Stock Market

[FannOLax]

Anyone interested? Individual stocks, ETFs, economic sectors, general market direction & market movers, Roth IRA vs traditional IRA, just hoping to get some discussion going. Not aiming to move the market like those Reddit Robinhoodies!

[44WeWantMore]

• Have six months emergency near-cash equivalent on hand.
• Max out your 401K / IRA / whatever retirement vehicle in a low-cost index fund (note that many of the universities that collude to price-discriminate do not count, or heavy discount, your retirement assets when they calculate how much they can charge you).
• If you can afford to save more (and you probably can; you just do not want to), pay yourself first, also in a low-cost index fund.
• Assuming your buddy is not a congresscritter, ignore his hot tip.
• With all the time you save you can waste it here.

[FannOLax]

• Have six months emergency near-cash equivalent on hand.
• Max out your 401K / IRA / whatever retirement vehicle in a low-cost index fund (note that many of the universities that collude to price-discriminate do not count, or heavy discount, your retirement assets when they calculate how much they can charge you).
• If you can afford to save more (and you probably can; you just do not want to), pay yourself first, also in a low-cost index fund.
• Assuming your buddy is not a congresscritter, ignore his hot tip.
• With all the time you save you can waste it here.

Hmmm, I'd say research the "hot tip" and decide for yourself. I tend to use Price / Op Cash Flow and pretty much ignore P/E. I don't have any index funds; most of the stocks I currently own pay dividends, but I also have some growth-oriented tech stocks, and I don't view growth and income (dividends) as mutually exclusive. I bought a lot during the March 2020 pandemic correction; took a lot of profits as I didn't trust the rally. While I think that certain tech stocks (for example, TTD) got ahead of themselves on momentum, I can now see the overall market going up from here, especially considering fiscal stimulus and expectations about inflation. Yes, good idea to have plenty of near-cash on hand for a rainy day; it's good to have balls of steel, but also know when to cut your losses.

[Farfromgeneva]

Personally having spent a lot of time with Mgt teams of public companies but mostly on the debt side of the ledger, I tend to first determine management teams I’d want running my business and have confidence in building multigenerational wealth (I don’t have that but that’s my approach). Then worry only minimally about entry point once I’ve done enough due diligence beyond the perception of management. Obviously harder to evaluate from a distance but if you pay attention to language used, consistency and transparency along with a certain respect for the shareholders money at risk you’re likely to do fine over time.

Conversely, really smart mathematicians would tell you you’re better off barbelling 80-90% in cash and low price risk (short duration) government bonds and the rest in “yo’s”, meaning high risk/reward with steeply asymmetric payoff profiles. Can be stock in companies but effectively owning deeply out of the money options.

If anyone is interested, based on anecdote and knowledge of the banks, three micro cap banks I love and would invest in if I bought bank stocks but made a decision shortly after getting into that line of business to not own any event if not restrictsed.

Truxton Trust (TRUX) - Nashville based bank founded early mid 2000s by a rich circle. $600mm asset bank,> $1Bn AUM in HNW, high margin, White glove, trust assets (less prone to margin pressure than tech driven low margin processing trust functions, they write checks for rich old ladies, etc).
-Always relatively “rich” usually above 2x book value, but always makes a 1.3-1.5% ROA,13-16% ROE for years. Compounds earnings, can’t grow conservative bank fast enough so will also kick out special dividends. Can just grind mid teens on this bank for a while. CFO/President is a really smart weird dude I adore (Andy May)

York Traditions Bank (YRKB) - York, PA based $600mm or so asset bank. Salt of the earth founder and really focused, responsible and thoughtful CEO took over a few years ago. Surprisingly good position to get a hit bid one day and cranks 10-12% ROE. Usually relatively cheap. Only risk is they have been outgrowing their capital and may have to do a secondary to keep growing. That would knock it 10-15% as those shares get offered at a discount. But it’s made back of time, just hate to buy in front of a offering.

Hingham Financial Services (HIFS) - +/- $2Bn asset bank based in Hingham Mass run by a father son team (really the father though son is nice). Key man risk but they run that business like they own it and that’s a good thing.

These are small and bid/ask sucks compared w GE or Google. But good management and nice thing about banks is they are leveraged 10-12:1 so every dollar earned can add $10 in earnings assets. Leverage compounds equity returns.

[FannOLax]

Personally having spent a lot of time with Mgt teams of public companies but mostly on the debt side of the ledger, I tend to first determine management teams I’d want running my business and have confidence in building multigenerational wealth (I don’t have that but that’s my approach). Then worry only minimally about entry point once I’ve done enough due diligence beyond the perception of management. Obviously harder to evaluate from a distance but if you pay attention to language used, consistency and transparency along with a certain respect for the shareholders money at risk you’re likely to do fine over time.

...

One way to look at management is executive compensation. Is it structured so that management interests are aligned with those of stockholders? I was researching a company in a small Midwestern city whose tops execs were paid salaries about 20 times more than enough to live like kings; I'd much rather see reasonable salaries combined with stock options and the like.

[Farfromgeneva]

A “larger” bank stock for a team I like is Western Alliance though I can’t speak to their mortgage acquisition. I would be less thrilled around South State Bank (SSB) and Cadence Bank (CADE). EGBN in Bethesda is an interesting one, under a ton of trouble but still a well run operation in strong markets. CFO is a personally so caveat emptor there.

I think BANX (a RIC) and CPTA (another place I have a CFO friend but know the CEO well too unfortunately) have the potential to blow up based on a few factors including management.

Own the baby bonds of Travel Centers of America’s but the equity looks more interesting now that the massive secondary from July has been digested.

For large cap,Ford has been looking interesting for a while but I’m still burned from buying at around $14 a handful of years back if I think culture and Mgt is still strong.

[FannOLax]

Overall, bank stocks already rallied; challenges abound, one or two unique to banking... I might buy a semi-conductor stock (with dividend) if the market dips a bit more. Want to put some money back into the market, but being patient.

SJM pays a healthy dividend, and I'm wondering if the short interest could cause a squeeze. Rather unloved, but solid enough with some good brands.

For a long stretch in the last year, IRM was paying a double-digit dividend yield, but the price has been creeping up.... still a high dividend yield.

[Farfromgeneva]

Overall, bank stocks already rallied; challenges abound, one or two unique to banking... I might buy a semi-conductor stock (with dividend) if the market dips a bit more. Want to put some money back into the market, but being patient.

SJM pays a healthy dividend, and I'm wondering if the short interest could cause a squeeze. Rather unloved, but solid enough with some good brands.

For a long stretch in the last year, IRM was paying a double-digit dividend yield, but the price has been creeping up.... still a high dividend yield.

I just know many management teams very well so differentiating between small and micro cap ones that have good managers and ones that don’t. Agreed banks have run up but keep in mind there was 7,200 banks many public in 2011 and barely over 5,000 now. I did the due diligence for the South State-Centerstate merger for example. They’re now a $40Bn, 6-7 state bank with a $6-7Bn mkt cap. Point being is small banks are more about getting a reasonable return on capital for a few years and then the terminal value acquisition premium flip.

Dividend yields are a way to get killed. See Ford or GE just in last few years alone. Long term rates higher don’t affect short term debt funded businesses but it destroys the income oriented sectors like REITs, BDCs, RICs etc.

Stonecastle,BANX, buys small bank debt at 6-7% and can only leverage up to 35% under RIC rules (pass through 90% of income and not taxed at Corp level). The only way the Single Family Rental REITS (Ie invitation homes) and Mortgages REITs can maintain payouts is through leverage, up to a point. And they’re illiquid with a ton of small retail investors who need yield and can’t buy CDs because of ZIRP so you better be the first one out the barn door when they turn.

Conversely if you can stomach a story with a good management team that’s how to get your dividend yield up. For example, last year JP Morgan’s dividend yield on my basis of $34 from buying during the London whale situation (2015?) was north of 10%. Current yield is based on current price but if you can find strong Mgt that can return capital through multiple channels especially dividends is the best way to go.

[Farfromgeneva]

Overall, bank stocks already rallied; challenges abound, one or two unique to banking... I might buy a semi-conductor stock (with dividend) if the market dips a bit more. Want to put some money back into the market, but being patient.

SJM pays a healthy dividend, and I'm wondering if the short interest could cause a squeeze. Rather unloved, but solid enough with some good brands.

For a long stretch in the last year, IRM was paying a double-digit dividend yield, but the price has been creeping up.... still a high dividend yield.

Harder to execute but could try a pair, compression trade in semis. Seems like the spread between AMD and Intel has gotten out of control. Short AMD/go long INTC and your downside is limited.

[Farfromgeneva]

For what it’s worth, the S&P div yield is 1.49%, on top of the ten year treasury. Meanwhile PE ratio is near/at all time high. I like to look at the inverse of PE as the year 1 earnings yield (as if one has access to all free cash flow,which is very different from reported earnings). Right now at 22x or so based on consensus 20202 earnings of $190 on $3,870 or so. 2021 earnings expected to be,of correct and earnings estimates typically come down between April and August almost every year, is $174. So right now you earn an implied 2022 yield of around 4.5% on the S&P 500. Now while we are a far cry from 5% 10yr rates, if you track the 30yr long bond to equities you’re looking at a spread of +230bps (2.3%) over a 30yr Treasury bond for the upside in earnings growth and the risk of multiple compression. Or about the same as Northwestern Life pays on a whole life policy.

So you really have to believe in the growth over the next 24 months being at least as good if not better than forecasts when discussing market writ large.

[FannOLax]

...

So you really have to believe in the growth over the next 24 months being at least as good if not better than forecasts when discussing market writ large.

I agree. I don't think that there will be broad, secular rising tide that lifts all ships. A lot of Covid stimulus went into the stock market, including a large influx of youngish retail investors with very distinct investment (or speculative) parameters; valuations have been all over the place. NOT an easy market, but I do think that there are opportunities... We could see more market turbulence, wild fluctuations in individual stocks, and rising inflation, but I don't believe we'll be seeing stagflation. Takes nerve, research and yes, some good luck never hurts.