Richard Berger joins the Marketplace Roundtable Podcast to discuss his approach to investing for income.
Berger's strategy uses a series of screens to pick stocks and then adds options trading to juice income.
Consumer staples is one favorite sector right now and there are special situations that have been profitable.
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Berger's goal is to produce "a nice, healthy high yield with as low a risk as possible." To do that he first identifies high-quality companies to invest in, such as dividend aristocrats. In the next step he appraises fair value through a variety of tools. Then it's a simple matter of looking at the current market price to determine whether it presents an opportunity to invest. Options strategies provide further boosts to income.
The biggest lesson Berger has learned in his investing career is "it is absolutely impossible for anybody to predict the future." The key is to make sure one is paid for taking on risk and can monitor the holdings on an ongoing basis. "Avoid trying to seek out home runs," he says. "They're few and far between and for every home run you do hit, you'll have far too many failures."
For the immediate future, Berger expects interest rates to remain low, which should help risk assets. Investors should take advantage of this to allocate to securities that offer income and the possibility of capital gains.
One sector that will not be helped by low interest rates is oil, an area Berger knows well from his years as a geologist for petroleum exploration. There may be a spike in oil prices in the short term, but alternative energy sources have become economic and continue to fall. There are other secular concerns as well, which add up to a poor outlook for long term oil prices.
Instead, Berger likes consumer staples such as General Mills (GIS), Clorox (CLX), Procter & Gamble (PG). Some industrials companies should also do well and an options strategy can hedge out a lot of the risk. The options strategy has come in particular use where the merger between Sprint (S) and T-Mobile US (TMUS) merger is concerned. Berger explains this on the podcast.
- 2:30 - Investing strategy
- 5:15 - What type of screening do you do?
- 7:45 - Something you've learned from investing
- 9:15 - What is something you learned over the past year?
- 12:30 - Prediction for coming months
- 16:00 - How did you get into investing given your background?
- 22:15 - Can lower interest rates help oil prices?
- 26:00 - What sectors do you like right now?
- 29:30 - Cash secured put strategy
Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Richard Berger has long exposure to Sprint (S), Clorox (CLX), and Procter & Gamble (PG).
Nathaniel Baker has no positions in any of the securities mentioned on this podcast.
Nothing on this podcast should be taken as investment advice.