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It Was The Best Of Times, It Was The Worst Of Times

|Includes: CVS Health Corporation (CVS), GIS, HRL, OXY, VFC

Summary

There is enough optimism and enough pessimism about the US economy to fill up a pretty well dividend football stadium with an equal number of fans on both sides.

The media for the most part tends to like to spin a world of gloom and doom and paying a lot of attention to their spin can be costly.

Sometimes you have to rely on what you see in front of you and start asking questions.

Is it the end or is it the beginning?

Introduction:

In his book, "A Tale of Two Cities," Charles Dickens penned what has become, probably, the most famous opening lines in English Literature.

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – 

In that opening paragraph, Dickens exposes contrasts that appear to be contradictions. How can it be "the best of times" and "be the worst of times" at the "same time?"

How can it be the "season of light" and the "season of darkness" at the same time?

And then he sums it up with this line:

In short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only."

The period that Dickens was writing about was the French Revolution (1789-1799), but in that last line, he tells use that "the period was so far like the present period" (which is 1859, when he wrote the book).

The lessons that we learn from great literature, the enduring classics, is that what was applicable in the past is just as applicable to the present. While Dickens was writing in 1859, his words are just as appropriate and as good a summation of life, in the United States of 2018.

Bringing It Home:

In my opinion, the biggest detriment to stock market success (and perhaps success in any endeavor) is when we allow ourselves to get distracted and begin to believe whatever narrative measures up to our own ideologies.

When you watch the news or listen to political rants and raves on sites like Seeking Alpha, you can rest assured that the only conclusion you can come to is that we are living in the "best of times" and "the worst of times" from the political expressions of people on either side of the chasm.

But, "perspective" can change our views, if we will allow ourselves to look at things from those different perspective constructs.

The media, is what it is.  What you see on television or read online, comes from a certain perspective, that is designed to sell you on a given idea or ideology.  Allowing that to happen can really screw up your brain, as in the case of one special Seeking Alpha author who will go unnamed, here.

Is it the worst of times?  Well, it can be, if that's what you allow yourself to believe and rule out the things contrary to your own point of view.

Is it the best of times?  Well, it can be if that's what you allow yourself to believe and rule out the things that are contrary to your own point of view.

But, if you approach this whole mess in an open minded way, you will likely discover that the "truth" is somewhere in the middle, between both of those extremes.

What Do We Know?

We know that the stock market, since the recession of 2007-2009 has been inching ever upward and those who have been investing since those dark days, have profited nicely and created more wealth for themselves than most of us ever imagined.  (Speaking for myself, here).

Let's look at a stock market indicator, the S&P 500 Index, for example:

The stock market, as measured by the SPDR S&P 500 ETF has moved from a low (during the recession) and has moved onward and upward since that time, with some blips along the way.   

It is easy to ignore or perhaps, miss those "blips" in the chart, because the chart covers such a large period of time.  But look closely and you will see along the way that there were times when one might have been thinking "these are the best of times" while someone else could just as easily be thinking "these are the worst of times."

Overall there is a trend is that presents itself as being of "the best of times" as a trend that is markedly moving upward.  Will it continue?  Well, that depends on if these are the best of times or the worst of times, or something in between.

The best place to find that place, is from observation and not from what you are being spoon fed by the media.

What Do I See?

I guess I might be more optimistic about things than a lot of people.  I know that when I start to focus on my stock portfolio's value, I tend to get a little freaked out by the day to day changes in total value.

The last couple of days have been "the worst of times" in a way, with the stock market being down and the media spinning the reasons why it's down.  Add to that the size of my combined portfolios (IRA, Roth, Taxable) and a .65% decline in the market is a pretty big bite, relative to dollar changes in the total value of the combined portfolios.

But, leaving that for a moment, let's consider other things that I'm seeing.  There have been more homes listed for sale in my neighborhood than any time that I remember  Funny thing is that the houses are turning over in little or no time at all.  How come?

I have friends at Church who are announcing that they are moving here or there to take a new job in their field of work that could be their "dream job."  My nephew, for example has decided to leave his job in Utah to take one overseas and his new job is in his line of work (cyber security) and offers up a significant increase in salary and benefits as compared to his current job.

The other day, a former competitor, who now heads up a Region for a Fortune 500 Company, called me to offer me a job running one of his company's Divisions.  I told him, "Gary, I'm 70 years old and I don't want to get back into that rat race."  

I could go on, but I think you get what I'm laying down.

What's It Mean??

There is enough evidence to suggest that the economy is moving along quite nicely.  The spectrum of increasing interest rates would indicate that the Fed sees what I see and is going to increase interest rates, gradually, so that inflation is kept at bay.

That presents an opportunity for some investors through the use of fixed income investments as part of their overall portfolio mix.   One year CD rates can be found at 2.5% or better and when contrasted against longer term CDs it doesn't make a lot of sense to go out longer than 12 months for any larger yield with 24 month CD's showing 2.6%.

But until interest rates really begin ratcheting up beyond current rate availabilities, I believe that the stock market remains a good place to have the largest portion of your investing dollars.

There are some important factors that you should consider, at least from a Dividend Growth perspective:

First, look for companies that are priced at a value.

How YOU determine value is up to you.  My own valuation metrics, as I've explained them are relatively simple in nature.  But there are a lot of people on SA who have written extensively about valuation and how to find stocks priced at a value.

If a company is not priced at a value?  My suggestion is to pass on it until it is priced at a value.  In the last 12 months, these companies seem to have shown that they were priced at a value point and have performed very well:

Second, focus on stocks that have a history of increasing dividends every year and that have a history of 5 years or more.

The best resource for these kind of stocks can be found at this sitewhere you can find Dividend Champions (25 + years of increasing dividends annually), Dividend Contenders (10 + years of increasing dividends annually) and Dividend Challengers (5 + years of increasing dividends annually).

Third reinvest dividends back into the stocks that paid them, on a regular basis, through your brokerage accounts.

Let's face it.  This is not a universal practice among DGI.  Some do not reinvest dividends and some do.  I do religiously in my tax deferred accounts, but in my taxable account, I draw those dividends to supplement my Social Security.

There are arguments both ways, but the choice is yours.  My own recommendation would be to reinvest the dividends.  But again, it's up to you with your own account.

Fourth, invest for the long haul.

I purchased 11 companies in 2016 and those stocks began to increase in price almost immediately from our purchase dates.  That was not skill, but just the way things worked out.  Perhaps, luck.  I don't know.

In 2017 we purchased 5 new companies and three of those had capital appreciation, right from the start and the other two did not.  While VF Corp (VFC), Occidental Petroleum (OXY) and Hormel (HRL) did appreciate quickly, CVS Corp (CVS) and General Mills (GIS) did not.

The price appreciation is great, don't get me wrong on that, but when you are investing long term, the price appreciation is of less import than the value of the company.  

Our initial purchase of CVS was for 50 shares at $80 a share.  Whoops.  Our initial purchase of GIS was for 75 shares at $55.50 a share.  Whoops, again.

But, we made additional purchases of CVS and GIS in May of this year to add to our holdings in those two companies.

Summary and Conclusion:

I believe that the economy is on the right track, in the US and that US stocks are the place to be invested.  While there are not a lot of obvious bargains out there, I believe that selling positions is at best premature and that there is more upside over the next 6-12 months than conventional wisdom is suggesting.

What do you think?

Disclosure: I am/we are long WMT INTC CSCO OXY GIS VFC CVS EMR ADM EMR MPC JPM.