1. Four things everyone needs to know about the markets: Link to article
2. Merrill Lynch describes 3 pillars of the bull market that are still firmly in place. But also listen to the interview embedded at the top of the article with Mohamed El-Erian. His take on the Federal Reserve Board's announcement this week by Jay Powell describes what we should watch for that might portend difficulty for the markets and his belief that now is the time for "targeted active stock selection": Link
3. But if "targeted active stock selection" is needed now, then what stocks are likely to outperform this year? Watch Consuelo Mack's WealthTrak video interview of Richard Bernstein. He makes the case that the current shift from growth stocks (such as the FANGs and other high P/E technology companies) to the lower P/E cyclical and value stocks is durable: Link
4. If Richard Bernstein is right, then what characteristics of value stocks should we focus on? Validea makes the case that value companies with "quality" characteristics are currently under-valued: Link
5. The Dividend Growth Investor reminds us to consider companies with a history of growing dividends. He contends that investors now are not giving adequate attention to these companies as contributors to returns for our portfolios: Link
Note: As an example, the Covered Calls Advisor's new position this past Friday is an example of a "quality, value-oriented, dividend-paying" company". And if you have a favorite company with these qualities, please email me and include a short rationale for your choice.
6. In last week's Recommended Reading -- #4, I included information about the super-successful Medallion Fund and their investing "decision-making processes" that drove their success. I included my analysis of how four of their concepts could be applied to our Covered Calls investing. I have long believed maintaining a calm, dispassionate, and analytical temperament in our investment decision-making is critically important. It enables us to identify and then attempt to avoid behavioral biases that bedevil most individual investors. Related is this article in the Farnam Street blog titled "The OODA Loop: How Fighter Pilots Make Fast and Accurate Decisions": Link (Hint: OODA is an acronym for Observe, Orient, Decide, and Act) that caused me to wonder if this OODA Loop can also be applied to our own Covered Calls investing-related decision-making processes? As you read it, please consider whether (and how) you might try applying this mindset to your own decision-making -- including in our Covered Calls decision-making process.
7. Consider the items highlighted above and related to them this question:
How do we find quality companies that are under-valued -- and then make buy/sell decisions while avoiding behavioral biases?
This question reminded me of an excellent book that addresses this question directly, namely "Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors" -- see here
Among my own stock screeners, I have included several metrics from insights gleaned from this book into my value-oriented screeners. So, if you are inclined toward a deep dive into this question, I highly recommend reading this book. It has been a few years since I read it, so I plan to re-read it during the next few weeks. The authors of this book (Wes Gray and Tobias Carlisle) participated in a recent podcast interview (along with Jake Taylor of Farnam Street) where they shared many worthwhile, thought-provoking insights: listen here.
And finally: Wes, Toby, and Jake each have their own very good blogs (which I subscribe to in my Netvibes RSS read feeder and would recommend you consider adding to yours).
I hope you are finding these weekly "Recommended Reading" posts of some benefit, but I would appreciate your feedback via email. Should they or should they not be continued?
Best Wishes and Godspeed,
Jeff Partlow
The Covered Calls Advisor
partlow@cox.net
