Biloxi Gulf Port Breakfast Sound Investors Forum January

Biloxi (Gulf Port) Breakfast (Sound Investors Forum) January 2012 Ron Spruell (Or Mr. Spreadsheet to you) Posted at: http: //bribg. pbworks. com/w/file/50022404/ Biloxi_Breakfast_2012. ppt Cajun Clickers Computer Club 1/2012; RKS 1

Topics • Diversification • Quality Stocks • Covered Calls • Brainwashing 1/2012; RKS 2

Why diversify • Avoid Investment Loss • Di-worse-ification • ? ? ? 1/2012; RKS 3

Types of Diversification • Time Diversification • Asset – Asset Allocation - Equity - Fixed Income - Geographical 1/2012; RKS 4

Time Diversification 1/2012; RKS 5

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Asset Diversification 1/2012; RKS 7

Mutual Funds Mutual Fund Research Newsletter http: //funds-newsletter. com Tom Madell, Ph. D, Publisher 1/2012; RKS 8

Mutual Funds 12/1/2010 Long-Term Fund Choices for the Next Five Years • Stock Funds (9) • • Vanguard 500 Index Fund (VFINX). Yacktman Fund (YACKX). Vanguard Windsor II (VWNFX) Fidelity Contrafund (FCNTX). 1/2012; RKS 9

Mutual Funds 12/1/2010 Long-Term Fund Choices for the Next Five Years • Stock Funds (9) • • • Fidelity Low Price Stock (FLPSX) Vanguard Small Cap Growth Index (VISGX) Vanguard REIT Index (VGSIX) Vanguard International Growth (VWIGX) Tweedy, Browne Global Value Fund (TBGVX) 1/2012; RKS 10

Mutual Funds 12/1/2010 Long-Term Fund Choices for the Next Five Years • Bond Funds (3) • PIMCO Total Return Instl (PTTRX) • PIMCO Real Return Instl (PRRIX) • Vanguard Total Bond Market Index Fund (VBMFX) 1/2012; RKS 11

Mutual Funds Moderate Risk Investors Asset Stocks 62. 5% Bonds 32. 5% Cash 1/2012; RKS 1/1/2012 5% 12

Mutual Funds Aggressive Risk Investors Asset Stocks 80% Bonds 10% Cash 1/2012; RKS 1/1/2011 10% 13

Mutual Funds Conservative Risk Investors Asset Stocks 35% Bonds 50% Cash 1/2012; RKS 1/1/2011 15% 14

Stock Fund Model Portfolio 1/1/2011 Our Fund Recommendations Fidelity Low Priced Stock (FLPSX) Nicholas Equity Income Fund I (NSEIX) Fund Category Mid-Cap/Small. Cap Tweedy Brown Global Value (TBGVX) Vanguard Internat. Growth (VWIGX) (See Note 1) International Vanguard 500 Index (VFINX) Yacktman (YACKX) Large Blend 1/2012; RKS Recommended Weighting 20% 17. 5% 15

Stock Fund Model Portfolio 1/1/2011 (continued) Vanguard Growth Index (VIGRX) Fidelity Contra (FCNTX) Large Growth Vanguard Windsor II (VWNFX) Large Value Vanguard REIT Index (VGSIX) (See Note 2) Amer. Cnt. Real Est. (REACX) Real Estate (REITs) 10% Vanguard Equity Inc (VEIPX) Equity Income 5% 1/2012; RKS 15% 12. 5% 16

Bond Fund Model Portfolio 1/1/2011 Our Fund Recommendations Fund Category PIMCO Total Return Instit (PTTRX) or Harbor Bond Fund (HABDX) Vang. Total Bond Mkt. (VBMFX) Intermediate Term PIMCO Real Return (PRRIX) or Harbor Real Return (HARRX) Inflation Vang. GNMA (VFIIX) Intermed. Govt. Vang. Interim. Treas. (VFITX) 1/2012; RKS Recommended Weighting 32. 5% 12. 5% 17

Bond Fund Model Portfolio 1/1/2011 (Continued) Vang. (state specific - see Note) Vang. Intermed. Term Tax-Ex. (VWITX) Intermed. Term Muni. 15% Vang. Long-Term Inv. Gr. (VWESX) Long-Term Corporate 10% Vang High Yield Index (VWEHX) High Yield PIMCO Foreign Bond (USD-Hedged) Adm (PFRAX) T Rowe Price Intl. Bond (RPIBX) International 1/2012; RKS 10% 5% 18

Mutual Funds Mutual Fund Research Newsletter http: //funds-newsletter. com Tom Madell, Ph. D, Publisher 1/2012; RKS 19

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Quality Stocks 1/2012; RKS 22

Quality Stocks • Quality, like beauty, is in the eye of the beholder! - Solid Financial Statements - Sales and Earnings Growth - Pays a dividend that increases year after year - A by Product – (we hope) is Mean regression (Signature Price) 1/2012; RKS 23

Sources of Quality Stocks • Value. Line – Safety Rating of 1 and 2 (400) - 1 (100) - 2 (300) • S&P – Quality Rating of B+ or better (~680) - A+ ~43 - A ~111 - A- ~159 - B+ ~371 1/2012; RKS 24

Sources of Quality Stocks • Morningstar. com ($$) • Dividend. com ($$) • Brainwashing ($$) http: //www. valuestockbuylistprogram. com/ 1/2012; RKS 25

Sources of Quality Stocks Dripinvesting. org - - - Paying increasing dividends 5 years or more (448) - Dividend Champions; 25 years (102) - Dividend Contenders; 10 to 25 years (146) - Dividend Challengers; 5 years (200) Free, Updated Monthly 1/2012; RKS 26

Quality Stocks – My Lists • dripinvesting. org - Dividend 3. 0% minimum (~198) • dividend. com - DAR rating 3. 4 minimum (~215) - Dividend 2. 5% minimum • Your list? ? ? 10 to 110 stocks (recommended) 1/2012; RKS 27

Options Mike - from Yahoo Group justcoveredcalls - Dividend Champions, Dividend Contenders, and Dividend Challengers; 9 years (295) - Plus Morning Star Premium Cash Flow Stock Screen (~136) (See note) - Take only stocks that Meet the 2 Screens (82) Free, Updated Monthly 1/2012; RKS 28

Covered Calls Covered Call Writing Demystified Paul D. Kadavy 2009 1/2012; RKS 29

Covered Calls • Complicated, hard to understand – because it is different. • Language is different, e. g. - Write means Sell to Open (a contract) - Close means Buy to Close (a contract) • And Not Covered here. . . (high risk) - Buy to Open - Sell to Close 1/2012; RKS 30

Covered Calls • Buy/Write means to buy the Shares of Stock and Sell to Open the Call Contract(s). • Strike Price is the Stock Price at which the Option can be Exercised. The Seller (us) will receive the Strike Price for the Stock (maximum). • 1 Option Contract = 100 Shares 1/2012; RKS 31

Covered Calls • Expiry is the Expiration date of the Option – Normally the 3 rd Friday of the month. • The Buyer has the Option, but not the obligation, to buy the Shares. • The Seller has the obligation, but not the right to sell the Shares. 1/2012; RKS 32

Covered Calls QUALITY STOCK!!! When to buy? ? ? My rules are very subjective! Technical Indicators: • RSI (low, less than 30 if possible) • Bollinger Bands (just leaving the lower Bollinger Band • Price less than 25% of 52 -wk Hi_Lo Spread • Question to ask. What is the 5 -yr Hi and Lo? 1/2012; RKS 33

Sold Put 1/2012; RKS 34

Buy Stock Sell Call 1/2012; RKS 35

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Covered Calls • Advantage of Long Term Options (LEAPS) {Long-Term Equity Anticipation Securities} 1) Reasonable return, 8% to 12% 2) Greater down side protection Harshad’s Spreadsheet Example Calculation. xls 1/2012; RKS 37

Pause for Harshad’s Example Calculation. xls 1/2012; RKS 38

Harshad’s Example 1 1/2012; RKS 39

Harshad’s Example 2 1/2012; RKS 40

Harshad’s Example 3 1/2012; RKS 41

Harshad’s Example 4 1/2012; RKS 42

Brainwashing The Brainwashing of the American Investor: The Book That Wall Street Does Not Want You To Read! Steven R. Selengut Revised Edition 2007 1/2012; RKS 43

Brainwashing - Basics The Big Three: • Quality • Diversification • Income Generation S&P earnings and dividend ratings of B+ through A+ identify investment-grade equities, or stocks that they consider to be lower risk, higher quality companies. 1/2012; RKS 44

Brainwashing - Basics Only two classes of investment securities: income and equity. Portfolio should consciously be allocated between that of a class of securities whose primary role is income production and the other class , whose primary purpose is to generate growth in capital. 1/2012; RKS 45

Brainwashing - Basics The primary purpose of fixed income securities is the production of a safe and consistent flow of income. Corporate and municipal bonds, government securities, preferred shares, debenture-like preferreds, unit trusts, royalty trusts, and income Closed End Funds (CEF) are among the securities that fit within this category. 1/2012; RKS 46

Brainwashing – General • No more than 5% in any one individual security, either fixed income or equity. • No more that 15% in any one industry. • No rules about Sectors that I could find. (I would use 20%. ) 1/2012; RKS 47

Brainwashing – General • Diversify by Country. (There were no rules that I could find. ) • Diversify time wise. Limit number of buys per day to 5. * (Comment on this. ) 1/2012; RKS 48

Brainwashing – General • As the number of stocks meeting the basic buy parameters rises above 15% of the selection universe (Quality Stocks), ratchet the parameter up 1% at a time until the list of opportunities fall back within the acceptable range of 20 issues. Rank by quality. 1/2012; RKS 49

Brainwashing – 7 Rules • Any stock that is 20% or more below its 52 week high is considered a candidate for new buying. • Any stock that is down more than 20%, or 10 or more points, from you original costbasis per share is considered a candidate for additional buying. Check fundamentals first before buying! 1/2012; RKS 50

Brainwashing – 7 Rules • The stock should pay a dividend. This is a symbol of the fundamental strength of the company. • Higher and Lower: Low is a price that is at least 20% below the 52 -week high. Higher is a selling price that will return a 10% net/net profit, where net/net means commissions and taxes associated with the trade. 1/2012; RKS 51

Brainwashing – 7 Rules • But absolutely never buy at a price that is less than 20% below the benchmark figure (52 -week high). • Only buy stocks that are down in price by at least 20% from their highest level over the past 12 months. 1/2012; RKS 52

Brainwashing – 7 Rules Eliminate from the qualifying buy candidates any stock that: • Went up a point or more yesterday. • Is up a point or more from last month's closing price. • Is up two or more points from the previous month's close. • Is up three or more point from the close three months ago. 1/2012; RKS 53

Brainwashing – 7 Rules The price must be below yesterdays closing price by: • $0. 35 or more if the stock is trading below $20 per share. • $0. 50 or more for stocks between $20 and $49 per share. • $0. 75 or more for stocks ranging from $50 through $70 • $1. 00 or more for stocks above $70 per share. 1/2012; RKS 54

Brainwashing – 7 Rules Don’t even think about buying a stock that is selling for $90 or more! Don’t buy Odd-Lots. 1/2012; RKS 55

Buy Down 32% from Hi 1/2012; RKS 56

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Approx. 40 Trades per year 1/2012; RKS 58

Yahoo! Groups • Smf_addin – Randy Harmelink • Justcoveredcalls – Mike Artobello • Tt. P-S – Pete A 1/2012; RKS 59

Biloxi (Gulf Port) Breakfast (Sound Investors Forum) January 2012 Ron Spruell (Or Mr. Spreadsheet to you) Posted at: http: //bribg. pbworks. com/w/file/50022404/ Biloxi_Breakfast_2012. ppt Cajun Clickers Computer Club 1/2012; RKS 60

1/2012; RKS 61