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Antonio Sammut
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I am a retired electrical engineer. I retired from Detroit Edison and ITC Holdings. I am a member of a retiree investment club that meets regularly to discuss the market and investment ideas. My investment interest is writing options on high quality dividend paying stocks and dividend growth... More
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  • De-Risking A Microsoft Position

    I am long Microsoft because I believe it to be a sound investment. Microsoft has been a good business for many years but failed to excite investors. In spite of dominating its industry, gushing cash, good margins and good growth, investors were more focused on Microsoft's squandered opportunities and poor acquisition choices. Recently, Microsoft has a new CEO that seems to be pointing Microsoft in the right direction. While I like Microsoft, I do not love Microsoft, and only see it as a tool to make money not as something I can not live without. If I am high on Microsoft, why would I sell it? Let me explain.

    Approximately a month ago, I wrote a May 17, $40 put on Microsoft. I also am long Microsoft with a position that is twice the size of the put trade. I have de-risked my Microsoft position by selling half of my long position in Microsoft at a $3 profit. The put premium was $1.09. In less than 6 months time, my return on Microsoft was $3 on the capital gain, $1.09 put premium, and $.28 quarterly dividend. This is a 10.9% total return in less than 6 months. I will take a 20% annualized return on a relatively safe company anytime.

    Why did I feel the need to de-risk my position in Microsoft, when I believe in the long term success of Microsoft? First, technology has been very soft lately, and Microsoft is experiencing increased volatility. Second, good results that were reported on the earnings release seem to have been mostly baked into the price. To me, the overall market is starting to look extended, while small caps and technology looks like they may have already peaked.

    If Microsoft goes below $40 at expiration, I will get assigned the stock. This will increase my Microsoft position to its original size. If Microsoft is above $40 at expiration I will not get assigned but will experience a potential opportunity loss. However, I am still long, although with a smaller position, so I can not get left out. I say potential because you have to be able to sell before the market takes it all back. If you have not noticed, stock prices are fickle and temporary.

    Finally, Microsoft has been a great vehicle to make money on, if you have been willing to write options on it.

    Disclosure: I am long MSFT.

    Tags: MSFT
    May 15 2:19 PM | Link | Comment!
  • Why People Retire

    Retirement, as we have known it, is dying in the United States because a growing number of people do not have sufficient financial resources to retire and because traditional sources of retirement income such as pensions, social security, and Medicare are increasingly being eliminated or threatened. However, many people that have the financial resources to retire, do not. And that brings me to ask: why do people retire?

    Some of the reasons people continue to work at a job even though they have more than sufficient resources for a comfortable retirement include: 1) They love their job and there is nothing else they would rather do, 2) They like the security of knowing what they are going to do every day, 3) They need a job to feel relevant, important, useful, or needed, 4) They use their job as a means to socialize, 5) They believe that they are contributing to society or to a purpose larger than themselves, 6) They see it as their opportunity to accumulate additional wealth. This list is only a sample of possible reasons people continue to work and I am sure that there are very many more reasons people can come up with.

    Anyone that has contemplated retirement soon comes to the realization that there is a lot more to a job than just the paycheck. We must next look at a few reasons why people decide to pull the plug and retire, provided that they are the ones making the choice.

    In my opinion, most companies that pay you believe in their hearts that they own you. This means that you must subordinate your personal life to the needs and wants of the job. This is what leads to 60 hour work weeks, missed vacations and holidays and working weekends. Failure to do what it takes to complete assignments on time distinguishes you as a non-team player. For some people, breaking this voluntary bondage is their primary motivation to retire.

    For most people approaching retirement, if they look closely at the numbers, they will realize that they are really continuing to work for a fraction of what they are getting paid. By continuing to work, they can not start collecting a pension and other benefits that they have earned and they keep paying wage related taxes such as FICA and Medicare as well as incur work related expenses such as commuting costs. While it is true that for most people, total wealth continues to accumulate when they keep working, the accumulation attributable to actually working slows down significantly as retirement benefits are truncated or as retirement benefits are already earned.

    No one, even highly compensated executives, can be sure that they can live long enough to enjoy their wealth or whether any additional wealth will result in an improved life. It may take some external catalyst for some people, such as a health scare, to illuminate this longevity issue. For me, this issue was illuminated by a simple analogy of a 72 inch carpenters rule. The number may not be exactly correct, but the concept is powerful. Imagine your healthy life span is the length of the carpenters rule. Ask yourself where you are on this rule, and how many inches you have left? Of course, today's rule may be longer as our lifespans continues to increase.

    Early retirement sweeteners have been effective at nudging some people into retirement and they certainly force those who get an offer to confront the possibility of retirement. A good economy with the possibility of getting another job easily and securing retiree health care benefits are important factors to acceptance.

    All life is valuable, however, it's a lot more enjoyable if you are healthy. Generally, as we age our health deteriorates. We can not do as much when we are 80 as we can when we are 60. This, of course, argues for an earlier retirement rather than a later retirement, or at least discounting the value of accumulating more wealth by delaying retirement.

    Conclusion

    For the majority of people in America, there is no choice but to keep working as long as they possibly can because it is the only way to make ends meet. For others that ended up with enough resources to retire, their decision to retire will turn on many factors in addition to economics.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

    Tags: retirement
    Jan 27 4:24 PM | Link | Comment!
  • Eight Lessons From A Retiree Stock Club

    I am a member of a retiree stock club that has been investing in individual stocks for many years. The club meets every two weeks to analyze historic market data and to discuss investment ideas. The club exchanges ideas only, and each member is free to invest their own money as they see fit.

    The Model

    For a little friendly competition, each member selects 10 stocks at the beginning of each year to see who's picks produce the largest total return for the year. The club tracks how each member has done with their model picks through both up and down markets and calculates how a hypothetical $100,000 portfolio has grown over the years. The club continues to evolve in that we continue to evaluate new methodologies to identify which investments are buy candidates and which ones are sell candidates. Although I am a relatively new member of this club, I have already learned the following lessons:

    1) It pays to buy quality companies that pay dividends. One member of the club has stated the requirement for a dividend in this way:"every company must pay the rent."

    2) Diversity is important. Diversity allows your portfolio to still win even if some of the positions within your portfolio happen to lose.

    3) You do not have to take big risks to make big returns. The most outstanding member of the club has made an average return of 20% over the past sixteen years with utility investments. He has grown his hypothetical $100,000 model portfolio to over $1.4 Million.

    4) Individual members can beat the market or sector with good stock picks, but as a whole, the club does not beat the market on a consistent basis. Most of the club members would be better served just picking an index or ETF, as opposed to investing in individual stocks.

    5) Club members, for the most part, are not interested in options. Perhaps this is the same reason why SA has dropped the options category.

    6) The most productive club meetings are when we have differences of opinion. No one in the club is offended by constructive criticism.

    7) No one in the club has a clue where the market is going to go in the next year. When it comes to the market, forecasting appears to be a waste of time.

    8) Getting old presents a whole set of problems that have nothing to do with making good investments or doing well in the market. No one is immune.

    Conclusions

    Besides enjoying the great company, this club has made me a much more thoughtful and successful investor.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: retirement
    Jan 24 7:19 PM | Link | Comment!
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