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If You’re Worried About a Crash, You Might Want To Sell These…

The following is an excerpt from 7 Stocks to Sell Before the Crash – And Tesla is #1!

It’s been years since we’ve had a proper stock market crash. And while that doesn’t necessarily mean that you should be looking for stocks to sell because a crash is imminent, now’s not a bad time to think about which companies face the biggest risks.

In a bear market, the weakest companies with the flimsiest business models the ones to get hit the hardest. This is particularly true of corporations that need regular cash infusions from secondary stock offerings.

A falling stock price raises the cost of capital, and becomes something of a vicious cycle. Stock declines force greater shareholder dilution as the company issues more shares to bring in a fixed amount of capital. Then the stock heads even lower, and… well… you get the point.

Today, we’re going to take a look at seven stocks to sell, that I see as particularly at risk to a bear-market mauling. You don’t necessarily have to scramble to dump them immediately, of course; some might even be decent short-term trades.

Just don’t get attached. Once the market eventually rolls over, these companies will likely be some of the hardest hit. And you don’t want to be left holding that bag.

Tesla Motors (TSLA)

I really hate including Tesla Motors (TSLA) on this list because I admire founder Elon Musk and I really like his product. The world will be a better and greener place for Mr. Musk’s efforts.

But I wouldn’t touch the stock with a 10-foot pole.

Tesla Inc operates in a hypercompetitive industry, and has no enduring competitive advantage in producing electric cars. Virtually every major automaker either already has or is developing a high-end electric car to compete with TSLA stock. Earlier this year, for instance, Volvo announced that in 2019 all of its new cars will be either electric or hybrid. This follows an announcement by Porsche to do the same inside of 10 years. And even mass-market Volkswagen AG (VLKAY) plans to make at least 25% of its cars hybrid or electric.

These are established players that have been around for decades. Tesla is still an upstart that has yet to turn a profit Despite growing its revenues at an impressive clip, Tesla has never come close to earning a profit. And there is no light at the end of the tunnel here; profit projections are murky at best.

Investors will continue to feed Tesla capital… right until they don’t. You don’t want to own Tesla stock when that day comes.

To read the rest of this article, please see 7 Stocks to Sell Before the Crash – And Tesla is #1!

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Howard Marks Speaks: Where Does Passive Investing Go From Here?

Oaktree Capital’s (OAK) Howard Marks is one of my favorite investors. (Full disclosure: I also happen to be long OAK .)

In his latest memo, he covers everything from the FAANG stocks to Bitcoin, but what I found most interesting was his comments on passive investing. I’ve expressed similar views over the years, as have others such as Pershing Square’s Bill Ackman (see “Bill Ackman Makes Some Good Points on the Index Bubble“).

But frankly, Marks says it better. Here’s an excerpt:

Passive investing can be thought of as a low-risk, low-cost and non-opinionated way to participate in “the market,” and that view is making it more and more popular. But I continue to think about the impact of passive investing on the market.

One of the most important things to always bear in mind is George Soros’s “theory of reflexivity,” which I paraphrase as saying that the efforts of investors to master the market affect the market they’re trying to master. In other words, how would golf be if the course played back: if the efforts of golfers to put their shot in the right place caused the right place to become the wrong place? That’s certainly the case with investing.

It’s tempting to think of the investment environment as an unchanging backdrop, that is, an independent variable. Then all you have to do is figure out the right course of action and take it. But what if the environment is a dependent variable? Does the behavior of investors alter the environment in which they work? Of course it does…

The trend toward passive investing has made great strides. Roughly 35% of all U.S. equity investing is estimated to be done on a passive basis today, leaving 65% for active management. However, Raj Mahajan of Goldman Sachs estimates that already a substantial majority of daily trading is originated by quantitative and systematic strategies including passive vehicles, quantitative/algorithmic funds and electronic market makers. In other words, just a fraction of trades have what Raj calls “originating decision makers” that are human beings making fundamental value judgments regarding companies and their stocks, and performing “price discovery” (that is, implementing their views of what something’s worth through discretionary purchases and sales).

Here, Marks gets to the question I’m asking these days:

What percentage of assets has to be actively managed by investors driven by fundamentals and value for stocks to be priced “right,” market weightings to be reasonable and passive investing to be sensible? I don’t think there’s a way to know, but people say it can be as little as 20%. If that’s true, active, fundamentally driven investing will determine stock prices for a long time to come. But what if it takes more?

Passive investing is done in vehicles that make no judgments about the soundness of companies and the fairness of prices. More than $1 billion is flowing daily to “passive managers” (there’s an oxymoron for you) who buy regardless of price. I’ve always viewed index funds as “freeloaders” who make use of the consensus decisions of active investors for free. How comfortable can investors be these days, now that fewer and fewer active decisions are being made?

Certainly the process described above can introduce distortions. At the simplest level, if all equity capital flows into index funds for their dependability and low cost, then the stocks in the indices will be expensive relative to those outside them. That will create widespread opportunities for active managers to find bargains among the latter. Today, with the proliferation of ETFs and their emphasis on the scalable market leaders, the FAANGs are a good example of insiders that are flying high, at least partially on the strength of non-discretionary buying.

I’m not saying the passive investing process is faulty, just that it deserves more scrutiny than it’s getting today.

Ackman, an activist investor, takes the argument further than Marks, saying that passive investment gives bad management teams a free pass and suggesting that, if present trends continue, the American economy will start to resemble that of Japan or South Korea. In Japan, the keiretsu system of cross-corporate ownership dominates large public companies and has been cited as a reason for the country’s lack of competitiveness.

I agree with Marks here. Indexing has been good for investors, and it’s a mistake to throw out the baby with the bathwater. But it’s also a good idea to watch out for distortions caused by excessive indexing.

 

 

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Prospect Capital’s Insiders Have a Mixed Trading Record

Prospect Capital’s (PSEC) insiders have a good track record of making large purchases near major bottoms in the stock.

But then, they also have a good track record of making large purchases near major tops too…

CFO Brian Oswald made news this week by making a large, 50,000 share purchase on the open market valued at about $336,500. He’s already up modestly on the position, and I expect he’ll make good money having bought where he did.

But Oswald and directors Eugene Stark and William Gremp were also heavy buyers in March and May of this year, and they are well under water on those positions.

In late 2015 and early 2016, virtually the entire executive team — and particularly CEO  John Barry — went on a buying spree, snapping up several million shares at prices between $6 and $7 per share. That proved to be an excellent time to buy, as the shares rose by over 30% and paid dividends along the way.

But, they were also buying aggressively in late 2014, and those purchases are still well under water.

I should be clear that I consider Prospect Capital to be very cheap at today’s prices, trading at just 77% of book value, and I expect anyone buying at today’s prices to do well. I recent tiptoed back into the stock after selling in anticipation of the dividend cut.

But I also believe this is a stock better traded than held for long-term investment. Buy it when it trades below 80% of book value, but look to take profits when it reaches 90%-95% of book value. Or at the very least, keep your stops tight when it gets into that range.

But while I like the stock at today’s prices, I would recommend taking the news of Prospect Capital insider buying with a healthy grain of salt. It shows skin in the game by management, and I like that. But their track records as market timers hasn’t exactly been the best.

Disclosure: Long PSEC

 

 

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Low-Risk Retirement Stocks

The following is an excerpt from 5 of the Best Low-Risk Retirement Stocks on the Market

When you think of “retirement stocks,” a few things come to mind. You’re generally looking for something timeless — a company that has been around for decades and appears to be future proof. After all, if you’re going to depend on this stock to support you in your golden years, you don’t want it to be at risk of technical obsolesce in a few years.

A good retirement stock also will have an iron-clad balance sheet with low or very manageable levels of debt. The quickest way to make a stable, boring business risky is simply to lever it up.

And ideally, you’d also like to see your retirement stock pay a dividend and have a long history of increasing its payout. A good dividend reduces your need to sell shares at what could be lousy prices during bear markets.

So today, we’re going to take a look at five low-risk retirement stocks that you can depend on in your golden years. I’ll give you fair warning: At today’s market prices, not all of these stocks are priced to deliver particularly high returns. You might want to wait for a pullback before really backing up the truck and buying any of these aggressively.

All the same, if you’re looking for companies that should survive the end of days, this list is for you.

I’ll start with the Oracle of Omaha’s baby, diversified conglomerate Berkshire Hathaway Inc. (BRK.B).

I’ll also warn you up front: Berkshire, unlike the rest of the stocks on this list, doesn’t pay a dividend. But there’s a reason for that. Every would-be dollar paid out as a dividend is a dollar that is no longer available for Warren Buffett to invest. When you have the most legendary stock picker in history running the portfolio, you let the man work.

Berkshire Hathaway’s portfolio is eclectic. It’s largest public holdings are the Kraft Heinz Co (KHC), Wells Fargo & Co (WFC), Apple Inc (AAPL) and The Coca-Cola Co (KO) — companies that, with the exception of Apple, all have very old business models that haven’t changed much over the decades and are themselves ideal retirement stocks. (And nothing against Apple, by the way; I’m long the company myself. It’s just not what I’d consider a prototypical “retirement stock.”)

Berkshire also owns See’s Candy, Justin Boots, Nebraska Furniture Mart and a host of other private companies that have also been around for decades with time-tested business models.

Yes, Mr. Buffett is 86 years old and won’t be running things forever. But he has assembled a fantastic portfolio of retirement stocks that should still be churning out profits decades after Mr. Buffett goes to that big stock exchange in the sky.

To read the rest of the article, see 5 of the Best Low-Risk Retirement Stocks on the Market

Disclosures: Long AAPL, EPD, O and OHI

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Prospect Capital at Extreme Valuations… Again

$PSEC Price/Book ratio at extreme lows… again.

— Charles Sizemore (@CharlesSizemore) Sep. 6 at 09:34 AM

Post dividend cut, Prospect Capital (PSEC) is now trading for 75% of book value. As Prospect’s history has shown, it can always go lower. Though if you’re time horizon is 6-12 months, this is likely a good opportunity to collect an 11% yield while waiting for the stock to appreciate to a more “normal” 85%-90% of book value.

I don’t currently own Prospect, but it’s on my watch list.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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