Investing Update: My 2nd Half Game Plan
What I'm buying, selling & watching
Halftime couldn’t come soon enough for the stock market this year. Everyone could use a good break. The fourth of July weekend hits at a perfect time. Doing some grilling, sipping on drinks outside and watching the fireworks sure sounds good to me.
The S&P 500 just had the worst first half start to a year since 1970. Sitting at -20.3%. The Nasdaq had the worst start since 2002 (Dotcom bubble) at -30.3%. The DOW has been down 12 of the past 14 weeks.
If you haven’t looked at your retirement statement, congrats. Still don’t look! I don’t want your holiday weekend or summer ruined. Just stick to your investment plan.
That is what I’m doing. I’m just sticking to what I’ve always done. Whether we’re down 20%, 30% or 40%, my investment approach stays the same. I plan to continue buying. Nobody knows where that floor is.
I’m not ruling out a return to the S&P 500 level of 3,389 which is the pre covid high from back in February 2020. I talked about this in my last Investing Update. I hope we don’t see that level, but I am prepared for it. If you were planning to sell or even panic sell, it’s too late to do that now. Some keep saying that it may even be too early to buy. But can the second half get that much worse than the first half? It could, as almost everyone thinks, or it could go the other way. Nobody knows! At some point it will go up and green days will return.
Percentage of S&P 500 Stocks at 52-Week Lows
One indicator I use to try and get a grasp on where the overall market is at relative to how far it has fallen and how much farther could it fall, is the number of stocks at their 52-week lows. It shows how much risk has been taken out of the market.
Currently 39% of stocks in the S&P 500 are at their 52-week lows. Since 1985, there have only been three other times where a higher percentage of the S&P 500 stocks were at their 52-week lows.
The number can definitely rise but this tells me that a lot of risk has been taken out. To me, if you were to start positions or add to current holdings these are comfortable levels to do so.
Best Performing Stocks over 5, 10, 15 & 20 Years
This is one of my favorite charts that Charlie Bilello periodically does. It breaks out the top performing S&P 500 stocks over the last 5, 10, 15 & 20 year periods.
There is a lot of familiar names on the list. But also some companies that I bet you’ve never heard of.
If you asked someone to tell you the best performing stock of the past 20 years, you wouldn’t hear Monster Beverage. Everyone would probably say Apple, which is second. But a distance second. You could win some bets on that one.
Reinvest Those Dividends
One of the magics of compounding returns over time is the importantce of reinvesting dividends. What is dividend reinvestment?
First let’s start with what is a dividend. A dividend is a reward (usually cash) that a company or fund gives to its shareholders on a per-share basis. When a stock or fund pays dividends you can choose to receive them in cash or you can reinvest the dividends to buy more shares.
By reinvesting dividends automatically you buy more shares and avoid any brokerage fees or commissions. It’s consistent and you buy more shares on a regular basis. You’re automatically dollar costs averaging.
It really compounds and increases your overall returns over the long term. The chart below illustrates just how effective this is.
Move I’ve Made
In my last Investing Update on 6/18, I stated the following;
I’m looking to add more shares to my current holdings at certain price points. So I’m not done buying. This goes for high quality individual stocks as well the S&P 500 index.
Yes, I continue to catch the proverbial falling knife. I may be buying early and stocks may go even lower. But I’m not investing with the goal of obtaining big returns this week, this month, next month, or even the next year. I’m not required to return a certain percentage for a fund. I’m investing my own funds that will be invested for 30 plus years. Why wouldn’t I keep buying as things get cheaper? Some might disagree with my approach, but it’s my approach.
This is exactly what I did on Thursday as many stocks hit or set new lows. Three of my stocks hit orders that I had in. Again, I’m trying to accumulate more shares at lower prices in companies that I believe in long term.
Nvidia (NVDA) $149.75
Tesla (TSLA) $650
Uber (UBER) $20
Next week I’ll be making my monthly contribution to my S&P 500 index fund, just as I do the first week of every month.
What I’m Watching
Two stocks that I have had my eye on at the top of my watchlist are Target (TGT) and Lululemon (LULU).
With their close ties to retail sales and the consumer I’m a bit hesitant to pull the trigger. I do think in this market as we grind lower we’re going to see some of the retailers and companies with direct ties to consumer spending get sold off further. There is no question we’re entering a period of slowing sales and growth/demand. We’ve already seen the warning signs from companies cutting sales forecasts. Nike, Restoration Hardware and Micron all painted rather grim outlooks this past week.
If we see slowing and a deeper selloff ensues, I think the companies reliant on consumer spending will be sold off the hardest. It’s at that point that I’ll be looking to add names like Lululemon and/or Target.
I feel if you have a 5+ year time horizon to be invested, it’s time to start building positions in companies you want to own. The selloff has been so deep in so many companies and even the overall market that by investing at these levels your amount of risk is quite low. Relative to where prices were and even historically have been, you’re seeing multiples on many technology stocks back to 2019 levels. The risk by investing in these companies now at these current levels has been significantly reduced.
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Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion. Do your own research.