Tag: Stocks

I Hate Diversification       

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Warren Buffett described diversification as “diworsification.” He is not a fan of it and prefers to concentrate his bets on a select group of companies. I can’t argue with his strategy or success. Diversification means you must constantly apologize for something.

If diversification works correctly, some investments are up, and others are down; some outperform, others underperform. For example, the S&P 500 is up this year while long-term bonds are down. Last year, everything fell except for commodities. Most asset classes finished in positive territory in 2016, 2017, and 2019. If you own a basket of diversified funds, your portfolio will never match the best or worst-performing asset class. During COVID, the S&P 500 was up 18.29%, while real estate and commodities dropped 4.68% and 7.84%, respectively. However, a globally balanced portfolio was up 8.63%. Below is an investment quilt, and you can see assets fluctuate significantly. If you track the yellow cells for the S&P 500, you can see the variation in its annual performance.

Long-term bonds are down this year, as they were last year and the year before, and they’re producing their worst three-year performance ever. The consistent comment I hear from clients is, “Why do we own bonds?” I understand. It’s frustrating to look at a losing position.

Conversely, no one has asked me why we own the S&P 500, which is up this year. During his review, one client asked why we can’t put everything in Apple stock. Another client questioning his bond allocation said, “It feels like the apocalypse.” And everybody wants to own the Magnificent Seven Stocks, which are up, on average, 76% this year – a no-brainer. However, in 2022, they were not magnificent. On average, the seven stalwarts were down 46%, and few people wanted to buy the lot. Hindsight is lovely.

Despite my hatred for diversification, I’ve yet to find a better investment strategy, and I’ve tried many, like market timing, seasonal trading, value, growth, income, momentum, charting, etc. The list goes on and on, but the one tried-and-true strategy is owning a diversified portfolio of stocks, bonds, and cash and holding them forever because you never know when, where, why, or how markets will move. During the COVID correction, investors liquidated billions of dollars worth of stocks before the S&P 500 rocketed 63% from March 2020 to January 2021.

A diversified portfolio gives you access to thousands of securities worldwide, including the Magnificent Seven. A well-constructed portfolio exposes you to several investments and asset classes, diversified by size, sector, type, and location.

The classic diversified model is the  60/40 portfolio – 60% stocks and 40% bonds. It struggled last year, like everything else, but it has rebounded nicely since last October. Vanguard’s Balance Fund tracks the 60/40 model; since 1992, it’s up 923%, averaging 7.79% annually. A $10,000 investment is now worth more than $102,000.

Times are dark and difficult, with wars raging in Israel and Ukraine, rising interest rates, and political unrest, so investing your money in a US T-Bill to ride out the storm makes sense. A guaranteed 5% rate sounds good. T-bills are safe and have never lost money, averaging about 3% annually from 1926. A $1 investment in 1926 is now worth $22 – no risk, no reward. We are experiencing another challenging investment environment, but that’s an ideal time to buy, and the best way to invest your money is through a diversified portfolio of low-cost funds.

Don’t gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it. ~ Will Rogers

October 26, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.

Ten Percent Returns

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The S&P 500 has generated ten percent annual returns since 1926. A dollar invested in 1926 is now worth  $13,474.[1]  Because of the 97-year average, most investors expect or demand a 10% return each year without risk. In fact, when analysts update their annual stock market return projections, the answer is usually 10%, a safe prediction because of the index’s history.

Generating index returns is a mix of euphoria and despair. From 1982 to 1999, the index averaged 18.5% per year. From 2000 to 2012, it averaged a paltry 0.6%. After World War II, the best one-year return was in 1954, when it soared 52.6%—the worst year occurred in 2008, plummeting 37%.[2] However, you must endure a few years of pain and underperformance to receive double-digit stock returns. It would be nice to time the market to avoid the dips, but it’s impossible.

The  S&P 500 is up 17.25% this year after falling 18.1% in 2022. What is the ten-year average return for the index? It is 10.35% despite the correction in the fourth quarter of 2018, last year’s drop, and the COVID crash in 2020. Since July 2013, the index has risen 168%.

As we move into the second half of this year, focus on your long-term goals and less on stock market returns. The market has delivered exceptional returns for decades, and I expect the future will also. Of course, it will rise in some years and fall in others. As it increases, don’t get overly excited or too depressed when it falls. In the long run, a well-diversified portfolio can produce market returns; if you capture them, you’ll do well.

I’m optimistic about the market’s future – stay invested, my friends!

It’s a wonderful thing to be optimistic. It keeps you healthy, and it keeps you resilient. ~ Daniel Kahneman

July 13, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.

[1] Dimensional Fund Advisors Returns Web – 1/1/1926 to 60/30/2023

[2] Ibid

The Magnificent Seven

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Seven stocks are generating most of the returns this year, named the Magnificent Seven. Meta, Apple, Amazon, Alphabet, Microsoft, Nvidia, and Tesla are the seven companies, and they’re delivering an Oscar-worthy performance.

These seven stocks are up 90% year-to-date as a group, led by Nvidia, up 191%. The group’s laggard is Alphabet because it’s “only” up 35%. The drive to artificial intelligence (AI) and the Fed’s projected slowdown in raising interest rates is fueling the move in these stocks.

It seems obvious that these stocks are rallying because AI is everywhere, and everyone knows the Federal Reserve will stop raising interest rates eventually. However, these seven stocks were down 45% in 2022, with Meta and Tesla falling 65%. If these companies were poised to soar this year, why did they crash last year?

Ycharts tracks 9,820 US stocks. The Magnificent Seven represents 0.07% of the companies in its database. Is it possible to identify the seven best-performing stocks before they move higher? I doubt it. And if it were, how come no one mentions Propel Media, Sky Petroleum, Freedom Holdings, Arno Therapeutics, Ai Technology Group, Diamond Holdings, or Pineapple Express? These stunning seven stocks are up 41,000% this year!

Owning the best-performing stocks before they move higher is mostly luck. Finding the needle in the haystack consistently is impossible, but investors keep trying. Why not. If you find a few companies before they take off, you can make a lot of money.

Here are a few ideas to help you find hidden gems.

  • Diversify your assets across multiple stocks and sectors. Widen your net.
  • Invest in moonshots. Moonshots are risky and speculative, but you can generate significant returns if they pay off. Limit your allocation to 3% to 5% of your investment portfolio.
  • Look for stocks with solid moats and little competition.
  • Read as much as possible to find innovative companies. In addition to reading popular periodicals like the Wall Street Journal or Barron’s, look to trade magazines and industry journals.
  • Practice patience and courage. It takes strength to own the best-performing companies because they’re volatile. For example, Amazon fell 95% in 2001. Last year, Tesla slid more than 70% from its previous high. If you own stocks at the peak, you must hold them in the valleys.
  • High-flying stocks are expensive. The average PE ratio for the Magnificent Seven is 106. You will pay up in valuation to buy solid-performing stocks. Coca-Cola is a company that delivers consistent performance, and the market rewards it with a high multiple. The 10-year average PE ratio for Coke is 27.29. A company with a low PE ratio could be a value trap. For example, the average PE ratio for Intel is 10.6, and the stock is down 47% from January 2000, 23 years!
  • Review and rebalance. Stocks and trees don’t grow to the sky, so reevaluate your holdings often. Do you remember Sears, Roebuck & Company? It was once the most dominant company in America, now it’s a former shell of itself, and the stock is worthless.
  • Ride your winner for as long as possible. One Secretariat is worth more than a thousand average racehorses. If you own a great company, let it run.

They fought for the ones who couldn’t fight for themselves, and they died for them, too. All to win something that didn’t belong to them. It was – magnificent. ~ Emma Cullen, Magnificent Seven

July 8, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.

Timing Matters  

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Timing the market can improve your odds of investment success, but it is impossible to do. Since 1998, the S&P 500 has produced an average annual return of 7.6%, but if you missed the best thirty days in the market, your yearly return dropped to 0.28%![1] The best days in the market usually follow the worst, so riding out market storms to generate positive returns is necessary.

We are conducting first-quarter reviews for our clients, and the returns are mixed. If a client joined us during COVID, the returns would have been spectacular because we invested near market lows. If we started investing after April 2021 or before June 2022, the account values would have been down. Timing matters.

April 2021 to June 2022 is a short window and will eventually be a blip on a long-term investment chart. Investors who stay invested can ultimately experience gains, but patience is required.

Dollar-cost averaging is another victim of timing. When markets rise, investors buy stocks at higher prices, and if they initiated a monthly investment program in 2020 or 2021, the account values are down. The key to successful long-term dollar cost averaging programs is volatility and falling markets because you can purchase stocks at lower prices. In time, markets recover, benefiting the patient investor.

If you began your investment program two years ago, have faith and keep investing.

The two most powerful warriors are patience and time. ~ Leo Tolstoy, War and Peace

April 19, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.

[1] YCHARTS, Time in the market, March 20, 2023

Nothing Is Working

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Another day, another market sell-off. The latest culprit is the failure and seizure of Silicon Valley Bank after a bank run. It’s two steps forward, one step back. Before COVID, the Ukraine War, rising interest rates, and persistent inflation, the S&P 500 was up nearly 200%, averaging 11.4% annually since 2010. However, most asset classes have traded down over the past two years. Frustrating.

The market has performed poorly for extended periods, but that does not make me feel better. Of course, the worst period for stocks was from 1929 to 1944, when the S&P 500 averaged 1.7% per year. It averaged 1.2% from 1965 to 1974, and from 2000 to 2011, it averaged 1.7%. The S&P 500 barely budged for thirty-eight years, or 40% of the time since 1926. Despite doing nothing for decades, the S&P 500 has averaged 10% annually for 93 years.

Each day the market gives us a reason not to invest. If it’s not a bank failure, it’s war or inflation, but if it were not for uncertainty or volatility, it would be impossible to create generational wealth. When stocks fall, they become cheaper, allowing enterprising and courageous investors to buy them at favorable prices. When the storm passes, they can sell them at higher prices – the best times to invest in this millennium occurred during the corrections in 2000, 2008, and 2020.

As the markets continue to suffer, here are a few ideas to fortify your financial future.

  • Keep an emergency fund of three to six months for your household expenses. If you spend $10,000 monthly, your emergency fund should range from $30,000 to $60,000. If your job is at risk or you’re concerned about the markets, extend your savings to nine to twelve months. An emergency fund allows your investments to recover without selling them at lower prices.
  • Buy US Treasuries because they act as a hedge against falling stock prices and are guaranteed. In times of uncertainty, investors flock to Treasuries. The yield on the 2-year US T-Bill dropped from 5% to 3.9% recently, a significant decline, as investors hunted for safety.
  • Allocate a portion of your assets to bonds. Long-term bonds have jumped 4.5% since the collapse of Silicon Valley Bank. As interest rates fall, bond prices rise.
  • Eliminate single-stock exposure. Over the past few days, First Republic Bank (FRC) wiped out a decade of gains. We typically sell stocks when they cut the dividend, lower earnings guidance, terminate thousands of employees, or face significant litigation. In my experience, it’s only a matter of time before companies fall or trade sideways for years after an adverse corporate event.
  • Continue saving and investing because markets eventually recover. After the Great Depression, stocks produced an annual gain of 11.3%; after the Great Recession, they generated a yearly return of 13.24%.[1] Investing during the darkest hours can deliver the best returns.
  • Diversify your assets across borders, sectors, and sizes. A globally diversified portfolio gives you the best opportunity to create long-term wealth. For example, international stocks climbed 36% from 2000 to 2011 as the S&P 500 faltered. Long-term bonds jumped 18% during the Great Recession, while stocks fell 53%.

Patience is a powerful tool for a successful investor. The ability to wait for stocks to recover is challenging but necessary. The Chinese Bamboo tree takes five years to start growing. For the first four years, it does nothing but fortify its roots, and then it can spurt more than ninety feet in weeks.[2] And the Agave Americana blooms once every 100 years.

Be patient, grasshopper.

The days are long, but the years are short. ~ Gretchen Rubin

March 15, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.

[1] DFA Returns Web, period ending 2/28/2023.

[2] https://jdmindcoach.com/plant-takes-5-years-start-growing/#:~:text=While%20most%20trees%20grow%20steadily,grow%20at%20an%20astonishing%20rate. JD Mind Coach, January 28, 2018

Scary Times

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Silicon Valley Bank gives us another reason to panic and freak out over our financial future. The FDIC seized the sixteenth-largest bank in the country on Friday, the second-largest bank takeover in US history. At the time of the collapse, twenty-two Wall Street analysts rated the stock a buy or hold, and Jim Cramer urged investors to buy it last month.[1] It was a stellar performer until its collapse, rising more than 80,000 percent since going public, but now it’s gone – risk happens fast!

Silicon Valley Bank is the first bank failure since 2020 when four banks went belly up. The FDIC annexed 510 banks from 2007 to 2014, representing $700 billion in assets, and the current bailout is $209 billion.[2]

Honestly, I’m tired of writing about bank failures, stock market crashes, and financial calamities. Unfortunately, they’re embedded in our history and will continue for the foreseeable future. Despite constant headwinds, the stock market has been resilient. In the last twenty years, the market has recovered from the Tech Wreck, the Great Financial Crisis, and the bankruptcies of Lehman Brothers and Bear Stearns. In fact, since Lehman and Bear Stearns imploded in September 2008, the S&P 500 is up 124%.

In the meantime, here is a list of items you can employ to protect your family’s assets.

  • Buy US Treasuries because they’re insured and guaranteed regardless of how much you invest.
  • Review your cash balances held at your bank. The FDIC limit is $250,000 per person, per institution, and per account. If your balance exceeds the threshold, open a new account or buy US Treasuries. According to the FDIC website, no depositor has lost a penny of FDIC-insured funds since its founding in 1933.[3]
  • Reduce or eliminate your debt, regardless of the current interest rate. If your debt level is low, you can withstand a financial storm.
  • Buy physical real estate. My grandfather loved real estate and hated stocks despite my arguments that stocks can produce significant returns. He owned several homes, commercial properties, and a couple of ranches, and he did not panic when stocks dropped or banks failed. Real estate is a good inflation hedge that can generate substantial rental income and is excellent for transferring assets between generations. And you already know the key to successful real estate investing: Location, Location, Location.
  • Diversify your asset across investment categories, countries, etc. A globally diversified portfolio of stocks and bonds gives you access to thousands of investments designed to grow and protect your wealth over time.
  • Avoid single-stock exposure. Silicon Valley Bank wiped out thousands of shareholders in less than 48 hours, and I can give you a long list of companies that evaporated overnight. Instead, invest in mutual or exchange-traded funds to reduce your risk from individual stocks. The Invesco Small Cap Value fund (VSRAX) held a 1.50% position in the bank stock, and the fund was down less than 1% on Friday because it owns more than 112 securities.

The recent bank failure adds to a list of issues the stock market has dealt with recently, including COVID, the Ukraine War, and political turmoil. Still, it continues to rebound and recover, as it has historically. Today’s events will barely register on a long-term stock chart in a decade or two. For example, the October 19, 1987 stock market crash is but a blip on the chart below.

Markets like to climb a wall of worry, and many successful investors recommend buying when others sell. For now, follow your plan, think long-term, and good things will happen.

If you the bank $100, that’s your problem. If you owe the bank $100 million, that’s their problem. ~ J. Paul Getty

March 11, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.

[1] https://www.foxnews.com/media/cnbcs-jim-cramer-eviscerated-touting-silicon-valley-bank-weeks-disastrous-collapse, Alexander Hall, Fox News

[2] https://www.fdic.gov/bank/historical/bank/

[3] https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance/

 Holding Pattern

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Several years ago, I flew from Connecticut to Los Angeles with a layover in Chicago. Nearing Chicago, the pilot informed us we were in a holding pattern due to a winter storm. I was stuck and could not do anything, and it lasted several hours before we finally landed.

Stocks are in a holding pattern as inflation and interest rates continue to rise, and there is no near-term catalyst for them to trade higher. Nor is there one to take them lower, an actual holding pattern. The Dow Jones is down 1.2%, while international stocks are down 0.30% over the past year. The markets remain stuck until inflation and interest rates turn lower.

Here are a few ideas to improve your portfolio since we are in a holding pattern and range bound.

  • Build a financial plan. As markets meander, now is an ideal time to build your financial plan, and it will guide your steps, give you a roadmap to financial freedom, and help you form a solid foundation for your future. At our firm, our clients with financial plans were calmer and less likely to panic during last year’s market rout.
  • Buy US Treasuries. If you hold a significant cash balance, buy US T-Bills. The 1-Year T-Bill yields 5.03%, better than CDs, money market funds, or savings accounts.
  • Review your asset allocation. Do you have the proper asset allocation based on your goals and risk tolerance? If you ignored your investments in the past year or two, your portfolio has probably drifted from the original allocation. As a result, your assets could be too aggressive or conservative for the next move in the market. Establishing an annual rebalancing program will solve this problem.
  • Buy dividend-paying stocks or funds. Companies that pay dividends have solid balance sheets and positive cash flow. Also, they tend to raise their dividends annually, giving you a raise. For example, Pepsi has grown its dividend by 102% over the past ten years, and the stock is up 117%. The dividend was $2.27 in 2013, and it is now $4.60. If you bought Pepsi in 2013 at $77, your current yield is 6%!
  • Increase your 401(k) contribution. If you’re not maxing out your 401(k) contribution, consider raising your amount by 2% to 3%. If you contribute 5%, increase it to 7%.
  • Consider a Roth conversion. Your IRA account balance is likely down in value over the past couple of years which is an excellent reason to consider a Roth conversion. After you convert your IRA to a Roth and the market recovers, all your gains are tax-free. And you no longer need to take your required minimum distribution.
  • Create an emergency or opportunity fund. Consider moving money from your checking account to your savings account each pay period. Most banks allow you to transfer funds automatically between accounts, and the funds in your savings account are liquid and accessible if you need them for any reason.
  • Pay off debt. Regardless of your interest rate, consider paying off your debt, especially if you carry a balance on a credit card. Returns are fleeting, but expenses are forever. You can give yourself a raise by eliminating your debt.
  • Give. You don’t need to wait until December to give money to charities or groups you support. People are hurting now and need help, and donating to your local food bank, non-profit, or church pays enormous dividends.

Stocks eventually recover, but it may take time. Be patient and follow your plan. In the meantime, use the current holding pattern to fortify your financial foundation.

Patience, persistence, and perspiration make an unbeatable combination for success. ~ Napoleon Hill

March 4, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.

5 Covered Call Ideas

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Writing options on stocks you own, or want to own, is an excellent way to generate income and reduce risk. Below are five stock and options ideas.

Advanced Micro Devices

Symbol: AMD

Price: $63.96

Strike Price: $67.50

Expiration: 1/20/2023

Premium: $1.06

Option Income (1,000 shares): $1,060

Stock Return: 5.53%

Option Return: 1.66%

Total Return: 7.19%

Annualized Return: 218.76%

AstraZeneca

Symbol: AZN

Price: $70.80

Strike Price: $75

Expiration: 2/17/2023

Premium: $0.88

Option Income (1,000 shares): $880

Stock Return: 5.93%

Option Return: 1.24%

Total Return: 7.18%

Annualized Return: 65.47%

The Walt Disney Company

Symbol: DIS

Price: $93.92

Strike Price: $110

Expiration: 03/17/2023

Premium: $1.38

Option Income (1,000 shares): $1,380

Stock Return: 17.12%

Option Return: 1.47%

Total Return: 18.59%

Annualized Return: 99.79%

Expedia Group

Symbol: EXPE

Price: $94.11

Strike Price: $115

Expiration: 04/21/2023

Premium: $3.04

Option Income (1,000 shares): $3,040

Stock Return: 22.2%

Option Return: 3.23%

Total Return: 25.43%

Annualized Return: 90.11%

Eli Lilly and Company

Symbol: LLY

Price: $362.94

Strike Price: $400

Expiration: 02/17/2023

Premium: $2.30

Option Income (1,000 shares): $2,300

Stock Return: 10.21%

Option Return: 0.63%

Total Return: 10.84%

Annualized Return: 98.96%

Options trading involves risk and is not suitable for every investor. Your returns could differ significantly from those posted in this blog, and you could lose money. Do not use margin or leverage to trade options. Please refer to the Characteristics and Risks of Standardized Options to learn more about options trading and writing – https://www.theocc.com/. We have no affiliation with the OCC or the Options Industry Council.

Price and return data is from January 8, 2023, and is subject to change without notice. Data sources: Value Line, YCharts, TD Ameritrade and Yahoo! Finance

Bill Parrott is the President and CEO of Parrott Wealth Management – www.parrottwealth.com

Rising From The Ashes

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The Phoenix, a Greek mythical character, is considered an immortal bird that rises from the ashes of its predecessor.[1]  Of course, it is a myth, but the image of one rising from the ashes to get a new lease on life is powerful. We all want a second shot or do-over, especially with investing.

It has been a challenging year as most asset classes have traded in negative territory, there have been few places to hide, and diversification has not worked. Stocks and bonds reacted negatively to rising interest rates as the Federal Reserve tried to control inflation, and the rate increase was too much to bear for investors.

Are you ready to rise from your investment ashes? Here are a few suggestions to help you soar to new heights.

  • Complete a financial plan. Your plan will help guide your future and quantify your goals, giving you a path to follow. More importantly, it validates your success and can bring you financial peace. Our clients with financial plans appeared more relaxed and better prepared to handle the market’s turbulence this year than those without one.
  • Rebalance your account. If you did not make any changes to your investment portfolio this year, it is probably out of whack from your original allocation. As a result, you may enter 2023 positioned incorrectly, either too conservative or aggressive. Rebalancing your portfolio realigns it to the proper risk level and tolerance. January is a good time to rebalance because all your 2022 dividends and capital gains will have been credited to your account.
  • Review your holdings. Do you have the correct investments for the new year? Will your current portfolio allow you to reach your goals? Use the final few weeks of the year to examine your holdings.
  • Adjust your goals. Is it time to review your goals like spending, retirement date, college funding, or major purchase? Use the coming year to set new goals or update old ones.
  • Buy stocks. The S&P 500 is down 16% for the year, and the last time it had two negative years in a row occurred more than twenty years ago, and since 1941, it only happened twice, and the average gain following a negative year was 25.3%.[2]
  • Buy bonds. Bonds are producing income again after a long hiatus. It’s now possible to buy bonds yielding 3%, 4%, 5%, or more. The one-month US Treasury Bill yield soared 7,720% this year, rising from 0.05% to 3.91%. Will it rise another 7,700% next year? Doubtful. If it did, the yield would increase to more than 300%!

I know it was a tough year, but markets always rebound. The carnage in stocks and bonds can create opportunities for next year, so use the market’s decline to strengthen your portfolio.

In order to rise from its own ashes, a phoenix first must burn. ~ Octavia Butler

December 5, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] https://www.greekmythology.com/Myths/Creatures/Phoenix/phoenix.html

[2] Dimensional 2022 Matrix Book – 1941 to 2021

Stay The Course

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Stay the course is boring financial advice, and people hate it, especially when stocks fall. Doing nothing is challenging; it’s hard, and it feels like a cop-out. When stocks fall, clients want action; they want to rearrange the deck chairs and take control of the situation, but it could do more harm than good.

Most financial planners recommend a buy-and-hold strategy when managing money which is simple when stocks rise but challenging when they fall. It’s a popular recommendation because stocks rise about three-quarters of the time, and no one can time the market.

Pilots set their coordinates for their final destination and rarely diverge from their route unless necessary. They will change course to avoid storms or turbulence, but, for the most part, they keep the nose of their plane headed toward their target. This past summer, my wife and I drove thousands of miles visiting several national parks. Each day we’d set our GPS for the next park, and we did not deviate from the directions and arrived safely each time.  

I’ve gotten in trouble whenever I ignore a trail map while hiking, biking, or skiing. When my daughter was about ten, we went skiing at Crested Butte, and I decided to take her on an unmarked shortcut back to the ski lift. It did not go well. We got stuck in waist-deep powder and could not move. We had to forge our path; it took a long time before we could return to the trail. It was a scary ordeal.

A financial plan will help guide you to your destination by quantifying your goals, assessing your risk tolerance, and measuring your time horizon. It will lead you through a perilous market and treacherous economy. When markets are falling, and clients are worried about losing money, a financial plan can bring peace. The likely recommendation from the advisor is to remain calm and stay the course because of the plan.

Investors have liquidated nearly $100 billion from growth-equity mutual funds over the past year, likely transferring the money to a money market fund or savings account.[1] This strategy might be safe in the near term, but it could prove disastrous over time. The report ended on September 30, 2022, and since then, the Dow Jones has risen nearly 13%, its best monthly performance in more than 35 years! To get above-average returns, you need to stay in the market. As I’ve told clients, “If you’re not on the plane when it takes off, you’re not getting on.” Selling from a position of fear is not wise. If your plans change, then alter your investment strategy. However, if you don’t need your money and your goals remain intact, stay the course!

I recently met with an individual who is interviewing several financial advisors. He is looking for one who can trade the hottest and most popular sectors, in this case, energy and commodities. I informed him that we select a buy-and-hold portfolio based on his financial goals and do not trade sectors or chase securities. I then showed him a 10-year chart of how the Dow Jones Industrial Average destroyed commodities. He was not impressed and is convinced that there is an advisor out there somewhere who can time the market. I wished him well.

It’s a difficult market; returns stink, but stocks recover. Be patient, follow your plan, and stay the course.

What kind of man would live where there is no daring? I don’t believe in taking foolish chances, but nothing can be accomplished without taking any chance at all.” — Charles A. Lindbergh

October 28, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

[1] YCHARTS Fund Flow Report – 9/30/2022