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Dr. Reaves discusses domestic and international markets, options, stocks, strategies, and more.

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(Thursday - Sept 16)

 

Wiz Daily Journal

Dealing With Very Bad Market Days

Friday, January 28th, 2022
Dealing With Very Bad Market Days

Think back over your life...
Five, 10 or even 20 years ago.
Do you remember every single day within a given year?
Most likely not.
Overall, you remember the big moments.
Maybe five years ago, you were retiring. Maybe 20 years ago, you’d just been promoted.
My point is, while there are bad days — and even weeks and months — in our lives, we tend not to remember them.
Instead, we look at our end goal.
Now, stay with me.
When there are highs, they’re high.
You capture a triple-digit gain on Tesla. Or maybe you were one of the lucky ones that got into Terra early.
You can’t help but go around and tell your friends about your incredible streak of luck.
But when the lows come? Man, are they low.
As of last Friday morning, the S&P 500 Index (SPX) and the Dow Jones Industrial Average (DJX) were set for a third consecutive week of losses.
The Nasdaq Composite Index (IXIC) was tiptoeing into correction territory. It’s on track for its worst week since October of 2020.

Cryptos did no better.
Last Friday morning, bitcoin fell below a six-month low of $38,000, while Ethereum and Solana followed suit.

It’s easy to feel discouraged at times like these.
You may think: “It would be so much easier if I just packed everything up and called it a day.”
You could...BUT you would, far and away, miss out on potential gains.
Look at the market panic in March of 2020.
Within a week, the S&P 500 (SPX) dropped 12%. The Dow (DJX) dropped nearly 13% in a single day.
But what happened after that?
Since its bounce-back in mid-March of 2020, the S&P 500 (SPX) is up 95% AND the Dow (DJX) is up 81% since then.
Now, past market behavior is no guarantor of the future. But it does tend to repeat itself.
Stay "WISE", "STRONG" and, "DILIGENT"!!!

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

Multiple Monthly Dividends to "Front Run" Rising Rates

Thursday, January 27th, 2022
Multiple Monthly Dividends to "Front Run" Rising Rates

The "HERD" is about to pile into monthly dividend stocks, and you, me, we the ATWWI FAMILY are going to beat them to it with three of the best of them—and grab ourselves hefty yields up to 6.5%, too.

The three monthly payers I will cover in this "WIZ" DAILY JOURNAL will be very appealing to people who are getting shaken down as the S&P 500—and especially the tech-heavy NASDAQ—crumble.

Dividends—even monthly ones—normally get a collective yawn from investors in bullish times. But they will be darlings this year (2022) as Jay Powell switches off his money printer to try to clean up an inflation mess of his own making.

Meantime, “regular” stocks and Treasuries still dribble out sorry payouts way south of 2%. If “NASDAQ refugees” sit in cash, they know full well they’ll be sitting right in inflation’s tracks!

However, with monthly dividends, you, me, we the ATWWI FAMILY can grab inflation-offsetting payouts that roll in every 30 (or 31) days. That’s a huge plus in any market because if you don’t need the cash to pay your bills, you can reinvest it fast, bulking up your holdings (and your income stream) as you do.

With the three (3) ticker symbols below, you, me, we, the ATWWI FAMILY will be in well ahead of time as the mainstream "HERD" suddenly discovers the virtues of a “boring” monthly payout.

Monthly Dividend Play No. 1: A Canadian “Inflation Killer” Yielding 6.5%

Let’s start off north of the border with pipeline firm Pembina Pipeline (PBA).
Pembina pays an outsized 6.5% and, unlike US pipeline players such as Energy Transfer LP (ET), Enterprise Products Partners (EPD) and Kinder Morgan (KMI), Pembina pays us every single month.
And that payout is reliable—Pembina has paid a dividend since 1997, and it’s done something highly unusual for a 6.5%-payer: raise its payout, and by no small amount, either: in the last 10 years, the firm’s dividend has jumped 61% (in Canadian dollars).
The company boasts 11,000 miles of crude, natural gas and condensate pipelines throughout Canada. It also ships into the US, with natural gas, ethane and condensate running across the border to Illinois through its Cochin pipeline, which it purchased from Kinder Morgan in 2019.
Higher oil production and prices in Western Canada are boosting Pembina’s balance sheet, which boasts reasonable long-term debt equal to about 35% of assets. Its dividend accounts for 73% of free cash flow—reasonable for a pipeline with Pembina’s predictable revenue. The company also plans to buy back about $1 billion of its shares this year.
The kicker is that this stock can be had for just 16-times forward earnings, a nice discount to its pre-pandemic level of 23.
NOTE: Pembina pays dividends in Canadian dollars, so you’ll see some fluctuation in your monthly payouts. However, the Bank of Canada will likely shy away from raising interest rates much faster than the Federal Reserve, to avoid inflating the value of the “loonie.” That should keep our payouts stable. Plus, Pembina trades on the NYSE, so it’s easy to buy.

Monthly Dividend Play No. 2: An “Inflation-Proof” E-Commerce Pick

STAG Industrial (STAG) is another smart inflation play—the value of its properties is rising and it’s collecting higher rents: in Q3, it rented 3.7 million square feet at 8% higher rents (on a cash basis) than previous tenants paid, and 14.7% on a straight-line basis, which spreads rent over the entire lease term, factoring out one-time costs and incentives.

Then there’s the shift toward buying “stuff” and away from services, which is likely to stick with us, even as the pandemic eases. STAG has that angle covered, with tenants like Amazon.com (AMZN)—its largest tenant—FedEx (FDX) and GXO Logistics (GXO).

I also love the job management’s done in de-risking STAG’s operations, making sure no one tenant accounts for more than 3.8% of annualized base rent . Moreover, 84% of its tenants have revenue above $100 million, and 64% boast revenue over $1 billion, so it’s dealing with very secure companies.

Back to the dividend—the monthly payout yields 3.4% now and is below our ATWWI "SWEET" spot of 5%, which is obviously less than Pembina’s outsized 6.5% yield. BUT, it is still nearly triple the payout on the typical S&P 500 stock, well above the 1.8% Treasuries pay and is safe at 72% of STAG’s last 12 months of funds from operation (FFO, the main REIT cash-flow metric). And like Pembina, STAG regularly bumps its dividend higher, with a 22% increase over the last eight years.

The stock trades at 21.3-times trailing-12-month FFO, which is fair for a stock that gained 41% in the last year while paying—and raising—its monthly payout. With a huge 15% gain in FFO in Q3, a stellar 97% occupancy rate and tailwinds from e-commerce and a rebounding economy, its gains are just getting started.


Monthly Dividend Play No. 3: A 6.4% Dividend With a Hidden Edge

Finally, the BlackRock Enhanced Global Dividend Trust (BOE) offers us international exposure, particularly to Europe, where markets have underperformed their US cousins, going by the Vanguard FTSE Europe ETF (VGK):

BOE gives us a nice balance, with 50% of its holdings in the US and 50% overseas, with Europe and the UK accounting for about 36% of the total portfolio. The fund has a mandate to hold at least 40% of its portfolio in foreign stocks, so the fact that it currently holds 50% is a show of management’s bullishness.

Nonetheless, BOE, which yields 6.5% today, trades at a 9.1% discount to net asset value (NAV, or what its portfolio holdings are worth). That means we’re basically getting these stocks, including Microsoft (MSFT), France-based pharma giant Sanofi SA (SNY) and British spirits maker Diageo (DEO), for 91 cents on the dollar!

We also benefit from BOE’s option-selling strategy, which bolsters its dividend and cuts its volatility. Under this plan, management sells covered-call options on the fund’s portfolio, which give buyers the option to buy its stocks at a fixed price on a fixed date.

If the stock doesn’t hit that price, the fund keeps the cash. If it does, the stock gets “called away” but the fund still keeps the cash! This is a savvy strategy that does particularly well in volatile markets like today’s.

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

7 % INFLATION IS HERE...HERE's WHY, HERE's WHAT YOU NEED TO DO ABOUT IT

Wednesday, January 26th, 2022
7 % INFLATION IS HERE...HERE's WHY, HERE's WHAT YOU NEED TO DO ABOUT IT

According to the U.S. Bureau of Labor Statistics inflation for the 12 months through December 2021 is at 7.0%. This is the highest inflation has been since June of 1982.

Keep reading to learn what causes "inflation" -- and what can be done to minimize its effects on your wealth.

NOTE: For those looking for a quick refresher, inflation erodes the value of a dollar. At 7.0% inflation, something that cost $1.00 a year ago costs $1.07 today.

To overstand/understand inflation, one must overstand/understand the difference in the value of something versus its price as measured in dollars.

The value of anything is determined by supply and demand.
Value can be measured in virtually anything: dollars, yen, gold, bitcoin, coconut husks, etc.

If supply and demand for something -- say an apple -- is held constant, its value does not change.

However, the relative value of the apple versus what it's measured in can change.

If the demand for dollars decreases and/or the supply of dollars increases, the value of a dollar will be lower. As a result, an apple will look more expensive in dollar terms because it takes more dollars to buy the apple.

NOTE: In the real world, the supply of dollars is not constant. The supply of dollars has greatly increased over time.

A surge in dollar creation was used to help stimulate the economy during the Covid-19 pandemic.

When the supply of dollars outstrips the demand for dollars, the value of a dollar declines. This makes the price of other goods and services as measured in dollars look more expensive.

The Federal Reserve (FED) can combat inflation by increasing interest rates via increasing the federal funds rate. Higher interest rates stimulate demand for dollars because holding dollars at higher interest rates becomes more compelling versus holding other assets.

This means people would be selling stocks, bonds, and commodities, and holding off on purchases when possible, to hold more dollars. That leads to declines in demand for stocks and bonds, and creates a headwind for the economy.

But, many believe that the Federal Reserve (FED) cannot sustainably increase interest rates now, because the economy is too weak after Covid-19 lockdowns, and the U.S. is too indebted.

If interest rates were to rise, the U.S. government would have to issue debt at higher interest rates, which would cause an even greater drain on its resources.

The consequences of raising interest rates significantly would likely be a recession, and possibly difficulty for the U.S. government to manage its debt

Because of the unpalatability of a major rate increase, many economists think it's more likely the Federal Reserve (FED) just allows inflation to reduce the value of dollars.

NOTE: This is actually beneficial for debtors (like the U.S. Government) because the value of past debts is eroded as debt is paid back in 'cheaper' inflated dollars.

As individuals, it's not in our power to change inflation or interest rates...

However, we can prepare ourselves and our portfolios for inflation...

With high inflation already here -- and potentially staying for some time -- there is a particular type of income security that I believe is well-suited for this "inflationary" environment...

The income security type I'm talking about is high-quality dividend growth stocks. You can prepare yourself for continued inflation by increasing your holdings of high-quality dividend growth stocks.

The" high-quality" part is important because you, me, we, the ATWWI FAMILY must be invested in businesses that are likely to continue to pay rising dividends regardless of the economic environment.

The growth aspect of dividend growth stocks is particularly important in the event of continued high inflation.

NOTE: Once again, we want to be invested in businesses that are likely to grow their dividend at least at the pace of inflation, and hopefully higher. This way, our dividend income stream's purchasing power stays steady or grows higher over time.

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

A INTELLIGENT/ "CLEVER" Strategy That Will Get You "P.A.I.D." DAILY!!!

January 25th, 2022
A INTELLIGENT/ "CLEVER" Strategy That Will Get You "P.A.I.D." DAILY!!!

I LOVE INVESTING IN STOCKS!!!
While inside an episode of a ATWWI VIRTUAL TRADING ROOM...

While I’m reading The Wall Street Journal

While attending a ZOOM videoconference with my business associates

While writing one of my "WIZ" DAILY JOURNAL articles

The companies in my "INVESTMENT" PORTFOLIO are working hard to make shareholders happy.

I am gettting "P.A.I.D." consistently while living my normal everyday life.

BECAUSE EVERY STOCK IN MY INVESTMENT PORTFOLIO IS A DIVIDEND PAYER!!!

BUT aside from dividends, stocks DO NOT increase your income.

As you know, you only generate a "PROFIT" once you "SELL" your shares (aka: "SALE TO CLOSE") for a "PROFIT"!!!

Wouldn’t it be awesome if you generated your "PROFITS" an INTELLIGENT/CLEVER away?
In some instances the same day AND no I am not talking about "DAY TRADING"!!!

Well, with one INTELLIGENT/"CLEVER' strategy, you actually do just that!!!

Boost Your PROFITS and Get "P.A.I.D."

INTRADAY OPTION TRADING USING TRAILING STOPS (TS), is a totally different story.

Here’s why…

You must minimize the "UNCERTAINTY" (aka: "RISK") of trading.
When you buy a non dividend paying stock, you might have to wait months or even years to sell it for a profit.

But when you engage in intraday option trading INTELLIGENTLY utilizing a strategy and TRAILING STOPS (TS), you know exactly:
How much money you have at "RISK" upfront.
How long you’re in the trade.
How much it costs you if your trade doesn’t work out.

That’s a big reason why intraday option trading is actually a "conservative" trading strategy.

NOTE: BEFORE going into a option trade, you should determine the "PROFIT" you desire and "SALE TO CLOSE MARKET ORDER (STC) when that profit is met or exceeded.
Plus, you can be in and out of a trade within the same trading session. With profits credited to your TRADING PORTFOLIO account that same day.
That means you don’t have to worry about the long-term economic forecast, which is tough to predict, because it will be addressed by your INVESTMENT PORTFOLIO.

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

The Three (3) Rules Your Trading/Investing Strategy Must Follow

Monday, January 24th, 2022
The Three (3) Rules Your Trading/Investing Strategy Must Follow

Every winning trading/investing strategy has one (1) thing in common.
They all use strong "RISK" management.
In order to manage risk well, it’s important to establish rules.
You need to create these rules BEFORE you put real money on the line.
They should cover things like:
*Choosing position sizing.
*Maximizing the risk-to-reward tradeoff.
*Managing winners and losers.
By creating and following rules, you will greatly improve your odds of getting "P.A.I.D."

Position Sizing
Mathematicians, traders and, investors are always searching for the optimal position sizing for a strategy.
Often, traders/investors determine the appropriate position sizing by using formulas.
These formulas calculate an ideal position size based on things like the probability of winning or losing and the average gain vs. average loss.
If position sizing is too large, traders/investors can get wiped out after a few losing trades/investments.

If sizing is too small, they may not make generate any profit.

Maximizing Risk to Reward
BEFORE placing a trade/investment on, traders/investors must overstand/understand the position's risk-reward potential.
Sometimes these figures are clearly defined, and other times you must estimate them.
For example, an option trade may have a known max gain and max loss at the beginning of the trade.
But a stock’s risk-reward ratio may not be as obvious.
In any this case both traders and investors use various charts and models to devise their estimates.
Regardless of the trade/investment, the general idea is the same.
The goal is to choose a trade/investment with high reward potential in relation to risk potential.
Some traders/investors will only take a trade/investment if the risk-reward ratio exceeds a certain number. Each trader/investor must determine their own individual number per trade/investment

Managing Winners and Losers
Managing trades and investments can be harder than choosing them to begin with.
This is because deciding how to manage a trade/investment can be an "emotional" decision for many people.
When trades/investments go south, it can be human nature to hold onto them.
For some, taking a loss feels like admitting to being wrong. Most people don’t like to admit they were wrong.
When trades/investments go the right way, it can be tempting to take profits early.
Taking gains off the table feels good. And some fear that the open profits will evaporate quickly.
However, holding losers too long and cutting winners short can derail a strategy even if the majority of the trades are winners.
Some traders/investors will set hard rules that determine exactly when they should sell losers and winners by utilizing protective mechanisms like "TRAILING STOPS" (TS's) and "STOP LOSSES" (SL's.)
Creating and following rules and utilizing protective mechanisms can improve your risk management process and overall trading/investing strategies.

NOTE: Without risk management, even the most brilliant minds in the world will "FAIL".

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

The Ask The Wiz Wealth Institute is not an investment advisor. We strive to be educational and informative community servants.
 

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