This is the 2019 four month performance update to the 50/50 portfolio; see section“4 months 2019 Performance”. This year we have seen another relentless price climb in the general market along with my high yield portfolio. I’m sure everyone reading this article has experience the same type of portfolio price gains. I’ll provide the usual brokerage performance report including my distributions and cash available for reinvestment. I’m now at a crossroad of total income reaching 80% of my working “Gross Employment Earnings” where I do not need to rush out and increase income as in the past. I can now wait and put more emphasis on undervalued stock pricing.
I’m including a sneak-preview into an update to POT5.6 (Portfolio Online Tracker); see section“Preview of new BUY signal alerts”. This new feature will evaluate undervalued holdings when a price quote is requested. This provides a real-time technical analysis of your portfolio within seconds. It was difficult to spend so much time researching 40 individual charts to determine which stocks were undervalued each day.
The common primary momentum signals I use are RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence). The RSI is used for oversold price and MACD is typically used for price jumping out of an oversold condition. The secondary signals are 1) price between the high and low range, 2) 50 day moving average, 3) 200 day moving average and 4) price Z-score. Any combination can be selected by the user.
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4 months 2019 Performance
From my original 10-Year Performance Tracking article, I have normalized the portfolio balance to $500,377 and a GEE (Gross Employment Earnings) value of $64,000 starting in 2018, see Chart-1. The normalized value is scaled to my real portfolio based on my brokerage performance report.
Note1: the YTD 2019 results listed in the following items include cash, distributions, along with stock holdings; all organic, no external funds added;
$463,364 = 2019 beginning balance
$534,728 = 4 month ending balance
$9,833 = distribution taken
$11,696 = cash dividends ready to reinvest
- 4 month total return 2019; ((534,728 + 9,833) - 463,364) / 463,364 = 17.5%
- 4 month total income 2019; (9,833 + 11,696) = 21,529
- YAM (Yield At Market) first quarter 9.8%
Chart-1; 10 year performance chart
This chart looks intimidating at first, but only has three tracking elements. I placed a lot of notes on the chart to indicate my pre-retirement working phase and my full retirement starting in 2018; vertical white line divides the chart.
This year is shaping up as I predicted in my 2018 full year report. If one year has a negative return the following year most likely will be positive. The 50/50 portfolio declined 2.9% in 2018 and so far this year the total return is over 17%. The high yield method of investing has demonstrated high income along with increasing portfolio balance.
Preview of new BUY signal alerts
This was the final beneficial feature of the POT development process. With a simple price quote update while the market is open I can be alerted in seconds of oversold stocks. It was impossible to spend hours trying to guess who was giving a good BUY signal when trying to look at many individual charts for RSI, MACD and moving averages. The BUY signals along with additional chart analysis can give an indication of a possible purchase. The missing link to my investment strategy has been found and I plan to implement this approach the rest of the year.
Chart-2; RSI and MACD buy signals
As shown in Chart-2, POT is indicating two momentum indicator triggers; 4 RSI (blue bar) and 1 MACD (orange bar), see yellow “BUY Alert!” notification box. The notification box will provide a running count of signals triggered for your entire portfolio.
I’m able to back-test my technical analysis signals from any date. I selected the last trading day of 2018 to give both an RSI and MACD signal. The typical POT software provides a daily quote using green-bars as positive and red-bars as negative price changes from the previous day. The basic price bar-chart provides a good comparable reference to all portfolio holdings on a daily basis.
By adding additional bar-chart colors I have increased the efficiency in evaluating each price quote along with common technical analysis parameters many investors follow. I have already performed the heavy lifting by implementing TA parameters explained in two articles 1) RSI, MACD and 2) price Z-score. For investors not familiar with TA this POT application provides a platform to use and eventually learn the basics.
Table-1; Technical Analysis Calculations
Notice the yellow notification for the VIX (Fear Index), and market correction notification. These are automated notifications that will pop up and tell the user of important market information and assist in price evaluations. This notification will also alert the user if we enter a bear market.
I have identified all 6 BUY triggers in the top rectangle box along with definitions. To the right of the definitions is the "Buy Flags" column and the star “*” symbol identifies triggered events relative to position 1 through 6.
The second rectangle is for the stock Fidus Investment Corporation (FDUS) where the RSI, price below the mid-point of the 52 week range, 50 and 200 day moving average and the Z-score have been triggered. Please see Chart-3 giving a visual verification of the TA parametric triggers shown in the table.
The third rectangle is for stock Ares Capital Corporation (ARCC) where the MACD is triggered giving a positive price change in direction. Here again price is well below the 50 and 200 day moving average. Please see Chart-4 giving a visual verification of the TA parameters.
Chart-3; FDUS, RSI trigger Yahoo chart
Source: Yahoo Financial
This is the FDUS chart showing the conventional TA parameters to evaluate price. I have identified the RSI below 30 along with the 50 dma (day moving average) and 200 dma levels as an undervalued event. These levels are followed by many investors and price will gravitate toward the moving averages providing resistance or support.
A powerful trend occurs when price blasts through both the 50 and 200 day moving averages. Notice on the chart how price went through the 200 dma and then did a retest providing support in just 3 days in February. Most investors watch and trade around both averages.
Chart-4; ARCC, MACD trigger Yahoo chart
Source: Yahoo Financial
This is the ARCC chart showing the signal blue-line crossing over the MACD red-line giving a possible positive price change in direction. The price of ARCC is well below both the 50 and 200 day moving average when the signal line crossed the MACD line.
Notice how the price got to the 50 dma and bounced off as resistance and finally punched through. Then price went to the 200 dma and more resistance was encountered and finally blasting through never looked back. Lately the price is riding the 50 dma blue-line and now popped up to $18 bucks. This is price sentiment working at its finest tricking investors along the way.
Chart-5; Triggers without RSI and MACD
I provide flexibility in allowing triggers to be selectively active or inactive. They can be individually masked by users to trigger on their favorite indicators. Chart-5 displays purple bars because both primary RSI and MACD triggers are turned off. The secondary triggers have been kept active; H/L, 50 dma, 200 dma and Z-score. Notice the purple alert box giving the count for oversold price based on each of the 4 secondary triggers.
Notice the green "TA-Report" button to the right of the chart. Once a stock quote refresh is pushed (Large green button) simply push the "TA-Report" button and a table with all stocks in your portfolio will be displayed as shown in Table-1 in this article.
The first 4 months of 2019 are unusual in the fact the market advance has been very strong and relentless. My brokerage performance report indicates a total return of 17.5% from January’s starting balance. At this point the 50/50 portfolio is currently generating more than enough cash flow for both a distribution along with surplus dividends to reinvest.
Along with this boring market I had time to develop additional software to provide oversold alerts before the next market correction. When we typically monitor daily price changes we can’t tell if the stock is undervalued or overvalued. We need to look at charts for some kind of guidance to determine market sentiment. This is where the portfolio online tracker comes into play. I already demonstrated applications using multiple technical analysis parameters in previous articles; RSI, MACD and moving averages. They give alerts to undervalued signals, but cumbersome in providing instant analysis.
I have now incorporated the oversold signals right into the daily price quote software using bar-chart colors. This reduces the time required to evaluate a portfolio filled with stocks to find possible purchase candidates. Speed and simplicity improves the investor’s ability to take action once a candidate is identified and confirmed using additional charts such as Yahoo Financial Services. Such a verification process has been demonstrated in this article for both RSI and MACD momentum indicators.
The POT software can be downloaded for free and personally used for your own dividend stocks. It operates using Microsoft Excel 2010 and up. The POT software is a work-in-progress that took many years to develop. I use the software every day to evaluate my own investments. At this time I still need to complete AN-8 (Application Note) documentation describing the function and operation of the real-time technical analysis oversold software. But in the meantime you can play around with your own investments. If you can get Yahoo historic price quotes then POT should work. As for the market; enjoy the calm before the storm and be prepared, Joe HYI ;-)
Disclaimer: I am not a financial adviser, but an independent investor. Please note the stocks included in the 50/50 portfolio are not recommendations. They were personally selected by the author and contain a great deal of investment risk. The stocks in the portfolio are BDCs and mREITs. Both investment vehicles are " Regulated Investment Companies" and required to distribute at least 90 percent of their earnings as dividends to investors.
This is a live active IRA portfolio that I believe will withstand the markets' bull or bear cycles based on my own research. The progress will be updated and tracked for feasibility of this investment method over the years. The article titled 50/50 Portfolio (BDCs And mREITs) Baseline 2014 details how the portfolio was constructed. It must be noted that investment selections are dynamic and based on management's ability to navigate economic conditions. I have made changes during the years as any portfolio manager is expected to perform.
Disclosure: I am/we are long ALL STOCKS IN THIS ARTICLE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.