Donald Johnson

Long only, growth at reasonable price, momentum, growth
Donald Johnson
Long only, growth at reasonable price, momentum, growth
Contributor since: 2007
Ebay was in Brian Nelson's Best Ideas portfolio until last week. He doesn't own the stocks he recommends in his portfolios that he publishes in his newsletters and on his subcription-supported web site. He knows EBAY inside out. More important, he's creative and knows the financial business very well.
I think his letter is very interesting and will be read by Yahoo directors and consultants as well as by its shareholders. Standby.
Serious investors/speculators use the Valuentum dividend cushion when they check on their holdings and check out new ones.
If you're a dividend growth plus capital appreciation speculator, a low dividend cushion will eliminate stocks like CVX and T.
If you're a capital appreciation and protection speculator, you don't want a dividend cut or missed dividend hike to start a bear market in your stock. So a safe dividend is critical. The dividend cushion helps you avert dividend cuts such as we just saw in POT.
I'm a subscriber and really like the screens of stocks with high VBIs (buys) and dividend cushion screens. In Valuentum's monthly Dividend newsletter, stocks with dangerously low dividend cushions are listed. There usually are about 20 or so.
I don't believe a company's dividend history tells much about its dividend safety nor its potential dividend increases. In its dividend reports, Valuentum also shows historic annual dividend hikes and how much it calculates a company will hike its dividends in each of the next few years. For me, that is a good risk management and stock research service.
We love blue tooth in our cars. We also have Apple's Carplay in our RV. Great!.
I don't think Select Comfort has a moat. There are tons of alternatives to its products that are just as comfortable as its very expensive air mattresses.
We just got a chance to test a friend's Sleep Innovations memory foam mattress sold by Amazon. Too hard. It's also sold as Novaform by Costco. So they're both out. Ordered an adjustable base that will be delivered in a few weeks. So we have time to find a mattress.
I'm writing a review of the new site. I like a lot about it. But as a former owner of a graphics and marketing communications firm, I always edited the graphic artists and art directors. Editors always should be in charge of art directors who design for awards, not users.
On my Mac with latest OS, when I don't give the page the full screen, which I never do, the right side is lost. I always split my screens.
I think you need to edit the art director a bit. Using the logo as the home button works for many, but not for people who aren't on the web a lot. Design for new comers, not vets.
At the same time, I think you need to put the sponsored pages hidden by the log where people can find them. Just under the Logo would be smart.
I wondering about Chris DeMuth's role at SA. He runs a hedge fund, publishes a SA subscription service and writes like he owns or consults with SA? Why is he announcing this change, or did I miss the official announcement by SA?
I'm not objecting, just curious.
Has the portfolio feature been updated to allow more than 400 stocks regardless of the number of watch lists? Why not make the S&P 500 and DJI 30 default watch lists with downloadable symbols that we can use on SA and elsewhere, i.e. at
Operating system upgrades are security upgrades. You need up to date operating systems to protect your security, I think.
One of my beefs has been my inability to go directly to my comments to see responses. I just searched myself and in two clicks was where I wanted to be. That must be a Google search improvement. Thanks.
P.S. I'm an inactive contributor. Can non contributors quickly find their comments and responses to their comments as well?
Chris, the market was up yesterday. So I wrote calls. It was down this morning, but not enough to justify selling puts, which i also prefer to sell on dips in a bull market. Selling puts is a bullish strategy. Covered calls work best in a sideways stock and market with an upward bias.
As for transaction costs, if I make money, I'll pay the transaction costs, which are negotiable.
This is a good way to get started in writing covered calls. Once you have traded covered calls for a few months, you can consider trading shorter options. I trade weekly options if they are liquid and volatile enough to make it worthwhile. The depth of the options chain also is important. If you can only trade one or two strikes out of the money, you don't have much depth to trade.
Weeklies, annualized, provide higher premium income. They're also more work because you have to roll them over 45 to 52 times a year, or even more depending on what the markets do.
Some stocks are good weekly trades for awhile. Then they lose their volatility and you can only trade monthlies or longer options. I don't trade anything beyond 35 days.
XOM is a stock with good options liquidity, volatility and options chain depth for weekly, monthly and longer term traders. If you are an online trader, you can check out XOM and see its options chain. GE was a good covered call stock a year ago. It lost its volatility as its price rose, and it became hard to do covered call trades on the stock. It's a little better now, but not great.
Today, I put on a covered call position for PG Feb1 (2.5.16 expiration, a weekly) at $81 strike for $0.21. The immediate return was 0.25%, annualized = 9.13%. Add the 3.18% dividend yield I get on the stock and the annualized return would be 9.13 + 3.18 = 12.31%. If the stock is called at $81, I would get a gain of $81-$78.74 = $2.26 + .21=$2.47 a share. But I'd probably buy the call back because PG has a point and figure chart price objective of $97. I'm hoping PG won't go up another 2.9% in the next 10 days, but it easily could, and more.
The risk of covered calls is that a stock goes much higher than your strike price and you miss out on some of the gain. In bull markets, I often let rising stocks go up without writing covered calls.
In this bear market, I'm more confident that PG will correct over the next 10 days from its recent 6.7% runup because its 4th quarter earnings report and guidance weren't that good.
If PG corrects a bit, I could sell PG Feb1 (2.5.16) $75 puts for about .25 cents. That would give me a 0.32% return over 9 days, or about 11.7% annualized. Combined with dividends and covered call premiums, that would give me an annualized return of about 24%. Annualized estimates are fantasies because stock prices and premiums change every second the markets are open. No trade can be exactly replicated over a year. But they're interesting to ponder.
Agarwal, can you provide a citation? Where did you get that idea? I've been making money at it for about 10 years. It's pretty easy.
If somebody bought XOM at today's close of $73.98, XOM Feb $78.50 Strike covered calls would provide an immediate return of 0.81% and an annualized return of 12.32% if not called and the exact same trade could be replicated 12 times a year, which it can't. Add the 3.95% dividend and you get a 16.27% annualized return.
If you also do out of the money put sales on XOM over a year, you increase the overall yield to over 25%, not including gains or losses in the stock. In reality, volatility and stock prices fluctuate.
Thus, "annualized" estimates are not predictions. And trades to go wrong one way or another. Don't automate rollovers or anything else.
XOM's implied volatility is 38%.
Last Wednesday I sold XOM Feb $67.50 strike puts. If not assigned, the annualized return is about 26% over 30 days. If assigned, my dividend yield would be 4.4%. Because XOM options are liquid and deep, it would be easy to write puts and covered calls way out of the money and generate 15% + annual dividend and premium income on the stock while it goes up a bit over the years.
Professional traders and momentum traders watch markets closely. If markets change directions in general or on a specific stock, traders realize that they are wrong and get out of losing positions.
A good place to find and check out spread, covered call and other ideas is Once you learn the system, which is pretty intuitive, you can setup your proposed trade and get a computer-generated analysis of the chances of making a profit.
What is difficult is to come up with a good spread sheet that allows you to analyze trades and how a trade is doing once you've done it.
Markets change every second they're open. Changing markets change minds. Successful traders (speculators, investors) and analysts quickly admit mistakes, change their opinions and take profits and losses as the markets dictate.
Not everyone wants to day trade or swing trade. Those who don't like to trade frequently should avoid volatile markets, stocks, commodities and currencies. They probably should be in mutual funds and ETFs.
After I sold KMI, I never thought about getting back in. While some are saying it is under valued now, I'm more interested in XOM, which has a good balance sheet and liquid options.
Last Wednesday I sold XOM Feb $70 strike puts because I think oil is nearing the bottom. And I think XOM's dividend is safe and would yield about 4.4% if the stock falls below $70 and is assigned to me. I only sell puts I want to own when I do a trade. But sometimes I change my mind and buy myself out of an assignment.
Meanwhile, the trade gave me an immediate 2.15% return, assuming the stock price doesn't change. Since Wednesday, the stock price is up and the put price is down. So I have about a $1 a share profit on the trade. We'll see what happens next week.
The annualize return on the 30-day trade, which I may close at any time, is 26.2%. Given the bounce in the stock, I would have made more per share if I had bought the stock, but percentage wise, I made more on the XOM put trade as of Friday's close.
Later, Valuentum lowered its FV estimate to $15 while M* FV was still at $27. As the outlook changes, FV estimates are revised by Valuentum, M*, other services and sell side brokers, as you know.
Good piece. How do you screen for these trades? How are such big trades executed? In dark pool exchanges. Through brokers' trading desks? While one trader initiates a trade, how do market makers bring together enough counter traders? And how do they do it without screwing up the trade via leaks?
At what point would the holder of the large position take his losses or profits? How would counter parties get out before expiration or the closing of the trade by the initiator of the position?
How would your readers put the trade on if they wanted to now that it is in place? Is that a smart thing to do?
I don't do many spreads because the probability of success usually isn't worth it. And if you get out of a spread before the options expire, your commissions are doubled, which brokers love.
Brian Nelson of gets credit in Barron's for his June 2015 sell recommendation on KMI. It saved me $27 a share on one of my biggest and most profitable positions. The article quotes Nelson's email to me and other clients of his advisory service today.
Nelson gives KMI a fair value estimate of $20 and says he thinks KMI's management is making some smart moves.
Read the whole thing: Is $KMI Kinder Morgan on Road to Recovery? via @barronsonline
Also a new position in PAYX. My worst trade. But I'll hold for the dividends and capital appreciation while I sell puts and covered calls on it. Bought my way out of puts on CAT, CVS, ANTM, some GE, M, SIG (very profitable, but thin options market).
So I have tiny new positions in WU, WFC; more shares in GE, ANTM, VIG, MON, QCOM.
Don't feel bad. I own four more stocks than I thought I would because I sold monthly and weekly puts on them. I only sell puts on stocks I want.
CAT was my big loser. I own it and sold puts at a strike 9.8% below the stock price. By the expiration, I changed my mind on buying more shares and took a loss that represented a 2% loss from the strike to the price where I bought it back. Next time, I won't make such a big bet.
A loss is a loss whether speculators take it right away or not. Denial doesn't work very well. We're all speculators. "Investor" is a euphemism.
Good piece. I'm 25% in equities and down less than 2% on investable funds since last month. No bonds. 75% cash. About 20 positions, including VIG and a couple of mutual funds. If I had been fully invested, I'd be down about 10%. Helped by writing way out of the market puts and covered calls plus dividends.
Nibbling on way down because I don't know when the corrections or bear markets in individual stocks will bottom out or how quickly. Paying close attention to charts and great technical blogs on
Hope to be more invested by year end, assuming this isn't the 1970s again.
Until oil and XOM have clearly bottomed, I'm not interested. Once I feel that the stock is on a recovery path, I might buy it for its capital appreciation potential, its dividend and the premium income that can be earned by selling puts (a bullish strategy) and selling calls, which limits you on the upside while generating income.
Put another way, if Amazon and Costco realize that they can take over the mattress business by making it easy for customers to test their mattresses in person and return mattresses that don't work out, they could take over the industry in a flash.
We're shopping for a new mattress system with adjustable bases after sleeping on one Sleep Comfort for close to 25 years and another close to 18 (2 houses).
My DW does not want another Select Comfort product because of the qualitiy problems and customer service problems we've experienced.
Yet, the current issue of Consumer Reports gives the Select Comfort products the highest ratings for people who sleep on their backs and sides.
So I'd kind of like a new Split King Select Comfort. But for upwards of $10,000? Further, message boards and comments sections are littered with complaints about both the company's quality and ERP (delivery) problems.
As a speculator, my extended research on mattresses has educated me on the industry. From what I'm reading, speculating on these companies will not be my top priority.
Just dealing with the dealers and looking at how the manufacturers seem to mislead customers makes me uncomfortable. I like to deal with companies that have good brands, reputations and products. I pay premium prices for their products and their stocks.
My conclusion is that smart buyers will go to Costco and buy high quality memory foam mattresses and bases for far less than the same quality of products cost elsewhere. What the consumer gets from Costco is a good product, a good and fair return policy and more transparency in its sells literature than you get anywhere else.
The problem with Costco is that it doesn't display its mattresses in many, if any of its stores. So you have to depend on its excellent online literature and its return policy.
But when you're buying mattresses, you always are rolling the dice and hoping for the best anyway. So doing a bit of blind online shopping at Costco, Amazon or elsewhere is no worse than going into a Macy's, Sears or mattress specialty store. Those stores all sell pretty much the same things, but they put different labels on them so comparison shopping is almost impossible. Defeating that strategy by buying an adjustable memory foam mattress from Costco or Amazon will be mighty satisfying.
Isn't CCC totally backward looking? It doesn't do what Valuentum's dividend cushion does. The dividend cushion grades a company's potential to raise, maintain or cut it's dividend based on its discounted cash flow going forward.
AAPL and MSFT have high dividend cushions. These companies are likely to up their dividends for years to come.
T has a weak dividend cushion, which indicates it's unlikely to increase its dividends and at this point should not.
There is no way to generalize about price earnings ratios other than they are very poor guides to valuation because companies manipulate them so much.