Simpler Covered Calls For A Recession

CATEGORY: Investing

Yesterday I sold 700 shares of STOR which yields about 5% and has been lingering in my portfolio due to it’s recently having been acquired. Pondering where to put this cash as we stare into a possible recession in 2023 I have been thinking about JEPI which could be a limited risk way to earn more than 5%. JEPI yields about 11% and pays monthly. So today, Jan 5, 2022, I added some JEPI.

JEPI holds about 100 stocks and sells covered calls on them in order to derive income. How well do they perform in a recession compared to any other investment? Very good question. We shall see how that works out. But my view is in order to be diversified I need a variety of strategies that counter balance each other. If we get a 20% to 30% market drop it will be time to rotate to SPY. The alternative is to hold cash. At 10% inflation cash loses because of 100% guarantee of loss ( equals 100% risk factor) and JEPI wins.

Of course I could overweight on energy or tobacco or beer or BDC’s (business development companies) – but that would not represent diversification. And that too increases risk

Investing 2023 and Workforce Shortage

Category: Investing

There is a shortage of workers. Minnesota, for example, has lost 95000 workers and that is projected to increase in 2023. But consumer demand is increasing. For example, baby boomers are demanding more services as they age.

This will cause wages to rise. That will cause companies to pass on the cost in the form of price increases. This adds to inflation. Inflation will continue and increase. The fed will respond with higher interest rates to hold down inflation.

There is likely to be a recession, and banks are now predicting recession.

The stock market will sag into lower stock prices.

As a dividend growth style investor I will be looking to add stocks as the prices sag. The dividends will have a higher rate. So I am looking for stocks that have a pattern of dividend growth over time and under all market conditions, with a view on dividend safety. I like to see a dividend safety rating of B or higher but a return that beats inflation. I also like to see a high quant rating and a buy or strong buy recommendation. And I am striving to stay diversified.

Over the New Year as the market has been sagging I have been nibbling. In a day of all red I start looking for buying opportunities because everything is on sale.

As a recently retired person I have a fixed income stream of “retired income” made up of the usual (use your imagination) which I shall call I1. My goal on my investment portfolio, which is 100% tax deferred, is to have my annual dividends I2 be greater than I1.

I2 > I1.

This ignores ROI or “return on investment” because that depends on stock prices which of course fluctuate up and down with the market.

My available money M each year is M = I1+I2 without selling any of my portfolio. That is the basic idea of having a portfolio. That has been my goal all alone. To replace my income from my working years.

There are a lot of other factors in motion, but workforce oversupply is gone and so is cheap labor. These are not transients – they are structural problems. I think everyone saw this coming but everyone has been intoxicated by media nonsense rather than analysis.

Keep calm and keep thinking.

Investing thought of the day.

Quoting Robert and Sam Kovacs:

But an amazing business isn’t always an amazing investment.

Just like an amazing house isn’t always an amazing investment.

It is a function of one factor, which in this time and age, has often been shunned in favor of what is shiny, hype, and glamorous.

This factor is price.

Investments are always a function of price.

If you pay a fair price for something great, you’ll do all right.

If you pay a great price for something fair, you’ll do all right.

If you pay a great price for something great, you’ll do very well.

Most other outcomes fail.

And that’s why the tech wonder stocks of the pandemic have crashed.