Since I got my first job at age 12, 70 years ago, I have been banking with the Toronto Dominion Bank.

The big six Canadian banks in  order of size are the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian, Imperial Bank of Commerce and the National Bank of Canada. Each is over 100 years old. All are equally reliable and trustworthy.

None has ever failed.

The banking business can be very lucrative, and so, understandably, it is very competitive.  Some offer free lunch.

You will (almost) never hear a Wall Street firm state that the market is overvalued. Wall Street makes more money promoting a positive outlook even if it is incorrect.

Over the last three years, US market returns averaged over 25% annually, not adjusted for inflation. (26.89% in 2021, 18.40% in 2020, 31.49% in 2019)

Over the last two hundred  years, US market returns averaged about 10% annually, not adjusted for inflation.

Are we in bubble territory?

Don’t look to a Wall Street firm for the answer. See what renowned investors have to say on the subject.

Warren Buffett states that the market is significantly overvalued. Jeremy Grantham recently doubled his cash holdings. According to him, we are in a hyper bubble.

The market can stay irrational for a long time in both directions. It could keep rising, it’s overvaluation notwithstanding. Grantham is involved in market timing which is generally not a good idea. However, he is a renowned money manager and for good reasons.

So, what should we do?

I had a one-hour one-on-one Zoom meeting with a new member recently. He was paying his financial advisor $20,000 annually. Of course, as members of the Monday Morning Program know, after fees, his financial advisor, like the majority of them, could not equal the performance of the market. Simply buying an exchange-traded fund that tracks the S&P 500, that is, index investing, equals market performance.

Our new member is saying goodbye to his financial advisor, becoming a do-it-yourself investor and saving that $20,000 annually for the rest of his life.

Many of our members, partly Canadian, partly American, are dentists, veterinarians and optometrists. The chart at the top of this post is foreign territory to them. Financial advisors live with it.

Anyone who is able to complete the training which our members have had can easily equal market performance by index investing. They could teach high school students how to do it.

I know several financial advisors. All are decent human beings providing a service for clients who are not interested in being do-it-yourself investors.

For do-it-yourself investors who buy into the American economy as represented by the S&P 500, saving on advisory services might well be the easiest money they ever made.

With the habits of the Monday morning program, luck hardly matters.

Good luck!

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

In  2021 our fearless, intrepid investor lost $65,700 writing (selling) covered calls on Novavax (NVAX). She did in her “fun” portfolio, so while the dollar amount is significant, it is not a significant percentage of her stock market holdings overall.

The risk in writing (selling) derivatives (puts and calls) is entirely connected to the underlying security. Volatility is the standard measure of risk. NVAX is volatile hence it is risky. However, the greater the volatility of the underlying, the greater the potential return.

That is how markets work. The risk/reward thing.

According to Morningstar, NVAX is undervalued at a 51% discount, up by 1% undervaluation of last week. It continues to move in the right direction. Last week, it went from $83 to $89.33, that is, $6.33 per share. Since she owns 1000 shares, she made $6,330 on NVAX last week.

What does she plan to do about writing covered calls on NVAX when the market opens at 9:30AM today?

Time is an irreplaceable resource. Our sincere gratitude to all members who took the time to respond to our Friday, January 28 survey about mandatory COVID vaccination.

Pope Francis stated that getting vaccinated is an “act of love.” Another way of saying it, this time more bluntly: It’s not just about you.

You can see our results below.

You can you see comments below.

You might recall that in  2021 our fearless, intrepid investor lost $65,700 writing (selling) covered calls on Novavax (NVAX). She did in her “fun” portfolio, so while the dollar amount is significant it is not a significant percentage of her stock market holdings overall.

According to Morningstar, NVAX remains undervalued at a 50% discount. During the week, it went from $70 to $83 a share. Since she owns 1000 shares, she made $13,000 on NVAX last week. (For an overview of NVAX, visit last Tuesday’s post.)  Where we are is not nearly as important as the direction in which we are moving. NVAX is moving in the right direction!

She expects the price to keep rising. For her not to be assigned, she plans to continue holding the stock and waiting for it to rise in price before she starts writing covered calls on it again. This is an example of market timing which is not a good idea. Done in a “fun” portfolio, it’s acceptable.

One of the few ways to outperform the market is to ignore one or more of the six habits. However, that approach works only occasionally. We recommend it for “fun” portfolios only. Most of the time, they are not much fun.

Next Monday, February 7, we will report how her tactic worked out and her plans for that week.

Remember what you see below.

Resulting from its involvement in derivatives, in 1994, California’s Orange County declared bankruptcy.

Resulting from its involvement in derivatives, in 1998, Long Term Capital Management needed a $3.6 billion bailout from 14 financial institutions to prevent market panic and collapse of the entire financial system.

Gambling with derivatives, many individual investors keep losing 100% of their money.

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

From 1983 to 2013, the S&P500, an excellent proxy for the US stock market, grew by 1,102%. During those years, the average mutual fund investor earned 239%!*

Any extended period would show similar results, give or take a few percentage points.

I recently had a zoom meeting with one of our new members. He stated that his advisor-managed portfolio had earned an average of 10% annually for the last three years. He was happy with that.

Below, you can see the S&P 500 returns for those same three years:

• 26.89% in 2021
• 18.40% in 2020
• 31.49% in 2019

When I showed him that, he was no longer quite as happy.

The management fees which investors are aware of certainly don’t account for those large differences. The hidden fees do. Here is a short list of fees, mostly hidden.

John Giffin, one of our members, has made money writing covered calls on BAC.

We have several points to make regarding his experience.

A stock market correction is defined as a decline of over 10% or more.

We are approximately there now. SPY, an exchange-traded fund that tracks the S&P 500, is down from its recent highs by about that much.

Historically, 5 percent drops have occurred more than twice a year; 10 percent, twice within three years; 20 percent, about once every three-and-a-half years; and 30 percent, once every five years.

Monday Morning Program members might start getting ready to rebalance their asset allocation and buy one of the increasingly cheaper proxies of the American economy.  Excellent examples of such proxies are exchange-traded funds (ETFs) that track the US economy.

There are more ETFs today than individual stocks, but only about six or so represent the US economy reasonably well. Among these, SPY is the largest and the most actively traded one. It is our best choice. For interested members, it is possible to sell covered calls effectively on SPY shares.

We don’t need to look for a specific percentage decline. It does not matter if we rebalance at a 10% drop for 8% or 7%. Rebalancing is the key here.

We need to remember that market declines take place regularly. The main reason that investing in the market offers such good results, in the long run, is that we have to face losses in the short run. The risk/reward thing.

The money we need in the next 3 to 5 years does not belong in the market.Three to five? The choice depends on the investor’s risk tolerance capacity.

With the habits of the Monday morning program, luck hardly matters.

Good luck!

_____________________________________________________

We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

We usually follow the options selling activities of our fearless, intrepid investor on Mondays. Due to a TD Bank computer glitch, she did not have the information when we wanted to write this post. That’s why you were seeing it on a Tuesday.

The Monday Morning Program recommends only selling options and never buying them. Further, members should do that only in their “fun” portfolio which should be a small percentage of their overall stock market exposure.

Now, back to our fearless, intrepid investor. In  2021 she took a real beating writing (selling) covered calls on NVAX. She lost $65,700. As we said, the risk in selling derivatives entirely comes from the underlying security involved. Because of that,  most experienced investors sell derivatives using a safe underlying security  such as an exchange-traded fund that tracks the S&P 500.

The one thing our fearless, intrepid investor did correctly is to do her covered call selling in her “fun” portfolio. Like most departures from the six habits, it has not been a lot of fun, but it makes up a small percentage of her overall assets.

What did she do when the market opened at 9:30 AM yesterday?

Continue reading “Tues. Jan. 25, 2022. How our fearless, intrepid investor made out last week and her plans for yesterday”