Bull and Bear Portfolio Update 11.22.2017


About two months in, how is my Short-term bull-bear model performing?

I couldn’t be happier. The bull-bear model has made almost 8.8% on the longs and lost only 6.4% on the shorts.

If you started with $90,000 in capital and invested $10,000 in each of the long positions and sold short $10,000 of the three short positions, you are sitting on a gain of 6.4% in only two months. The Dow is up 5.6% over the same time-period.

So six of one, half dozen of the other, right?

Not exactly, a 6.4% return in the bull-bear portfolio was achieved with only two-thirds of the stock market exposure of a long-only portfolio. You are making more by taking less stock market risk. If the long portfolio and the short portfolio would have matched the performance of the Dow, the bull-bear model would have been up 3.83% or two-thirds of the Dow’s 5.6% return. See the correlation? Two-thirds market exposure would have resulted in about two-thirds of the return.

But the bull-bear model is doing much better than that. What’s driving the performance? Caterpillar, Microsoft, and Intel are all big winners. All three are up double digits on the back of stronger than expected earnings. Intel is the standout with a return of more than 21%.

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: Intel Corporation (NASDAQ:INTC)

In 1968, the year 2001: A Space Odyssey was released, mankind was looking to the stars and the future of technology. The Apollo space program was heating up in preparation for the moon landing the year after. Computers were being made smaller and more powerful in order to the meet the demands of the space program and other advanced technological undertakings.

That same year, two men named Bob Noyce and Gordon Moore founded Intel. The company’s first product would be produced in 1969. It was the 3101 Schottky bipolar random access memory (RAM). The team would also break ground by introducing the world’s first metal oxide semiconductor static RAM, the 1101. By 1970 Intel had upended the entire industry by introducing the 1103 DRAM, a new standard in computer memory technology.

Intel’s hits would keep on coming. In 1974 the company introduced the first general-purpose microprocessor. In 1975 Intel processors were shipped on one of the first PCs, the Altair 8800. In 1981, computing giant IBM would select Intel’s processors for its line of PCs. In 1992 Intel became the world’s largest semiconductor supplier. Through the 1990s Intel would introduce and continuously improve its Pentium line of processors. In 2006 Intel introduced the world to the first quad-core processor for desktop computers.

Today Intel is transforming its business from a focus on PCs to a focus on the cloud and smart devices. Intel is pushing forward cloud technology with its innovations like the Intel Optane. The product is the first to combine memory and storage, making the cloud faster and more efficient.

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Bull and Bear Portfolio Update 11.17.2017

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: General Electric (NYSE:GE)

America’s Most Venerable Blue-Chip No Longer

GE, America’s most venerable blue-chip industrial company, and the Dow’s oldest constituent, had what may be the company’s worst week on record this week. For only the second time since the Great Depression, GE announced a dividend cut. The 50% dividend cut was announced in conjunction with a restructuring program delivered by new CEO Jim Flannery on Monday.

Sadly, the dividend cut wasn’t the worst of the news. The restructuring program that Flannery hyped up for months fell flat with Wall Street. GE shares plunged during the presentation. After months of buildup, investors were looking for something spectacular, but Flannery delivered a plan for basic blocking and tackling that he could have announced the first week he took over as CEO.

He told shareholders, GE will focus on three primary areas moving forward, Power (in need of help), Aviation (today’s crown jewel), and Health. GE will look to exit its remaining businesses.

Young Research has followed GE for decades and advised it on and off in Intelligence Report. GE has most often been a reliable dividend payer, with a rock-solid balance sheet, and a solid record of making regular annual dividend increases. The company did cut its dividend during the financial crisis as its finance arm had to tap government liquidity programs, but that looked like a one-off. Dividend growth resumed soon after the crisis passed.

GE has always had strong franchises, and it has been a market leader in the industries it has participated in. The company was one of Fortune’s most admired companies for years and it was once viewed as America’s best run big company. GEs managers were sought after to fill CEO roles, its management training program was the envy of corporate America, and it received high marks for efficiency and profitability.

GE still has strong franchises, but under the leadership of former CEO Jeff Immelt, GE’s reputation has suffered immensely and so has its stock price. Immelt was a disaster. He waited too long to exit the financial business, then sold near the bottom and entered the oil business near the industry’s top, only to participate in the oil downturn. You couldn’t have done worse if you tried. Immelt also allowed expenses to inflate, and cash flow to dwindle, which led to the mess GE finds itself in today.

Flannery’s promise to maintain the dividend and his hype of the analyst meeting were obviously mistakes, but his back to basics plan for the company is a move in the right direction. GE needs to get simpler and more profitable. Unfortunately, that doesn’t happen overnight and Flannery’s plan isn’t without risk.

Turnarounds take time and often don’t go as smoothly as management or shareholders would like. For conservative investors and those in or nearing retirement, GE’s dividend cut and now significant execution risk are disqualifying. Predictability, reliability, dividend growth, and low-risk are what we look for in dividend stocks, and GE offers none of the above today.

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Bull and Bear Portfolio Update 11.9.2017

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: UnitedHealth Group (NYSE:UNH)

In 1974 a group of doctors and health professionals founded Charter Med to provide health coverage. In 1977 United Healthcare Corporation was born to reorganize Charter Med. Its founder, Richard Burke started the business with the goal of helping people live healthier lives. Burke was assisted by Dr. Paul Ellwood, a “health policy guru” who coined the term “health maintenance organization.” UnitedHealthcare would go on to introduce the first network-based health plans for seniors, and to create EverCare, a care coordination program for people in nursing homes. Later the company would develop modern pharmacy benefits management and develop many other innovations in the industry.

Each year in over 125 countries, UnitedHealth processes over 750 billion digital transactions. In the United States alone UnitedHealth provides its customers access to over 1 million healthcare professionals, at about 6,000 hospitals and healthcare facilities. That includes 4 out of every 5 hospitals in America. UnitedHealth’s millions of customers have access to more than 67,000 pharmacies.

According to the U.N., “The global share of older people (aged 60 years or over) increased from 9.2 per cent in 1990 to 11.7 per cent in 2013 and will continue to grow as a proportion of the world population, reaching 21.1 per cent by 2050. Globally, the number of older persons is expected to more than double from 841 million people in 2013 to more than 2 billion in 2050.”

As the world ages, it demands more medical care and UnitedHealth Group provides access to that care. The company has paid dividends since 1990 and shares yield 1.42% today.

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Bull and Bear Portfolio Update 11.3.2017

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: Home Depot (NYSE:HD)

After Hurricanes Harvey and Irma pounded Texas and Florida with devastating wind and rain, there has been a frenzy of construction to rebuild and replace all that was lost. Estimates are that $200 billion worth of damage was done. Crews are busy all around Key West where Debbie and I live, and in and around Naples where my family run investment advisory firm, Richard C. Young & Co., Ltd. has its office. In Houston, residents are hoping to recover from Harvey, which affected as much as 14.2 percent of the city’s housing. If there can be a silver lining, it is that unemployment among construction workers, many of them out of work or underemployed since the financial crisis began, is at record lows.

In October, unemployment for construction workers matched its lowest recorded level for that month, 4.5%. Over 6.93 million Americans were employed in construction jobs, the highest of any time outside the height of the building boom from May 2004 to November 2008.

The recovery in the construction industry really took off in late 2011 when housing starts finally broke out of the depressed range they had found themselves in after the bust. In November of 2011, starts broke through 700k a month and never looked back. In September 2017, there were 1.127 million starts.

Standing ready to supply the rebuilding effort are companies like Home Depot. Back in 1978, the same year I began writing the first iteration of Young’s World Money Forecast, Bernie Marcus and Arthur Blank were sitting in a coffee shop in Los Angeles laying out their plans for a superstore that would not only sell customers tools and hardware, but even teach the customers how to use them.

By 1979, with help from investors, their vision—The Home Depot—was born in Atlanta, Georgia. The first store was a 60,000 square foot warehouse with more items for sale than any other hardware store. The model was a hit. Today The Home Depot is the world’s largest home improvement retailer. Stores are now usually around 105,000 square feet in size, and there are more than 2,200 locations across North America.

I added Home Depot as a long position in my initial Short-Term Bull & Bear Portfolio. The company has been paying a dividend since 1987. Home Depot has never cut its dividend, but it did leave the payout flat for two years during the depths of the housing market bust. Since then, HD has been quickly raising its dividend each year, with a 29% boost in 2017.

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Bull and Bear Portfolio Update 10.27.2017

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Analysis:

Earnings reports are coming in from the big Dow companies I have advised as long positions in my Bull & Bear portfolio. I don’t spend any time worrying about companies “beating” estimates, or achieving artificial guidance benchmarks created by management to control Wall St. analysts’ opinions. What is helpful though are the actual details about the business you may glean from an earnings report. Here are a few I’d like to share from the recent earnings season.

3M: The business with the best momentum in the last quarter at 3M was its electronics and energy business. Particularly strong was 3M’s displays unit. 3M builds multi-touch projected capacitive (PCAP) display systems that can be from 7 inches to 65 inches wide. The glass is bezel-free, for the glass-to-edge designs you see on the most advanced technologies. The PCAP systems use 3M’s proprietary Ultrafine Metal Mesh designs to get accurate responsive behavior from display screens. 3m debuted its 65”, 4k ultra-high definition display last year at a tech gathering known as InfoComm. The machine is targeted at large public venues and retail applications. 3M’s innovative technology has always kept it ahead of its peers.

Caterpillar: A highlight in Caterpillar’s last quarter was strong sales in China. After getting completely shut out of China in the 1950s and 1960s, Caterpillar returned to the Middle Kingdom in 1972, after a 23 year absence. The reopening of China’s doors to Cat employees revolved around an order for 38 pipelaying machines and replacement parts the Chinese wanted to buy. Now, years after that humble start of 38 machines, Caterpillar has sold in the first eight months of 2017 over 85,000 excavators, according to the China Construction Machinery Association. And Cat has recently unveiled its next generation of hydraulic excavators at a Beijing trade show. Sales of mini-excavators are doing so well in China that Caterpillar is planning on increasing capacity at its Chinese production facility.

Microsoft: The story this quarter at Microsoft was all about the Cloud. Sales of Microsoft’s Azure cloud system increased by 90%. Without getting too technical, Azure is a cloud system used by app developers to build and deploy their creations on Microsoft’s servers around the world. Azure is a direct competitor to Amazon’s Web Services (a.k.a. the profitable part of Amazon). After getting a late start in the cloud, Microsoft has come roaring back to amass loads of market share. Unlike Amazon, Microsoft is a Dividend Achiever with over a decade of consistent dividend increases under its belt.

Intel: In the company’s third quarter earnings release Intel CEO Brian Krzanich said the company’s product-line is “the strongest it has ever been.” He singled out markets like artificial intelligence and autonomous driving as places Intel is focused on innovating. Intel is building a new chip called Nervana to supply the booming demand for artificial intelligence technology. The Nervana is a neural network processor (NNP), and Intel has been developing it for over three years. Naveen Rao, who began the Nervana project before it was acquired by Intel said of the work the chips will do “Machine Learning and Deep Learning are quickly emerging as the most important computational workloads of our time.” Existing hardware just won’t cut it under these new demands. Rao continues “We designed the Intel Nervana NNP to free us from the limitations imposed by existing hardware, which wasn’t explicitly designed for AI.”

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Work to Make Money/Invest to Save Money

With the exception of the large sums of money that I invested in zero-coupon treasuries (Benham Target Funds) in the 1980s and 1990s, I have never invested based on how much money I expected to make. I work to make money. And I save to keep every dime of the money I have worked a lifetime to earn. There was a day when I had darn few of those dimes. Those days made an indelible impression on me, and will so forever.

I invest with a rolling 10-year average annual return portfolio target of a balanced 4+%. This modest target is based on the normalized annual portfolio draw I advise for retired investors. Long-term balanced targets include surviving through agonizing periods of negative returns for the stock market in general. I remember like it was yesterday the tortuous 16-year bear market of 1965 through 1981. This period encompassed my entire career in the institutional research and trading business. It terminated with the Dow down 10% from where it began. Had I not emphasized 100% fixed income in my own account and in our college savings program for Matt and Becky, my goose would have been cooked. It never pays to be an investing know-it-all.

My investments today, for me and for all our clients, combine a mix of intermediate and short fixed-income securities and portfolios of dividend-paying stocks. Annual dividend increases are always at the forefront of my investment process. Ben Graham advocated a portfolio mix of 75/25—25/75 fixed income and equities. Ben. eschewed moving outside of this range, and I’ve never come across evidence that supports otherwise.

Since my earliest investing days in the 60s, I have relied upon the ground rules and reference material I studied while an investment major at Babson College. It was based wholly on the advice given in my Graham & Dodd textbook and my studies in Dr. Wilson Payne’s investment seminars. Decades later, I’ve not changed my philosophy.

Through the years, I’ve had the privilege of influencing the investment thought process of thousands of individual and corporate investors around the globe. Many have been my management clients since I started Richard C. Young  & Co., Ltd. in the late 80s, and the majority would likely agree with me that I am perhaps the most consistently boring, prudent, patient investment advisor on the planet. I certainly hope this is so. Like The Hobbit, I view adventures (in this case investing adventures) as “nasty disturbing uncomfortable things” that “make you late for dinner.”

I am ultraconservative in my daily affairs of life, which includes personal security preparation, and I see no purpose in not applying the same protection to financial security.

I modeled our family company after the old-line investment counseling family-run firms that populated Boston’s financial district along State, Federal, Milk, and Congress streets in the sixties—a harking back to a more gentrified era in investing. Many of these fine old white-shoe firms were my clients when I was associated with the internationally focused Model Roland & Co., where I was involved in institutional research and trading.

My clients, such as the venerable Boston Safe Deposit & Trust, State Street Bank & Trust, and First National Bank of Boston, built their foundation on The Prudent Man Rule.

The Prudent Man Rule directs trustees “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”

These are the conservative principles our family investment council firm practices. Our firm’s focus from the beginning was, and today is, based on The Prudent Man Rule along with the theories of dividends and compounding pioneered by Ben Graham.

Over the decades, I’ve learned that most individuals do not possess the requisite patience and discipline to excel as successful long-term investors. The patience-deprived universe tends to be what I think of as needy hip-hop investors. They look for the financial markets to either bail them out of past investing indiscretions or, worse yet, to produce rewards far beyond reasonable levels of commensurate risk. Our family investment management firm does not offer the type of environment suitable for the needy or greedy.

The needy and greedy tend to possess an investor twitch that requires action—lots of action. This crowd looks to market timing, second-guessing, and what-if-ing. Most of the big moves in any investment cycle come in the year or two after the exact bottom of a cyclical bear market.

Well, market timers most often sell out late in bear cycles, and then are too afraid to get back into the market in time to catch the initial upsurge. The needy/greedy tend to miss the big gains every time.

At Richard C. Young & Co. Ltd., our goal is to remain balanced as well as fully invested. This repetitive plan, definitely counter intuitive to many investors, ensures never missing the big moves. It also requires never participating in any meaningful way in the bubble or blow-off stage of over-priced markets that are on the precipice of cratering and wiping out a lifetime of savings along the way. No thanks. I long ago learned this bedrock principle.

Today’s investment landscapes and processes have become so difficult that for most individuals going it alone, especially while preparing for a safe and secure retirement, is no longer comforting or attractive. Many of the old standby bastions of investing are no longer an option. I am referring to the vast majority of all-managed equities mutual funds and a wide swathe of the indexing ETF universe. The fund industry has simply outgrown its skin. Funds have grown too big, and their options in dividend-paying common stocks are too few, due to size constraints for massive funds. This is only common sense.

With minor exceptions, I no longer advise these out-of-phase funds. Rather, stocks of individual dividend-paying companies including smaller concerns and foreign securities, are our focus for clients. At our management company, we craft what we label Retirement Compounders portfolios.

Investing in foreign securities is not the province of the individual investor or, for that matter, most advisors. Having been directly involved in researching and trading in foreign securities since 1971, I can insure you that process presents a sticky wicket best left to experienced hands. Markets are thin, currency valuations enter the picture, and macro events often call the tune in foreign securities investing.

I travel to Europe frequently. Decades of on-the-ground anecdotal evidence gathering and personal contacts allow me to form the direct knowledge imperative in the decision making of investing in foreign securities. With the exception of my old stomping grounds in Boston, I am more comfortable today in Paris, by example, than any big U.S. city. More international decision makers and event making potentates visit Paris annually than any other city in the world. On each new visit, I gather a wealth of intelligence to support my global investment strategy. This boots-on-the ground anecdotal evidence gathering, in conjunction with my decades of daily inference reading, allows our firm to offer clients a distinct perspective on the international investing landscape.

I sincerely hope you and your family benefit from many worthy insights into the myriad factors that allow conservative, retirement-thinking investors like you to find a warm and comforting home base for retirement planning and investing at Richard C. Young & Co., Ltd. My best wishes to you for success. Welcome to the family.

Warm regards,

Dick

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Bull and Bear Portfolio Update 10.13.2017

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: 3M (NYSE:MMM)

Back in 1902, five men came together to found the Minnesota Mining and Manufacturing Company. Their target that day was corundum, an extremely hard mineral that can be used as an abrasive. Their first mining operation, called Crystal Bay, didn’t turn out very well. The men however endured the failure and continued on, developing other products and materials to sell.

In 1907 a man named William McKnight would join Minnesota Mining and Manufacturing Co. (later known as 3M) as an assistant bookkeeper. No one knew then that McKnight would change the company and its culture forever. The assistant bookeeper quickly rose through the ranks, ultimately becoming 3M’s chairman of the board in 1949. McKnight would firmly establish the core philosophy of innovation and collaboration at 3M.

Innovation has been at the heart of the 3M’s business model since the very beginning. Along the way the company would make a number of product breakthroughs; developing masking tape, the first waterproof sandpaper, the Thermo-Fax copying process, Scotch-Brite Cleaning Pads, Scotchgard Fabric Protector, videotape, and innumerable other new products and processes for making people’s lives easier. Today there are over 60,000 products from 3M in homes, businesses, schools and hospitals around the world.

3M isn’t satisfied to sit on its accomplishments of the past. The company is innovating for the future. Today 3M scientists are developing new nanomaterials for dental work, polarizing films to protect smartphone screens, and hundreds of other technologies to make lives easier.

3M has paid a dividend every year since 1916 and increased its dividend every year for over half a century. Today the shares yield 2.2% and I am looking for dividend growth of almost 6% in 2017.

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Bull and Bear Portfolio Update: 9.29.17

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Click to enlarge.

Featured Company: Microsoft (NASDAQ: MSFT)

Back in 1975 two young men, Bill Gates and Paul Allen, founded a company they named Mircosoft. That year the two made their first sale to MITS Computer. The company purchased a PC programming language called BASIC. In 1981 Microsoft was incorporated, and IBM adopted its 16-bit operating system for its first personal computer. In 1985 Microsoft would introduce Windows 1.0. The operating system was the first in a family of operating systems that would expand in usage across most of the computers in the world. In 1990 Microsoft became the first PC software firm to generate over $1 billion in sales in a single year.

In tandem with its ubiquitous operating system, Microsoft has developed and acquired a number of software programs that have come to be known collectively as Office. The Microsoft Office Suite of programs, including Word, Excel, PowerPoint and others, is found on almost every computer used for real work. Office has been a powerhouse performer for Microsoft. When misadventures like the Zune mp3 player let shareholders down, Office held steady.

Now Microsoft is integrating Office into its next big endeavor, the Cloud. Microsoft’s cloud systems, led by its Azure application platform, is one of the fastest growing parts of the company. The cloud is the future, and Microsoft is a leader. With more companies adopting cloud services to increase their efficiency and redundancy, Microsoft is once again sitting at the leading edge of a technological plate shifting. Unlike many other tech companies though, Microsoft has developed a strong dividend record. MSFT shares have paid dividends since 2003, and have increased them each year for the last 12 years. Over the last five years dividends have grown at an annualized rate of 14.3%.

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Bull and Bear Portfolio Update: 9.22.17

Model Guidance: No Changes for the Week

My short-term Bull & Bear Portfolio consists of 9 equally-weighted long positions and 3 equally-weighted short positions. Both the long and short stocks are selected from the Dow Jones Industrial Average. If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks. Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post no changes for the week. You can read more about my Bull & Bear Portfolio here.

Featured Company: Visa Inc., (NYSE: V)

In 1958 Bank of America launched the first consumer credit card for middle-class Americans and small to medium-sized merchants. The business grew rapidly, going international in 1974 and adding a debit card in 1975. In 1976 the Bank Americard became Visa. In 1995 Visa co-created EMV which allowed interoperability between all chip-enabled cards and terminals. In 2001 Visa surpassed 1 billion cards issued. In 2007, a restructuring of Visa’s global network was begun, creating Visa Inc. In 2008 Visa went public on the New York Stock Exchange.

Today Visa operates the world’s largest consumer-payment system, with nearly 2.5 billion credit and other payment cards in circulation across more than 200 countries. Visa is the #1 player in the electronic payments industry, with a market share of nearly 60%. Visa connects and clears transactions between banks and merchants. The company’s vast network creates high barriers to entry and a durable competitive advantage.

Visa sports a dividend yield of only 0.66%, but the company is a dividend growth powerhouse. Over the last five years, Visa has compounded its dividend at a rate of almost 26%. Not surprisingly, the total return on Visa shares over the same period is also 26%.

Visa’s growth is closely tied to that of the global economy, but the company also benefits from the ongoing transition to electronic payments. Cash still accounts for 85% of the world’s transactions and 40% of transactions in the United States. The shift to electronic payments has a long way to go. That means more potential market share for Visa to gain as it expands its business further around the globe.

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Dick Young’s Short Term Bull & Bear Portfolio (STBB)

One Man’s Opinion

Let’s see if STBB is for you.

You’re basically bullish on the stock market, and you have a nice chunk of cash handy that you hate to see withering away in your bank, earning squat.

You are going out of the country on an extended business trip, and you have no time to futz with your portfolio. Well, you and I are in the same boat. So I decided to share my most recent STBB short-term portfolio concept with followers to my reinvigorated Young’s World Money Forecast, first launched in 1978. Young’s World Money Forecast never died. It simply went on a 40-year vacation.

YWMF and I are now back at it. My goal is to encourage serious investors to start thinking carefully about their money and who they can work with over the next couple of decades to steer the family financial ship of state. YWMF is the perfect medium for me to share with you what I think is going on in the world. My opinions are just that, so do your homework and make your own conclusions. I am pleased to be able to offer advice during your learning process, but at the end of the day, you need to be your own boss.

As head of global investment strategy for RIA Richard C. Young & Co. Ltd., I hope you will give the name Dick Young some worthy consideration in the years ahead.

OK then, we are off and running.

My guiding principle is to include only stocks from the Dow Jones Industrial Average. Why? Because it’s like I am a DJIA insider. I’ve been in this business since what feels like the day ol’ Charles Dow thought this Dow thing up. Slightly kidding, of course, but you get the picture.

Here’s the basic deal. YWMF is all about the Dow—dedicated, you might say, to the Dow. I do not advise buying non-dividend-paying stocks to our clients, ever.

Did you know that every stock in the Dow pays a dividend? Or that long-term dividend-paying stocks offer better and more consistent returns than non-dividend-paying stocks? Serious investors, like I presume you are, simply sleep better, take less risk, and generally avoid the neck-snapping bear market volatility that is the bedmate of non-dividend-paying portfolios. No thanks to non-dividend-paying stocks, not tomorrow, not ever. We are long-term dividend and compounding disciples.

To reemphasize: My STBB portfolio includes only Dow dividend payers. I have followed the Dow, along with the leading and coincident economic indicators, for nearly five decades. I examine the monthly economic indicators under a figurative microscope to tenths of one percent. Back in the really old days, I forecasted both the leaders and the coincidents down to tenths of one percent each month. As you can see, my association with the Dow and the economic indicators is long and intense.

I emphasize my cutting-edge research with the economic indicators because you, as an investor with a high investment acuity and a long track record of success, are perfectly cognizant of the direct hand-and-glove association between the economy and the stock market. Trust me, as the stock market goes, so goes the Dow, but with far less bone-crunching volatility and much improved results thanks to dividend cash flow.

So what’s the play?

My complete playing field will include 12 Dow stocks—9 longs/3 shorts.

  • First, the longs: My model suggests buying equal dollar amounts each of Visa, United Health Care, Microsoft, Johnson & Johnson, Intel, Home Depot, Chevron, Caterpillar and 3M.
  • Next, the shorts: My model suggests shorting equal amounts of Nike, Goldman Sachs and Boeing.

If the Dow advances over the period in which my 12-Dow stock portfolio is open, the model will make money with the stocks that advance and will lose money with the stocks that decline. And the opposite will prevail for the short stocks.

If instead the Dow declines? My model will take profits in the three shorted Dow stocks, and stay with the long Dow stocks until they recover and show a profit. Each of these stocks is a dividend-paying blue chip likely to increase its dividend in the year ahead. Based strictly on investing criteria, there is not a reason or a rush to sell the long positions.

In the end, everything equal, a pleasing experience in a low-risk environment figures to be the outcome.

Each week, I will review the model portfolio for potential changes. If no changes are required, I’ll simply post No Changes for the week. At some point I’ll close out the model portfolio, which I will note promptly on my new STBB strategy site page. No two-week delay as there is with the snail-mail print newsletter era. We are now in the digital age. And you will have me on your side every day of every week. I am spending full time researching for our family investment firm’s clients and spending no time producing intelligence for the masses.

Debbie and I are off to Paris/Burgundy. Make it a good week.

Warm regards,

Richard C. Young

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