Six Ways to Make Money in a Bear Market

by Fred Fuld III

There are many ways to make money from a bearish stock market, some speculative, and some not very risky. And this is a good thing, because smaller investors need a way to protect themselves, and even make money on the downside. This has been a strong stock market for the last ten years, and many investors think that we may be at or near the top. So here are several options to choose from.

1. Shorting Stocks

OK, let’s get this one over with first because it is one of the most speculative ways of making money in a bear market. In simple terms, you make money when the stock goes down and you lose money when the stock goes up. What technically happens is that you borrow the shares and immediately sell them (this all is done electronically through your brokerage firm) and since you owe those shares, you eventually have to buy them back at some price, hopefully a lower price. The difference between your sale price and eventual purchase price is your profit (or loss, if you buy back at a higher price).

Can you make a lot of money shorting stocks in a bear market? Yes. Is it speculative? Very. Can you lose a lot? Most definitely. This is why it is so risky. When you short a stock, the lowest point it can drop to is zero. Whereas, if the stock goes up, the amount it can rise is unlimited. Let’s say you short 100 shares of a stock at $20 a share. If you put up funds equal to 100% of the value of the shorted amount, and the stock drops to zero, you’ve made a 100% return. However, suppose the stock goes from 20 to 100, you end up losing 400% of your money with lots of margin calls along the way.

Have I shorted stocks? Yes. Have I made money from shorting? Yes, especially during the 2008 stock market crash. Have I lost a big chunk of my profits by closing out my short positions and going long, trying to predict the bottom? In the interest of full disclosure, yes. I made the second worse decision I could have made when shorting, and that is predicting the bottom of the market too soon. The worst decision would have been to hold on to my short positions after the market bottoms and starts to make a quick rise. Often when the market bottoms at the end of a bear market, the rise is very sharp and fast, and can totally wipe out short position profits very quickly and then some.

But even on a short term basis, an investor can lose money very fast. A friend of mine, who is a trader, told me that he does a lot of shorting but always hedges his shorts by buying calls to protect himself in case the stock moves up. When I told him that I never hedge my individual stock shorts, he said “You’re kidding! I never give advice to anyone, but I’m going to give you some advice. Never short a stock without hedging. You might be watching the market, then get up and go to the bathroom, come back a half hour later and discover that you’ve been wiped out!”

Even though my bathroom breaks are not that long, he does have a good point. A few months ago, shortly after I shorted a high stock price real estate investment trust (around $100 a share), the position went against me by $13 a share. That’s a $1,300 loss for every hundred shares in one day! I still had the short position after the market closed, and had the pleasure of trying to sleep at night, wondering if there was going to be a takeover the next morning or some other good news that would drive the price even higher, making my losses worse. (As a follow-up, I did make a huge profit. The stock ended up dropping from $113 to the mid-forties after a couple weeks, but that’s another story.)

So in summery, do I think you should short stocks? Absolutely not, unless you are a professional trader. The risk is unbelievable. If you understand options real well, hedged short selling might be OK, as long as you are an advanced trader, and know what you’re doing.

2. Short (Bearish) ETFs

A new financial animal appeared on the scene several years ago which has become very popular, a type of Exchange Traded Fund called the Bearish ETF or Short ETF. What these ETFs do is provide a return opposite to the return of the index, industry, or sector that it is tracking.

For example, the Short Dow30 ProShares (DOG) provides a return that is the inverse of the Dow Jones Industrial Average. If the Dow goes down 2%, the DOG goes up 2%. The Short QQQ ProShares (PSQ) ETF gives a return that is the inverse of the NASDAQ 100 Index. If you are bearish on gold, you can buy the PowerShares DB Gold Short ETN (DGZ) ETF.

The nice thing about these short ETFs is that your losses are limited. Also, if you are long individual stocks that you don’t want to sell, these can be good for protecting your portfolio on the downside.

3. Leveraged Bearish ETFs

If you like volatility, you will love the leveraged bearish ETFs. What these ETFs do is provide double, and in some cases triple the inverse return of indices.Some examples include the UltraShort Telecommunications ProShares UltraShort Consumer Services ProShares (SCC) and the ProShares UltraShort S&P S&P 500 (SDS).

In addition there are several triple leveraged bearish ETFs. Daily Real Estate Bear 3X Shares (DRV), Daily Energy Bear 3X Shares (ERY), and UltraPro Short Russell 2000 (SRTY) are just a few of the many 3X bearish ETFs.

Talk about price moves! The volatility of these things is unbelievable, and so are the wide bid and asked spreads that I’ve seen occasionally.

The advantage of these trading vehicles is that they are a way of shorting on margin, with a limit on the downside. The disadvantage is that the losses are quick and large, especially with the triple leverage short ETFs.

4. Bear Funds

It may be hard to believe, but there are actually a large number of bearish mutual funds for the long term bearish investors. These include the Grizzly Short Fund (GRZZX), the PIMCO StocksPlus TR Short Strategy Institutional Fund (PSTIX), and the ProFunds Bear Investors Fund (BRPIX). These funds have minimum investments ranging from $1,000 to $5,000,000.

5. Puts

First, a little about option pricing.  Puts and calls are priced on a per share basis, so a put at $1 would cost $100 for 100 shares, or a call at $3.50 would cost $350.

A put is the option to put your stock to someone at a particular price within a certain period of time. In other words, if you own a stock that is trading at 22 and you buy a put at a dollar which gives you the right to put your stock to someone at $20 per share within three months, there are a couple of things that could happen. The stock could tank to $14 a share and you could put your stock at 20, or just resell the put for 6 and collecting the profit. You would be far better off than just doing nothing. And if the stock goes up or stays about the same, you are just out your $100 for the option. Puts can be useful for experienced traders.

6. Cash

There is one other way to make money in a bear market. Sell everything, and keep your money in cash, with the safest way being a T-bill money market fund, that only owns T-bills. (Money market funds that invest in repos are supposed to be just as safe, but I consider them slightly more risky than T-bills.) The advantages are that you can’t lose money and you can receive an income from the investment.

The alternative cash investment is putting your money in a bank certificate of deposit or savings account. Your money is safe up to the FDIC limits.

I’ve been putting off writing this article because I kept thinking that we weren’t at the market peak yet. Maybe now that I’ve published this article, it will really be the market top.

Author does not own any of the above mentioned securities.

Houses with View for Sale in Italy for One Dollar

How would you like to own a house on a hill in Italy with a beautiful view? If your answer is yes, how would you like to own it for just $1.14 (one euro)?

The town of Sambuca on the Island of Sicily is looking for people to buy many of these homes, due to the fact that many of the local population have moved out. The community figures that with new buyers, revitalization will take place.

So there are plenty of homes to choose from, ranging in size from 430 square feet to 1,600 square feet. The houses are being sold directly by the city hall with no intermediaries.

Sambuca di Sicilia is located on the southwestern part of Sicily, about 42 miles west of Palermo. This 37 square mile town has a population of approximately 5,900 people.

Of course, there are a couple catches, but not a very big ones. Here they are:

  • You must send at least $17,200 renovating the home
  • A $5,700 deposit is required, which will be returned once the renovation is complete

That’s it.

More information can be found at comune.sambucadisicilia.ag.it

 

Factfulness: Ten Reasons Why We’re Wrong About the World – and Why Things Are Better Than You Think

by Fred Fuld III

I was having a discussion with a friend of mine who was complaining about how bad the world is today, and I kept telling him that he needs to get some perspective. I told him to compare how things are to how they were ten, twenty, fifty, and one hundred years ago. Unfortunately, I didn’t have all my facts at the time. Now I do.

It was by chance that I came across the book, Factfulness: Ten Reasons Why We’re Wrong About the World – and Why Things Are Better Than You Think by Hans Rosling, which is extremely eye opening.

Rosling was an advisor to the World Health Organization and UNICEF, along with being a medical doctor and professor. He has stated that it is amazing how much people in general and people in power specifically, don’t know the real facts.

As a matter of fact, Rosling came up with a set of 13 fact questions, and has shown that a group of chimpanzees could answer the questions better than groups of people. Even top business and political leaders at the World Economic Forum in Davos couldn’t get two out of three questions right. This in spite of the fact that they all should have had this data at their fingertips or the top of their heads.

What questions, you might be wondering. Here is one example. How many of the worlds one year old children have been vaccinated against some disease? 20%, 50%, or 80%? If you guessed 20% or 50%, you would be wrong. The real fact is 80%.

Here’s another one. In the last 20 years, the proportion of the world population living in extreme poverty has, either almost doubled, remained the same, or almost halved. The answer is almost halved.

One more. In all low income countries across the world, how many girls finish primary school? 20%, 40% or 60%? It is 60%.

Chapter 2, The Negativity Instinct, has a whole section on how the world is getting better.

  • Extreme poverty has dropped from 50% in 1966 to 9% in 2016
  • Life expectancy worldwide has gone from around 45 years in 1950 to 72 years in 2017
  • Oil spills have dropped from 636 in 1979 to 6 in 2016
  • The percentage of children dying before their fifth birthday fell from 44% to 4% (worldwide)
  • Plane crash deaths per 10 billion passenger miles have dropped from 2100 to one
  • Ozone depletion of 1000 tons of ozone depleting substances used from 1,663 to 22
  • and so on with many more examples.

Those are just some of the bad things decreasing. He also provides facts on good things increasing, such a worldwide literacy rising from 10% to 86%, and child cancer survival rising from 58% to 80%.

My favorite chart that he provides showing, in his opinion, culture and freedom, is the number of guitars per million people, rising from 200 in 1962 to 11,000 in 2014.

I have barely touched the surface about what is covered in this book. It is filled with anecdotes, graphs, and pictures, and is easy to read and understand.

I highly recommend Factfulness. After you read it, you will be amazed what you learn and what you didn’t know.

 

Top Dividend Stocks Under $10 per Share

by Fred Fuld III

The advantage of owning dividend stocks is that your invested capital is being returned while you are waiting for the share price to appreciate. Dividends also can add some stability to the stock price.

Even though it really doesn’t make any difference what the price of s stock is, owning a low priced stock gives investors a psychological benefit. (“A $5 stock only has to go up by $1 and I’ve made 20%.”) Plus, lower priced stocks are accessible to more investors. After all, how many investors can afford 100 shares of Amazon?

What happens if you add the two together, a low price and dividends? There are actually around 360 stocks that fit those categories, assuming yields of at least 2%. However, if you narrow it down to the stocks with the top fundamentals, there are actually eight stocks that fit into that category.

The fundamentals that are considered include:

  • P/E ratio below 15
  • Forward P/E below 15
  • Price to Earnings Growth Ratio of less than one
  • Price Sales Ratio less than one
  • Yield over 2%

For example, the office supplies company, ACCO Brands (ACCO), sells for less than $9 per share, and trades at 7.5 times trailing earnings and 6.4 times forward earnings. It sports a favorable  0.75 price to earnings growth ratio and an excellent 0.44 price/sales ratio. The latest quarterly earnings growth was 21.2% year-over-year. The yield is 2.87% and dividends are paid quarterly.

Another example is the chemical company, Valhi (VHI), based in Dallas, Texas, which yields 3.43% and trades for less than $3 per share. The stock has an extremely low P/E ratio of 2.3, and Forward P/E of 2.8.

The following is a list of the various stocks that match the previously described fundamentals.

Company Symbol Market Cap P/E Price
ACCO Brands Corporation ACCO 866.73M 7.52 8.35
BGC Partners, Inc. BGCP 2.82B 9.46 6.11
Ford Motor Company F 35.07B 6.08 8.82
Manning & Napier, Inc. MN 33.90M 1.77 2.26
Comp. Siderurgica Nacional SID 3.34B 3.65 2.64
Telefonica, S.A. TEF 44.18B 11.83 8.79
Unique Fabricating, Inc. UFAB 52.72M 10.15 5.52
Valhi, Inc. VHI 794.11M 2.3 2.33

Please note that many of these stocks have very low market caps and should be considered very speculative.

Disclosure: Author owns Ford.

Warren Buffett’s Berkshire Hathaway’s Recent Investments

by Nkem Iregbulem

As the third-wealthiest person in the world, Warren Buffett is widely regarded as an investment guru. His investment philosophy is based on the concept of value investing. He is the chairman, CEO, and largest shareholder of Berkshire Hathaway, the world’s 10th largest company by revenue. As of 2018, Buffett is estimated to be worth over $80 billion. He is not only an investor but also a dedicated philanthropist. In fact, he has promised to give 99% of his fortune to charitable causes.

Due to his success, Buffett’s stock purchases are closely followed by many other investors. Buffett’s Berkshire Hathaway recently purchased the stocks of JP Morgan Chase (JPM), Oracle (ORCL), PNC Financial Services Group (PNC), and Travelers Companies (TRV). His company also added to its position in Bank of America (BAC) and Apple (AAPL). These stocks can all be found on the New York Stock Exchange, except for AAPL, which is traded on the NASDAQ exchange.

With more than $2.5 trillion in assets, JP Morgan Chase is one of the largest financial institutions in the United States. The company is segmented into consumer and community banking, commercial banking, corporate and investment banking, and asset and wealth management. The company was founded in 1871 and is headquartered in New York, but it operates both within and outside of the United States. JP Morgan Chase has a market cap of $360.6B and pays a dividend yield of 2.89%. It trades at 13.70 times trailing earnings and at 11.07 times forward earnings. The stock has a price-to-sales ratio of 3.60, putting it into the overpriced range. It also has price-to-book ratio of 1.59. With its revenue growing each fiscal year since 2015, the company enjoys a 3-year revenue growth rate of 1.56% and a 5-year revenue growth rate of 0.53%.

Founded in 1977 and based in California, Oracle is a computer technology company that sells databases, middleware, applications, hardware, and other enterprise IT solutions. Most of the its revenue comes from software licenses, support, and maintenance, but the company has recently started to shift towards cloud-based subscriptions. Oracle has a market cap of $183.1B and pays a dividend yield of 1.57%. It trades at 49.21 times trailing earnings and at 14.33 times forward earnings. The stock has a price-to-sales ratio of 5.04, so it is considered overpriced. It also has a price-to-book ratio of 4.81. Oracle has a 3-year revenue growth rate of 1.38% and a 5-year revenue growth rate of 1.39% and has seen its revenue increase each fiscal year since 2016.

PNC is a financial services company involved in retail banking, corporate and institutional banking, residential mortgage banking, and asset management. With nearly 2,600 branches in 19 states and D.C., the company stands as the eight-largest bank in the United States — measured by assets. The company was founded in 1845 and is based in Pennsylvania. PNC Financial Services Group has a market cap of $61.4B and pays a dividend yield of 2.86%. The company’s stock trades at 11.17 times trailing earnings and at 11.56 times forward earnings.

It falls into the overpriced range with a price-to-sales ratio of 3.70. The stock also has a price-to-book ratio of 1.30. The company boasts a 3-year revenue growth rate of 2.03% and a 5-year revenue growth rate of 1.03%.

The Travelers Companies is an insurance company that was founded in 1853 and is headquartered in New York. The company segments its business into commercial and personal insurance lines. Under its commercial operations, it provides coverage for primarily midsize businesses. Under its personal line, the company mostly serves car and homeowners. The Travelers Companies has a market cap of $33.8B and pays a dividend yield of 2.40%. It trades at 14.33 times trailing earnings and at 11.26 times forward earnings. The company’s stock has a normal price-to-sales ratio of 1.17 and a price-to-book ratio of 1.51. The company enjoys a 3-year revenue growth rate of 2.08% and a slightly better 5-year revenue growth rate of 2.34% as its revenue has been increasing each fiscal year since 2015.

With over $2 trillion in assets, Bank of America is one of the largest and most well-known financial institutions in the United States. The company’s business operations can be segmented into consumer banking, global wealth and investment management, global markets, and global banking. Its lines of business include home mortgage lending, credit and debit cards, investment banking, brokerage services, small-business services, and many others. Headquartered in North Carolina and founded in 1998, Bank of America has a market cap of $267.5B and pays a dividend yield  of 2.19%. The stock trades at 12.98 times trailing earnings and at 9.51 times forward earnings. It has a price-to-sales ratio of 3.20, so the stock falls into the overpriced category. It also has a price-to-book ratio of 1.12. The company has a 3-year revenue growth rate of 0.56% and a 5-year revenue growth rate of 1.46%. Its revenue has been increasing each fiscal year since 2015.

Apple is a large and familiar technology company that was founded in 1976 and is headquartered in California. It designs and sells computer software, online services, and consumer electronics. Its product line of electronics include smartphones, tablets, computers, and smartwatches. The company also provides services such as Apple Music, a music streaming service, and Apple Pay, a mobile payment service. Apple has a market cap of $741.37B and pays a dividend yield of 1.87%. The stock trades at 13.12 times trailing earnings and 11.96 times forward earnings. It has a price-to-sales ratio of 2.94, making it slightly overpriced. The company’s stock also has a price-to-book ratio of 6.92. With its revenue increasing each year over the past few years, the company boasts a 3-year revenue growth rate of 4.35% and an even higher 5-year revenue growth rate of 9.22%. Most of this revenue comes from Apple’s iPhone sales.

Hopefully, one of the richest men in the world can give you some profitable investment ideas.

Disclosure: Author didn’t own any of the above at the time the article was written. 

Stocks Going Ex Dividend in January 2019

by Fred Fuld III

The following is a short list of some of the many stocks going ex dividend during the next month.

Many traders and investors use the stock trading technique called ‘Buying Dividends,’ also commonly referred to as ‘Dividend Capture.’ This is the strategy of buying stocks before the ex dividend date and selling the stock shortly after the ex date at about the same price, yet still being entitled to the dividend.

This technique generally works in bull markets and flat or choppy markets, but you need to avoid the strategy during bear markets. In order to be entitled to the dividend, you have to buy the stock before the ex-dividend date, and you can’t sell the stock until after the ex date.

The actual dividend may not be paid for another few weeks. WallStreetNewsNetwork.com has compiled a downloadable and sortable list of the stocks going ex dividend in the near future. The list contains many dividend paying companies, lots with market caps over $500 million, and many with yields over 2%. Here are a few examples showing the stock symbol, the ex-dividend date, the periodic dividend amount, and annual yield.

American Express Company (AXP) 1/3/2019 0.39 1.65%
Barnes & Noble, Inc. (BKS) 1/3/2019 0.15 9.55%
Bristol-Myers Squibb Company (BMY) 1/3/2019 0.41 3.25%
Campbell Soup Company (CPB) 1/8/2019 0.35 4.18%
Mastercard Incorporated (MA) 1/8/2019 0.33 0.70%
Foot Locker, Inc. (FL) 1/17/2019 0.345 2.66%
Lowe’s Companies, Inc. (LOW) 1/22/2019 0.48 2.09%
Hasbro, Inc. (HAS) 1/31/2019 0.63 3.10%

The additional ex-dividend stocks can be found HERE . (If you have been to the page before, and the latest link doesn’t show up, you may have to empty your cache.) If you like dividend stocks, you should check out some of the other high yield stock lists HERE . Most of the lists are free.

Dividend definitions:

Declaration date: the day that the company declares that there is going to be an upcoming dividend.

Ex-dividend date: the day on which if you buy the stock, you would not be entitled to that particular dividend; or the first day on which a shareholder can sell the shares and still be entitled to the dividend.

Monthly Dividend Stock List

Record date: the day when you must be on the company’s books as a shareholder to receive the dividend. The ex-dividend date is normally set for stocks at two business days before the record date.

Payment date: the day on which the dividend payment is actually made, which can be as long at two months after the ex date.

Don’t forget to reconfirm the ex-dividend date with the company before implementing this technique.

Disclosure: Author did not own any of the above at the time the article was written.

Crack the Funding Code: How Investors Think and What They Need to Hear to Fund Your Startup

by Fred Fuld III

The book, Crack the Funding Code: How Investors Think and What They Need to Hear to Fund Your Startup, by Judy Robinett, is a very extensive but easy to read and understand guide on raising money for your startup.

The book covers everything, from finding the right investors, to knowing what investors are looking for, to closing the deal. Probably the most important chapter is Your Funding Roadmap, which covers finding and reaching the people who can help you. The steps pointed out in that chapter are clear and concise.

Robinett even covers such topics as what to include in a pitch deck, covered in Chapter 8. There is even a successful pitch deck example shown in the appendix.

If you are starting a startup, or need to raise money for an existing startup, I highly recommend that you read Crack the Funding Code.

 

Cyber Smart: Five Habits to Protect Your Family, Money, and Identity from Cyber Criminals

It is rare that I ever say this about a non-fiction book, but I couldn’t put this book down. Cyber Smart: Five Habits to Protect Your Family, Money, and Identity from Cyber Criminals by Bart R. McDonough is the most thorough guide on protecting yourself from cyber criminals.

It is a captivating book with numerous true anecdotes about the victims of cyber crime, which are included with every chapter and the most interesting parts of the book.

For example, there is the story of the woman who met a man on an online dating site and “loaned” him $72,000. When she tried to meet the man in person, he never showed up.

Another victim was a woman who received a phone call from her local hospital saying that her baby would have to be taken from her and turned over to child protective services because they detected meth in the baby. The woman said that, first, she didn’t have a baby, and second, she never used drugs in her life. Apparently, someone stole this woman’s medical ID so that the bad woman’s birth of her baby would be covered by the innocent woman’s insurance.

For some of the victims, you wonder how they could fall for a scam but others you feel sorry for, especially the grandparent scam victims.

If you think you know all the email scams, like email phishing, do you know what spear phishing is? How about whaling, clone phishing, SMS phishing, or pretexting?

At the end of every chapter, the author provides advice on how to protect yourself from the particular digital threat, whether you have a Windows or Mac computer, whether you have an Android or an iPhone, whether you use T-Mobile, Verizon, Sprint, or AT&T, and so on.

With the ubiquitous hacks, scams, privacy compromises, and identity thefts taking place, everyone should read Cyber Smart. I highly recommend it.

How to Get Free Same Day and One Day Delivery from Amazon

If you are doing some last minute shopping, you may be pleased to know that Amazon offers Free Same Day and One Day Delivery. Here are the catches:

  1. It is limited to certain items but over a million items qualify.
  2. It is limited to certain cities but over 10,000 cities and towns qualify.
  3. The order must be for over $35.
  4. Same day orders must be placed by noon.
  5. Next day orders must be placed by the afternoon.
  6. Must be a member of Amazon Prime.

For more information, go HERE.

 

How to Make Money From Insider Trading Legally

by Fred Fuld III

You may have heard that insider trading is illegal. And it is, un der most circumstances. An insider is a top executive, a director, or a holder of 10% or more of the outstanding shares of a corporation. If an insider gives you information about the company that is not disclosed to the public, and you act on that info to profit from buying or shorting the company’s shares, that is illegal.

However, insiders are allowed to buy shares in their own company, as long as it is reported to the SEC in a short period of time. Also, the purchases and sales that the insiders make is available to the public.

For long term investors, this can be useful information, especially if insiders make purchases, because they usually do so based on a long term horizon. If they sell, it could be for any number of reasons totally unrelated to th company, such as raising funds to buy a house, estate planning purposes, paying for their kids college education, or diversification.

So if you look for the stocks that have has more than a 20% increase in total insider ownership over the last six months, you might find some interesting investment opportunities. All of the following fit that category, plus they ll have price to earnings ratios of less than 15, forward P/E ratios less than 15, and a low price to earnings growth ratio of less than one.

Company Ticker Market Cap P/E
Apogee Enterprises, Inc. APOG 880.84M 11.33
Avon Products, Inc. AVP 772.51M 6.32
Famous Dave’s of America DAVE 41.90M 9.31
GMS Inc. GMS 627.56M 12.22
Hyster-Yale Materials Handlg HY 979.49M 13.4
Koppers Holdings Inc. KOP 381.94M 12.49
McDermott International MDR 1.25B 3.47
Riverview Bancorp, Inc. RVSB 165.13M 10.7
Olympic Steel, Inc. ZEUS 176.46M 3.93