Could we improve on investing in a market index-exchange traded fund? How? Are there downsides?

As we frequently state, historically,

  1.  over the long term,
  2.  properly selected US market index exchange-traded funds (ETFs),
  3.  held in tax-advantaged accounts,
  4. in an appropriate asset allocation,

have been the investor’s best way for growing savings and are likely to remain so for many years. One major benefit of this approach to investing in addition to the returns, is its ease of implementation and maintenance. Put it in place, go fishing and watch your investments grow.

One of our members, an expert, claims that if you took such an index ETF, for instance SPY, and removed the companies carrying large debt, you would get better performance. True enough, much of the time, although, in the present interest-rate environment, many companies can earn more with the borrowed money than the cost of that money. (So can we, if we are comfortable with the idea.)

What about if you concentrated on the companies repurchasing their shares? (Share repurchases increase share prices.) That produces better performance all the time.

We recently discovered such a company – Cambria Shareholder Yield ETF (SYLD). Over the last three years, SYLD has outperformed SPY (See chart above.). Morningstar gives it a five-star rating while giving SPY four stars.

How can we benefit by holding SYLD in our portfolios? What are the downsides?

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Scholarly view of writing covered calls and of Novavax (NVAX), part 1

Recently, writing covered calls on (NVAX), our fearless, intrepid investor lost some $70,000.00 in her “fun” portfolio! How much fun can that be?

She had done well writing covered calls on NVAX every Monday, most of the time with the strike price just out-of-the-money, expiry date Friday of the same week. Morningstar now rates NVAX as undervalued at an 18% discount.

Remember that the risk of writing covered calls entirely comes from the risk connected to the underlying security.

Given the undervaluation, should she:

a.) continue with the covered call writing strategy or

b.) buy more NVAX and wait for the market to make up for the lost ground or

c.) do both?

Answer from 5i Research:

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Mon., Oct. 11, 2021. How our fearless, intrepid investor made out last week and her plans for today

First, a gift idea. A friend, a 91-year-old retired, highly successful businessman, is buying memberships in the Monday Morning program for his eight grandchildren, all grown adults. Buying the right gift for some friends and relatives is often a challenge. This businessman has found an answer. At the present annual fee of $12.00, the price is right.

Now, let us review how our fearless, intrepid investor made out in her “fun” portfolio last week.

Just out-of-the-money Novavax (NVAX) was trading at $182.50 (NVAX C 8OCT21 182.50). She decided to go further out-of-the-money and sold 12 Novavax (NVAX) covered call contracts, strike price of $185.00, expiry date Friday, October 8, 2021. (C 8OCT21 185.00) That would give her $2.50 per share of growth if any, for an additional total of $3,000.00. (1,200 times $2.50)

She received $4.50 per share of immediate premium income for a total of  $5,400.00. (1,200 times $4.50)

And the hoped-for growth?

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Why write covered calls on Novavax (NVAX)? The stock is down nearly 40% this month!

On October 9, 2021, from anonymous DDS, Ontario, Canada

It’s a tough spot for the fearless investor. NVAX  is down nearly 40% in a month. Bizarre that this person does not use technical analysis at all and is married to this particular stock.

What does the Monday Morning program say about this?

Our answer

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Safe and effective, evidence-based investing; getting started

 

We are posting this message for the benefit of our new members. It is old had for existing members but might be useful as a review.

The Monday Morning Millionaire Program will show you how to outperform more than 90% of professionally actively managed funds, guaranteed.  At the same time, over an investing lifetime, you can save a year’s income by avoiding adviser fees. Investors can do that by buying and holding a US market index-tracking exchange traded fund (ETF).  For a detailed step by step description, join the Monday Morning Millionaire Program.

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Should Investors Create Their Own Target-Date Fund? They could do better, much better.

On October 2, Dr. Horstmeyer, a professor of finance at George Mason University,  reported the results of a study for the Wall Street Journal titled Should Investors Create Their Own Target-Date Fund?

Target date funds, usually mutual funds or exchange-traded funds, invest with an increasingly conservative asset allocation as the target date approaches. There are over 2000 of them. They consistently underperform the Monday Morning approach to investing.

For a successful investment strategy, asset allocation is more important than stock selection or market timing. We will deal with this important subject in a webinar on Sunday, March 6, 2022, at 7:30 PM. Please mark that in your calendar.

From Prof. Horstmyer’s study:

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How will “The search of the day” today improve my life? October 7, 2021

First, note that we are now offering our yearly subscription for $12. Please refer investor friends and relatives to our program.

Next, for you to benefit more from your membership in the Monday Morning Program, we are introducing a new feature. We call it “Search of the day”.  It will focus on the most relevant posts selected from the hundreds which we have published previously. It will cost you very little time – maximum efficiency with minimum effort (Judo motto).

Today’s search of the day?

It has to do with taxation. Would you like to pay less?

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Members’ approach to investing, October 2, 2021 survey results

Greetings everyone,

Time is valuable and irreplaceable! A sincere thank you to all those who took the time to respond!

Below you can see the results of our October 2 survey about members’ approach to investing.

How would you describe your approach to investing?

I only passively invest for the long run in an exchange-traded fund that tracks the S&P 500.

27.3%

I mainly passively invest in an exchange-traded fund that tracks the S&P 500 with a small percentage in a “fun” portfolio in which I pick stocks, time markets and trade derivatives.

36.4%

I mainly buy and hold stocks which seem promising.

36.4%

I am an active day trader or swing trader.

0.00%

Our response to the above results follows.

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Mon., Oct. 4, 2021. How our fearless, intrepid investor made out last week and her plans for today

 

I stated that on Saturday, September 2, I would report on how our fearless, intrepid investor is doing selling covered calls in her “fun” portfolio. It makes more sense to post these reports on Mondays together with her plans for the day.

Morningstar now states that NVAX is 17% undervalued with a fair value of $218.05.

How she made out

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The present Initial Public Offering (IPO) explosion. Can we benefit?

In a recent Economist Espresso, there was an article titled Explosive potential: the IPO boom. (For details, go here.)

We have written about initial public offerings previously.

To summarize what we said, what the evidence shows is that with most IPOs, the average first-day returns are about 18% with no losses historically. Not one!

Three years later, the average historical return is a negative 18.7%, with almost no positive returns. Almost none!

We are talking about a review of over 8,000 IPOs here!

Where is the value?

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