2015, My Investment View:

Since I wrote this on 12-5-2014 on the week ending December 13th the Dow dropped 3.77% and the S&P-500 fell 3.5%. I think there might be another couple of percent on the down side and I’ll be reviewing my shopping list. I believe this is a much needed breather for the market and the 2015 conditions I outline remain relevant.

It’s been a really great ride, seven years of slow. Steady market growth without a meaningful correction beyond the 7% swoon in late September 2014. AS of YTD, December fifth, 2014 we have the Dow-Jones at a gain of 10.8% and the S&P-500 is up 13.75%; this kind of performance deserves a huge Hoorah.

As always, the question on every investor’s mind is what happens now? I think that for a variety of reasons the US stock markets will continue to grow their valuations. In an era when Japan is experiencing negative GNP growth and the EU seems to be slipping back into recession the US economy is the only game in town once again. Investment funds from Asia and Europe are flooding into our markets. With interest rates on savings at close to zero equity holdings are back in favor even for the risk adverse investor class. On top of all of this consumer confidence is at 94% (highest in 8 years) and gasoline prices are header a third lower freeing up cash for purchases long postponed. It’s been slow but unemployment is slowly improving. When you sum this all up and then add that our Socialist-light anti-business national Government took a shellacking in our recent elections I see even better days ahead because an improving economy always drags the market higher.

The simple truth as I see it is that while the Government types continued to dither on tax reform and overregulated almost everything, our major companies learned how to dance in the rain. At the end of third Qtr, 2014 the price-earnings ratio of the S&P-500 stood at 17.2%; this is important because at year end 2013 the same P/E stood at 17.2%. In a very good stock market year the price-earnings ratio stayed static even as stock prices rose. That convergence can only happen if company earnings increased at the same rate as the market price. BTW, that P/E is nicely under the 25 year historic P/E the S&P-500 which is 19% so we aren’t really overvalued. The relatively slow march upward of the stock market indices still has room at the top; our current GNP estimate of 2.6% leaves us with a high probability of upward business growth. If unemployment continues to improve the GNP should conservatively gain a half-point; that’s huge on an economy as large as the United States enjoys; there is plenty of room to grow.

I am planning my investment life for 2015 based on the Dow-Jones returning 8% and the S&P-500 (a much better, more diversified index) growing by 10%, with any surprises on the upside. At any market slump of 3% or more I’ll be adding to my positions in my ETFs that mimic the S&P-500 and the Dividend Aristocrats.
Happy Trails.


WHAT To Buy you say ! Let me reiterate

My perfect put it in a drawer ETF portfolio:

SDY—S&P Dividend ETF—Pays Dividend of 2.19% and returned a 15% annual performance for 5 years
Top Ten holdings are 19.09% of the total holdings of 96 companies; TOP TEN are HCP-T-ED-NNN-TGT-PBCT-MCD-CVX-ABBV-LEG

VIG---Dividend Appreciation ETF—Pays 1.93% Dividend and returned 14.1% annual performance for 5
Years, The Top ten holdings are 36% of the total holdings of 166 companies, TOP TEN are JNJ, PEP, KO, WMT ,QCOM,XOM,IBM,MMM,CVS,UTX

NOBL—Dividend Aristocrat ETF---Pays 1.44% Dividend and began in 2013, has returned 17% annualized.
The Top ten holdings are 20.62% of the total holdings of 55 Companies , The TOP TEN holdings are SIAL,FDO,CTAS,LOW,NUE,SHW,ADM,VFC,CAH,HRL

Note, The NOBL ETF is composed of equities that have increased their Dividend each year for 25 Yrs.

I have significant positions in all three of these ETFs and continue to add to them on any downturn but my advice for the new investor is too wait for a market break of more than 4%; be patient it will come; we had a 7% downturn in late September. As of today’s post buying 100 shares each of all three ETFs would cost $21,300 with all fees paid.

Buy and Hold Equity investing.

I am an active investor who enjoys spending untold hours researching investment possibilities but I realize that many (probably most) people don’t have an interest in the “market” strong enough to overcome their fear of investing. They limit themselves to CDs and other fixed income investments that return about a third of the inflation rate. The result is a return that actually diminishes their savings. I think there's a better way.

There used to be quite a few investors that bought into a stock position and never looked back. Back then they usually bought single companies that were stalwarts of stability; these kinds of companies were even called “widow & Orphan” stocks. That all changed in the last three decades when company’s like Kodak, Xerox and GM faltered and volatility reigned. I think that class of investor just left the Stock Market and hid under the bed.

Today there are equities that can furnish the “not-really-interested” investor with a reasonable return, diversification and the stability that’s only possible with well established companies that hold a dominant niche in their industry. These equities are ETFs and here’s my thoughts on a small investors portfolio that would only require a sporadic review.

My perfect put it in a drawer ETF portfolio:

SDY—S&P Dividend ETF—Pays Dividend of 2.19% and returned a 15% annual performance for 5 years. Top Ten holdings are 19.09% of the total holdings of 96 companies; TOP TEN are HCP-T-ED-NNN-TGT-PBCT-MCD-CVX-ABBV-LEG

VIG---Dividend Appreciation ETF—Pays 1.93% Dividend and returned 14.1% annual performance for 5 Years, The Top ten holdings are 36% of the total holdings of 166 companies, The TOP TEN are JNJ, PEP, KO, WMT ,QCOM,XOM,IBM,MMM,CVS,UTX

NOBL—Dividend Aristocrat ETF---Pays 1.44% Dividend and began in 2013, has returned 17% annualized. The Top ten holdings are 20.62% of the total holdings of 55 Companies , The TOP TEN holdings are SIAL,FDO,CTAS,LOW,NUE,SHW,ADM,VFC,CAH,HRL Note, The NOBL ETF is composed of equities that have increased their Dividend each year for 25 Yrs.

I have significant positions in all three of these ETFs and continue to add to them on any downturn but my advice for the new investor is too wait for a market break of more than 4%; be patient it will come; we had a 7% downturn in late September. As of today’s post buying 100 shares each of all three ETFs would cost $21,300 with all fees paid.

All three of these ETFs are new enough that while the double digit return for 5 years is impressive how about the stock market debacle in 2008 you ask? There is another ETF that’s mirrors the entire 500 stocks in the S&P-500; it trades under the symbol SPY. It has returned 19.5% for one year, 15.6% for 5 years, 8% for 10 years and 9.2% since it began trading in 1993. These are annualized figures that show returns every year.

If you're only a slightly more adventurous investor the following ETFs are very close to my perfect three “buy & hold” diversified ETF portfolio.

VHT—Vanguard Health Care ETF—Pays 1.1% Dividend and returned 20.1% annual performance for 5 yr--- The Top ten holdings are 45.8% of the total holdings of 310 companies, The TOP TEN holdings are JNJ,PFE,GILD,MRK,AMGN,ABBV,VNH,CELG,BIB

SPLV—S&P Low-Volatility ETF---Pays 2.26% Dividend and returned 14.9% YTD (began in 2011). Top ten holdings are 12.2% of total holdings, SIAL,WMT,CB,TRV,UPS,PG,CLX,ADP,BRK/B

You get the idea; I think if you're looking for a low-cost, leave it alone portfolio that offers stability with relatively low volatility then holding large positions in SDY, VIG and NOBL is a decent scheme. They won’t be rockets to the moon but they do offer good returns, diversification and sleep well at night stability.