What is the mindset needed to build and maintain a trend/momentum portfolio?

Episode 2: Building a trend/momentum portfolio

Fight Club on Paper

A few movies in the ’90s had some of the greatest film twists in history. The Sixth Sense. The Matrix. And especially Fight Club. Trend/Momentum investing reminds me of Fight Club. You had these two very distinct personalities going head to head in the movie. The conservative, timid narrator played by Edward Norton and the brash, flashy, and risk-taking Tyler Durden played by Brad Pitt (if you want to relive the 90s, check it out by clicking here).

The two characters battled it out in scene after scene until the big reveal at the end, which reminds me of trend/momentum investing. There is this flashy, risk-taking side. I am picking stocks with new highs, having already made a 30% move and hoping to catch a ride on the continued move up. This goes against every value investing book that I have ever read… Warren Buffet/Ben Graham and their cigarette butts… Peter Lynch and his buy things you know before other people begin to notice.

So every time a drop in the account occurs, my brain immediately flips to Edward Norton’s conservative/timid attitude. A ticker tape flashes across my mind’s screen stating “sell everything and just buy an index fund!” That battle rages on every week with the gains and losses, so I always need to step back and remember why I started in the first place. I need to remind myself of the process and steps I have put in place. I need to constantly remember the mentality needed to stay with my investments, even during challenging times.

Mentality Must Haves for Trend/Momentum:

  • In his book “One up on Wall Street“, Peter Lynch has the perfect summary of the mentality needed to own stocks. He states “the list of qualities ought to include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit to mistakes, and the ability to ignore general panic.” I couldn’t have said it better myself.
    • Patience – not everything will come immediately.
    • Self-reliance – do your own research and trust in your process.
    • Common sense – make sure 1+1 = 2.
    • A tolerance for pain – losing $500 in a week hurts. Get over it!
    • Open-mindedness – be willing to make changes when/if necessary.
    • Detachment – don’t look at your stocks 20 times a day, tracking every movement.
    • Persistence – keep at it!
    • Humility – you can’t always be right.
    • Flexibility – again, be willing to make changes.
    • A willingness to do independent research – read lots of books/articles and stay up to date on the latest news.
    • A equal willingness to admit mistakes – again, you can’t always be right.
    • The ability to ignore general panic – a broken clock is right twice a day.

Just last week my mentality was tested. I lost internet connection for three days, setting me back at work, in my investments, and with this weblog. It was frustrating, but I leaned on detachment, patience, and persistence to get me through and help me to remember that I am in this for the long haul. It also didn’t hurt to be rereading “One Up on Wall Street” and see that quote from Peter Lynch again.

Current Trend/Momentum Portfolio

I apologize but due to my lost internet connection last week, I won’t be able to update a screenshot of my current portfolio. I was able to track down my portfolio’s performance vs. the S&P 500, so I will add a screenshot of that shortly.

Stock Sales week of 8/14:

  • Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
    • Stagnant Sells:
      • CYRX – Cryoport Inc. – After 5 weeks, CYRX was stagnant, not hitting the ATR Stop and not gaining at least 5%.
    • ATR Stop Sells:
      • JMIA – Jumia Technologies – What a wild ride. Up 25% on the first day. After 2 weeks, down 14%. Time to move on to another.
  • Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
    • N/A
  • Biggest losers being replaced by new “buy indicator” stocks:
    • APD – Air Products
    • LRN – K12 Inc
    • NVAX – Novavax Inc
    • UCTT – Ultra Clean Holdings
    • INFY – Infosys Limited
    • AN – Autonation

Another week where the purchases dictate the sale of stocks. I have determined that if a stock has gained over 1% per week since its purchase, then I will not sell the stock. I also won’t sell a stock within one week of its purchase, letting it ride for a minimum of two weeks. This might put some pressure on my portfolio of 25 stocks coming up here shortly. Might need another market cap change or another tweak made to the process.

Stock Purchases week of 8/14:

  • EXPI – eXP World Holdings
  • FDX – FedEx Corporation
  • FLGT – Fulgent Genetics
  • RBA – Ritchie Bros. Auctioneers Inc
  • REGI – Renewable Energy Group
  • RVLV – Revolve Group
  • TDS – Telephone and Data Systems
  • UFS – Domtar Corporation

A full slate of stocks to purchase this week. A little healthcare, a little real estate, a little distribution, a little energy. Hmm… quite a unique mixture of stocks with no clear theme to the increases.

Stock Sales this week, 8/21:

  • Hitting a “sell indicator” (There are four: (1) ATR Trailing Stop, (2) 5wks/Less than 5% gain, (3) 10wks/Less than 10% gain, and (4) 20wks/Less than 20% gain)
    • Stagnant Sells:
      • N/A
    • ATR Stop Sells:
      • GSX – GSX Techedu Inc – Another high flying Chinese tech stock caught up in the macro challenges between the two superpowers.
  • Increased Over 100% in Value (when this occurs we sell half and let the rest continue until it hits a “sell indicator”)
    • N/A
  • Biggest losers being replaced by new “buy indicator” stocks:
    • N/A
  • Unusual Activity Sell:
    • SRNE – Sorrento Therapeutics – In the middle of the week, Sorrento terminated their CFO. As soon as that news was released, I sold the stock. It might rebound and do fine in the coming weeks, but one of my biggest red flags is sudden/inexplicable/shady changes in management.

It was a pretty light week in sales. The stocks as a whole performed well, increasing my overall portfolio by more than $560 and putting me back ahead of the S&P 500 for the year.

Stock Purchases this week, 8/21:

  • PACB – Pacific Biosciences

I wonder if this low amount of buy indicator stocks means that the market is becoming stagnant or on the decline. I did see volatility between my growth and dividend stock portfolios. One would be up and the other down, then the roles would reverse the next day. I love having those two rock solid portfolios that I just keep investing in. And I love having this trend portfolio that is based solely on the numbers and the process.

Overview of the Trend/Momentum Portfolio:

What a set of weeks! I experienced a range of emotions watching this portfolio. Glad my wife did not record my reactions like those YouTube videos of fans reacting to last minute losses (my screens are still intact). This is the world of investing. There are wild fluctuations in the market. But stick to your system. After losing <$484> for the week while the S&P 500 rose on the Tesla and Apple stock splits, I was questioning everything. Crazy to think how quickly your emotions can turn. I reined those emotions in, and had a strong second week, out pacing the S&P 500 easily and regaining my lead over the S&P 500. I went from -1.73% versus the S&P 500 two weeks ago to a 1.31% gain over the S&P 500 last week.

Warren buffet on systems

Benjamin Graham stated “the market is a voting machine in the short term and a weighing machine in the long term.” I need to remember that I am picking up stocks that have been voted on positively in the short term, and through my process over the years, they will be weighed. Cannot deviate from the system.

You can at least get started by opening an investment or brokerage account. My favorite starter account is Robinhood. Simple interface, easy to use, and beginner friendly. You can open up an account in minutes and they will give you a free stock. Plus, if you use my link below, then Robinhood will give me one free stock too.

Click here to start an investing account!

Stick to your system!!!

Disclaimer: These are my own personal thoughts and opinions on investing and finance. I may own companies discussed in this post, and I may have recommendations for or against any stocks mentioned, so don’t buy or sell anything based solely on what you read here. Please make sure to do your own research prior to investing any of your money.

What are dividends?

Episode 1: Growing a Dividend Portfolio

Thank you Alexander Hamilton!

I am not throwin' away my shot
I am not throwin' away my shot
Hey yo, I'm just like my country
I'm young, scrappy and hungry
And I'm not throwin' away my shot.

-My Shot from Hamilton

Just finished watching Hamilton on Disney+! If you haven’t already, subscribe to Disney+ and watch it. Just amazing! Alexander Hamilton is the founder of our current financial system. Crazy to think that one man could help start something that would become this powerful across the world… the platform that allows companies like Apple, Amazon, Microsoft, Disney and many others to succeed.

The show really encouraged me to read the book Hamilton by Ron Chernow… and then I saw that it was a hefty 818 pages. It might have to be weekend read for me 🙂

Alexander Hamilton believed that a central US bank could help provide liquid capital to spur commerce and build the US into a commercial powerhouse (quite the insight). And we see this at work with the Covid-19 crisis shuttering businesses and hindering economic growth. The Federal Reserve has stepped in and infused capital into the markets and businesses to try to bridge the gap to profitability. Whether or not it is enough has yet to be seen, but the ultimate goal of a business is to become profitable, or remain profitable, even in this volatile time period.

What are dividends?

Profitability is simply the remainder of money a business has left over after all of the expenses, interest, and taxes are paid. That business, if profitable, then has two choices: (1) the business can use the extra funds to spur future growth, or (2) the business can give the owners an extra payday by sharing the profits with them. The business can also combine these two aspects and get the best of both worlds.

Most businesses that look to grow rapidly or find themselves in a highly competitive market will take the profits and reinvest 100% of them back into the business. Other companies will use a portion of those profits for growth and a portion given out to the owners as a form of payment called a dividend. And then there are some companies that are required to pay out 90% of their profits as dividends (see REITs).

So simply put, dividends are a payment from the profits of a business to its owners (or for publicly traded companies like Disney or Microsoft they are called shareholders since they own shares of the company called stocks).

Typically, dividends are paid out quarterly (every three months) to the shareholders for each share of stock they own. As of 8/9/20, Microsoft (Ticker: MSFT) will pay a $0.51 dividend each quarter for each share of stock someone owns. If I own 100 shares of Microsoft, then each quarter they will pay me $51. And each year they will pay me $204, just for being an owner of 100 shares of their stock. Combined with Microsoft’s potential stock price increases over time, this is the Muhammad Ali 1-2 combo that led me to create a dividend portfolio.

Keys to our Dividend portfolio:

  • The Dividend Portfolio is located in a taxable brokerage account. This is the portfolio that Lizette and I will live off prior to hitting the age of 59.5 when we can tap into our retirement accounts.
  • Every two weeks we deposit money into the account, using 50% of the funds to purchase specific high dividend ETFs (exchange traded funds or an investment fund bought/sold on the stock exchanges that holds multiple stocks within the fund) and 50% of the funds to purchase high dividend yield stocks of publicly traded companies.
  • There is no limit on the number of dividend stocks in the portfolio, but each stock in the portfolio is required to have strong leadership and employee satisfaction, pathways to growth, a growing dividend, a consistently high dividend payout to shareholders, and the ability to make the dividend payment in good times and bad (like our current situation).
  • The only time a sale would occur is: (1) if the stock stopped paying a dividend (something that has me hesitating to buy Disney for this portfolio at the moment because they have stopped their dividend due to the challenges of Covid-19), (2) if there are no more pathways to growth over time, or (3) if another company/ETF is believed to be a stronger replacement.

Our Current Dividend Portfolio

Stocks purchased this week:

  • Stocks:
    • JPM – JP Morgan Chase
    • HAS – Hasbro Inc
    • EXR – Extra Space Storage
  • ETFs:
    • IDV – iShares International Select Dividend
    • SPHD – Invesco S&P 500 High Dividend Low Volatility
    • SPYD – SPDR S&P 500 High Dividend
    • VTI – Vanguard Total Stock Market Index

Stocks Sold this week:

None this week.

Overview of the Dividend portfolio

The ultimate goal of this portfolio is to make more dividends from the portfolio than we would have if we had just invested in an S&P 500 index fund or ETF. A secondary goal would be to also outperform the S&P 500. We are easily beating the S&P 500 in the yearly payout of dividends, currently by almost $347 per year. Although we are losing to the S&P 500’s gains by -2.63%. Regardless, the account is still performing better than if it was placed in a savings account, and it is returning 3.94% per year in dividends. No savings account gives me that type of interest right now.

Nothing compares to a crayon drawing:

Do not purchase a stock that you cannot explain with a crayon drawing (from one of my must read investing books, Beating the Street by Peter Lynch).

If you have any initial questions, then leave them down below in the comments section and I will do my best to answer them for you.

At the least, you can get started by opening an investment or brokerage account. My favorite starter account is Robinhood. You can open up an account in minutes and they will give you a free stock. Plus, if you use my link below, then Robinhood will give me one free stock too.

Click here to start an investing account!

Disclaimer: These are my own personal thoughts and opinions on investing and finance. I may own companies discussed in this post, and I may have recommendations for or against any stocks mentioned, so don’t buy or sell anything based solely on what you read here. Please make sure to do your own research prior to investing any of your money.