month from selling covered calls and the cost of buying and selling is not a burden.
I don’t tell people which shares to own, but after they make that decision I’ve walked many readers through how to buy shares, and then how to sell covered calls. After two or three of those chats, most readers can do most of the work themselves.
OUR MAJOR ACCOUNT IS UP 10 PER CENT
Our most significant account was down one per cent for the year in 2008, mostly because I brought in cash month after month by selling covered calls on the stocks I had in that account. So far this year that account is up nicely over 10 per cent and it has been two thirds invested in stocks both years. This is our “worst” performing account.
Other smaller accounts had various amounts of losses earlier, but now the best one was up 42 per cent as of early June.
So 2009 has been pretty good so far.
Most of our accounts hold three to five stocks, but the big one might have 12 so we have about 30 transactions to do per month. Don’t feel too sorry for me, those transactions bring me around 10 grand a month. I did run into a couple weeks where I had just sold 500 shares of Apple (AAPL) and bought 4,400 shares of Teck Resources (TCK. B) and $70,000 worth of energy stocks such as Ensign (ESI), PetroBank (PBG), Imperial Oil (IMO), Nexen (NXY) and then had to garden, attend funerals, sleep, and talk to readers. I just ran out of energy, so I quit selling covered calls on a few thousand shares.
That likely cost me a couple grand, but helping readers, doing some personal stuff and so on is higher up on the list of things to do, so some days selling more calls is the last thing I might do, and then the market closes.
However, selling covered calls is quite a forgiving strategy, so when we do get around to selling them we might make three weeks worth of premium instead of four, so this is not a “do it today or miss out completely” strategy.
TD Bank brought Richard Croft to Winnipeg one Saturday recently so I went to listen. At the table I was at, three other fellows had been buying call options, which of course is the opposite of what I do. One complained he made money maybe two times out of five. I wondered out loud why he didn’t change his strategy to sell covered calls and bring in cash. Richard discussed that strategy in detail, so I hope those fellows can see the potential of this strategy.
Richard discussed the idea, but of course there was no time to explain how to do it. That is why I spend a lot of time teaching people HOW to sell covered calls. By the way, selling covered calls is about like collecting rent on rental property. We buy good shares, we sell covered calls, we keep collecting the dividends, and in a rising market we sell above the price of the day and in a falling market we sell a bit below the price of the day.
Over time, we might not make those 10 baggers some investors want, but if we can make 15 to 30 per cent per year in good and bad markets, hey, I can live with that. This is where the TFSA set up with a low-cost broker can help a young person become a millionaire and all with tax-free dollars. I really hope you learn this stuff so your children can learn it.
If you want to move some thinking, read the book “Rich Dad, Poor Dad” and encourage your kids to read it, too. I also recently read a speech in which Herbert Meyer put a different spin on the outlook for the economies around the world. If you want a copy, send me an email to [email protected]and I will email one to you. Or Google “Herbert Meyer.” And if you want a free month to my newsletter StocksTalk let me know. I won’t send the free month unless you ask.
As you know, Japan’s economy has been in the tank for 20 years and some figure the U. S. will end up that way, too. However, Japan’s population is getting older and older and the country doesn’t allow immigrants to come in, so Japan is shutting down schools, it has fewer and fewer young skilled taxpayers and generally Japan’s problem might be a population policy problem which has turned into an economic one.
Not to poke at old folks because I’m getting there, but really when a person stops working, pays little income tax and gets to live in a fine country like Canada or the U. S. with good medical care, costs rise. That’s OK if there are many young to few old, but if a population ages and there more and more old folks to young folks, those young people will be paying
more taxes and may start to complain about how many elderly folks they are supporting.
Many European countries also have aging populations. Many younger European couples prefer nice cars and travel to having children, so their populations are getting older quickly. In the U. S. and Canada, people are also getting older but the countries allow immigrants, especially skilled ones, to come in. As a bonus, many of those immigrant families have above average number of children, so they first bring in youth and skill and second they bring in children that can be consumers and taxpayers in the future.
So it looks to me like the U. S. economy has a better chance of moving ahead than Japan and some European countries.
AS FOR INFLATION…
The question of inflation came up when Richard Croft spoke in Winnipeg. He said the saving rate in the U. S. has gone from minus two per cent to plus five per cent, and more and more people have no job. So the productive capacity is running at around 72 per cent. Inflation isn’t usually a problem until production reaches around 82 per cent of capacity.
I would add to that the individual states in the U. S. are cutting back spending. One set of numbers I saw was that the stimulus package was $800 billion in the U. S. and the states were cutting $375 billion in spending. Then take seven per cent of the economy and put it into savings, and inflation likely is not going to be a problem.
THINK ABOUT THIS
I want to end with a few questions and observations:
—How come children have 4-H calves but not 4-H stocks? Odds are most 4-Hers won’t be running cattle, but most would likely benefit if they learned more about stocks.
—How come it’s OK to put $1 million down those little air drill tubes each spring with irreversible decisions, but not to set aside $10,000 to learn how to manage stocks for life?
—How come it’s OK to borrow thousands of dollars to buy a vehicle that will lose 30 per cent of its value on the spot, but not to buy stocks because they might “drop” in price?
—How come it’s OK to work 30 years at the next guy’s business, but not to learn a personal skill that can work for the rest of your life?
Andy lives in Winnipeg. He gardens, manages his own money, and publishes a newsletter called StocksTalk where he tells what he does in detail. If you want to read it free for a month send an email to [email protected]or Google StocksTalk.netand fill out a short form.