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The One Thing You Must Watch to Avoid Disaster in the Market

August 25, 2015 by Cor Bader

Yesterday I explained that I do not believe we are going to see a “correction” as bad as something like 08/09.  I stated that after this 6 year bull market people should expect stocks to drop at some point.

Today I am going to elaborate a bit more on why I think the current stock market drop won’t turn into a catastrophe (at least in terms of the Dow Jones).

First there is major support for the Dow at 12,000 points.  You can see it in the chart below.

Dow_support

If the Dow drops to the 12,000 from today we are looking at a further 12% to 15% drop.

The last time the Dow was at this level was back in 2011.  So, why do we know that there are strong hands at this level?  I can give you a concrete example using Johnson & Johnson.

Lets say you bought shares of JNJ in 2011 when it was trading at $65 a share.  Today it JNJ is trading for around $92 so you would have a 30% capital gain.  Not to bad.  Now here is the important part, since 2011 JNJ has raised it’s dividend 6 times!

JNJ now pays out a total of $12.92 a year per share in dividends.  Your new effective yield would be 12.8% a year (65/12.92 * 100)!

Ok now let me as you this, what would it take for you to freak out and sell shares in one of the oldest companies on the Dow Jones that raises its dividend every year and makes tons of freaking money?  Would you rather collect almost 13% a year from this company or put your money in the bank for a chance at 1% interest?

OK.  I thoughts so.

[shock_spots id=”255″]

“Sure” you say, “But what about one of the less attractive stocks of the Dow?”.

Lets do the same thing with McDonald’s.  I think we can all agree that McDonald’s has not been popular.  The trend is to better restaurants and McDonald’s revenue has been declining and some stores have been closing, however they still are the biggest restaurant in the world.

Lets say we bought MCD for $80 a share in 2011. Today we would have about a 13% capital gain, not that great but better than a kick in the teeth.

MCD has raised their dividends 5 times since 2011, and you effective yield would 4.25%.  Not awesome like JNJ but really not that bad either and still a lot better than the bank.

So what would make these stocks plummet past their 12,000 support level?  You got it! Slashing dividends.  If you see  various Dow components start to cut their dividends then you should know there is a serious problem.  I’m not saying it won’t happen, but I doubt to the extent of 08/09 where just about every company was slashing left and right.

Ask yourself can you stomach a 15% drop in the Dow if you own these stocks? If so, then all you need to do is pay attention to dividend cuts.  So far the list for 2015 is small and are mostly coming from the resource sector.  You can see them here: http://www.streetinsider.com/dividend_biggest.php?type=cuts

Now of course I’m just talking about the big guys in the Dow.  If  you have a lot of stocks that are growth stocks, stocks that have a good story and are more speculative you are going to be experiencing a lot of volatility.  Please use trailing stops!

I am currently making a free trailing stops system that I will make available to you. If you haven’t already please enter in your email over on the right hand side of the page to get updates.  Protecting your capital and limiting your losses is the most important thing you can do if you have entered into the stock market.

Until next time!

 

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Filed Under: Equities Tagged With: JNJ).

The Correction is Here: Dow Plumets

August 24, 2015 by Cor Bader

U.S stocks have been in a bull market now for the last 6 years.  It seems as though a correction should not be coming out of left field for everyone.

Hopefully your discipline has led you to keep some powder dry (cash) and you are building a great watch list of companies you would like to own.

My suggestion  is to watch companies that you KNOW will be around a couple of decades from now and love to reward their shareholders with dividends.   Now the tough part is to wait.

[shock_spots id=”255″]

While stocks are entering a new phase, gold is holding steady up $4 bucks.  This is why folks need to have true diversification.  The pro’s in the investment world often only talk about stock diversification.  The say being diversified in all types of stocks will protect you.

But what if the entire market is going down?  What if Europe and Asia are also going down?   This is why having at least 10% of your wealth in precious metals is important.  It is why also owning real estate is important.   It’s even important to own bonds, even at the end of what must be a 30 year bull market.

The 10-year treasury is now back under a 2% yield.  The Dow was down as much 1,000 points this morning, and is now hovering down around the 400 mark, this after being down around 500 points on Friday and 300 last Thursday. We will have to see where it ends up at the end of the day. This reminds me back 2008 when we had the Dow 777 drop.

My thinking goes that this correction will not nearly be as bad.  This correction should be more expected than in 2008/2009, but there are no guarantees.

Raise cash and build that watch list!

Until next time.

 

 

 

 

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Filed Under: Equities

The Burger Renaissance – And the Future Of McDonalds

May 27, 2015 by Cor Bader

There is a burger renaissance going on, at least here in Seattle there are a multitude of places to get a unique killer burger.  Just to name a few:

  • Blue Moon Burgers
  • Red Mill Burgers
  • Uneeda Burger
  • Dick’s Drive-in
  • Giddy Up Burgers
Giddy Up Burgers

Giddy Up Burgers

On top of all those, I guess In and Out is also coming to Seattle.   Seriously, all the places I listed are amazing.  I think my top two favorites are Blue Moon and Giddy UP, and yes I have been to all of them.  Blue Moon replaced Red Mill for me.  Sorry Red Mill!

I have never been to a Shake Shack ($SHAK). I am sure they are great.  The stock has been going gang busters with a market cap over $3 billion.  It finally had a major correction today of almost 10%.  Not sure what triggered the correction, but it is likely due to the stock being over valued.

Think back to the 1980’s and 90’s, there weren’t that many good food options back in the day. Not like the casual dinning experience with fantastic food we are getting now.  People really seemed to enjoy fast food during that time period.  Then we grew up and realized what crap it all was.  Why not pay a few dollars more and get something that you will really enjoy?  Not to mention, what if you are a vegetarian like my wife?  Fast food does not offer good vegetarian options, but almost all of the burger places I mentioned above have great in house veggie burgers not to mention local craft beer to wash it all down.

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Porter Stansberry thinks McDonald’s  ($MCD) is a great buy right now.  He may be correct.  He points out things like huge cash flow, a high return on equity and low price to sales ratio.  McDonald’s collects royalties by franchising which is a great way to make money and McDonald’s is getting out of running any of the few remaining corporate stores themselves.  Porter is banking on the ability of McDonald’s to change directions.

Porter may be right, how ever I would not pull the trigger on buying the stock yet.   He does admit the company should buy a higher end burger place like Shack Shack and put those in places where McDonald’s does not do well (higher end trending places).    The strategy does make sense IF they actually start changing.

Before I would purchase McDonald’s I would like to see the following happen:

  1. End those damn “I’m loving it” jingles.  They were never good, they have been played way to long and if they want to claim they are now different they need something WAY less annoying.
  2. The menu needs to be further cut and to get  rid of the McCaffe. I actually like McDonald’s drip, but the espresso stuff is crap and a waste of time, money and adds complication.
  3. Forget trying to be healthy. The people that complain about the health of fast food are not the people that go eat a these restaurants.  So why listen to them.
  4. Offer one vegetarian option for a hamburger.  No, this does not contrast with number 3.  There are lots of vegetarian things that are not good for you.

Added Bonuses/Notes:

  1. I don’t care about customizing my McDonald’s Hamburger.
  2. Make the restaurants less depressing (Everything feels cheap).
  3. Make the restaurant less noisy.  What’s up with all the loud beeping from the kitchen all the time?
  4. Don’t ever use ketchup packets again.
  5. Brand your own ketchup in stores.
  6. Give me a non-fructose corn syrup soda option.
  7. I have the feeling the all day breakfast will be a successes.  Run with it.
  8. Give me something to read.    Want people to use your app?  Offer the paper for free from your app.  If not, I’ll still buy the paper.

McDonald’s is one I am watching carefully.  I think you should as well.  The company now has TONS of competition.  Hell, I didn’t even mention “5 Guys”, and “What-a-Burger” plus all the other fast food places that are fighting for the same customers.  I am sure there are many more superior burger joints out there.   If you start to notice really good changes from the company then pick up shares before everyone else starts to notice too.  Warning: we may be waiting a while.

 

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Filed Under: Business and Entrepreneurialism, Equities Tagged With: Burgers, Fast Food, MCD, SHAK

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