12-21-2021, 03:29 PM (This post was last modified: 12-21-2021, 03:46 PM by rnsmth.)
These numbers cover our individual stocks. In addition 2 of our CEFs are heavy in big tech (NIE and ETO). Our ETF, SCHD, which is our second largest position is 22% finacials and has industrials, consumer staples, health care and discretionary, but no utes or REITS to speak of. I do not have the sector weights for SCHD in from of me right now
All Sectors
18% Utilities
16% Energy
13% Real Estate
12% Financials
10% Healthcare
10% Communications
9% Information Technology
8% Consumer Staples
3% Industrials
I am transitioning into retirement. I own some index funds so I don't feel the need to fully diversify my individual stocks. I do have at least a small position in most sectors.
My largest weighted sectors are health care, utilities and defense contractors.
Increasing my technology gradually.
I generally avoid materials.
I own a decent sized position in energy but will never overweight it fir the long-term.
12-21-2021, 06:38 PM (This post was last modified: 12-21-2021, 06:58 PM by Scooterd.)
(12-21-2021, 06:21 PM)fenders53 Wrote: I am transitioning into retirement. I own some index funds so I don't feel the need to fully diversify my individual stocks. I do have at least a small position in most sectors.
My largest weighted sectors are health care, utilities and defense contractors.
Increasing my technology gradually.
I generally avoid materials.
I own a decent sized position in energy but will never overweight it fir the long-term.
Materials and energy historically do best in a Late phase of the economic cycle,
The late-cycle phase has had an average duration of roughly a year and a half, and overall stock market performance has averaged 6% on an annualized basis. As the economic recovery matures, the energy and materials sectors, whose fate is closely tied to the prices of raw materials, previously have done well as inflationary pressures build and the late-cycle economic expansion helps maintain solid demand.
I historically tend to overweight my investments this sector as Growth begins moderating, credit starts to tighten and earnings begin to fall under pressure and inventories begin to grow.
Hence why I was following PSX and OLN throughout 2021. I would like to possibly begin a position and slowly build into it while out of favor as the market experiences this mid phase (hopefully through the next few years) then rolls into its late phase.
Scoot, I guess I wasn't clear. I do own materials now. NEM mines gold and copper. I have puts sold in CLF to cover steel if assigned. I trade silver now and then. I'm just not overweight in materials. I've been bitten too many times. They can drop for five years and cut the dividend along the way. China has been a thorn as well and can wreck about any commodity they choose. I'm not saying that is their current intention. My SPY fund holds materials so I'm covered enough in the sector.
Similar story with oil for me as well. I like the prospects for the next 1-2 yrs. There is a production shortage but not an oil shortage. I've done well in oil lately but I won't overstay my welcome again. Oil will be around for decades but there may be as many bad years as good years. That's my expectation actually. There are a thousand oil bulls on SA but believing their predictions hasn't served me well. I won't be greedy if it turns out for me.
"The late-cycle phase has had an average duration of roughly a year and a half, and overall stock market performance has averaged 6% on an annualized basis."
The last conversation I had with a professional on this was last summer so I'm not sure if they're still talking this way. But at that time there was a feeling that the combination of COVID and all the monetary policy flushing capital into the system was leading to a compressed cycle where the usual time periods in the cycle would be briefer.
It doesn't really change my investing which targets cash flows and balance sheets but I thought I'd toss that out there. Unfortunately I have nothing beyond this rather non-specific lead-in to offer. I didn't follow up or ask for details - again, not something that would change what I'm doing - but this came from a Fidelity Investment Advisor discussing what was coming to them in-house from the company.
12-22-2021, 07:50 AM (This post was last modified: 12-22-2021, 07:54 AM by rnsmth.)
I do not do sector and phase of the economic cycle investing. I do dividend safety investing. I own most sectors, but am light in some. That is okay with me.
When Simply Safe Dividends determines a company's safety score, they are not looking at the next year or two, they are looking across an economic cycle. They are not perfect, but if you limit yourself to Very Safe rated companies, there is about a 3% chance that any of those companies will have a dividend cut, based on historical data. Does not get much better than that, in my view. Those with a Safe range rating also do pretty darn good. Plenty of mid-yield dividend growers in those ranks, that are easily found using their screening tool.
I think owning numerous sectors is wise. Diversification is a proven strategy. I know folks that think they need to closely align with the S&P500 allocation percentages. Can I interest you in a nice index fund because you'll probably get a better result over time? Timing my entry in and out of commodities is tough. I don't have to be good at everything. The time to buy oil and materials was a year ago. Some are up 300% already.
Will it work out if you enter now? Perhaps it will.
12-22-2021, 09:13 AM (This post was last modified: 12-22-2021, 09:38 AM by Scooterd.)
(12-22-2021, 07:50 AM)rnsmth Wrote: I do not do sector and phase of the economic cycle investing. I do dividend safety investing. I own most sectors, but am light in some. That is okay with me.
When Simply Safe Dividends determines a company's safety score, they are not looking at the next year or two, they are looking across an economic cycle. They are not perfect, but if you limit yourself to Very Safe rated companies, there is about a 3% chance that any of those companies will have a dividend cut, based on historical data. Does not get much better than that, in my view. Those with a Safe range rating also do pretty darn good. Plenty of mid-yield dividend growers in those ranks, that are easily found using their screening tool.
For me, "Augmenting" (deployment of new capital to increase share count, Overweight / underweight of specific securities) my DG portfolio by taking into account The full business cycle ensures I do not increase share in an investment security when sector valuations are too high. Example; I would much rather concentrate increasing share count in my consumer staple securities when they are out of favor and on the cheap during the business cycle, Then slowly begin to overweight the staples as the business economic cycle transitions into the late phase (Capture of increased dividends plus Total Return).
"One of those most important things is knowing where we stand in the cycle. I don’t believe in forecasts. We always say, We never know where we’re going, but we sure as hell ought to know where we are. I can’t tell you what’s going to happen tomorrow, but I should be able to assess the current environment, and that’s the kind of thinking that helped us prepare for the crisis. I think that the two most important things are where we stand in the cycle, and the broad subject of risk, and in fact, where we stand in the cycle is the primary determinant of risk". - Howard Marks (Mastering the Market Cycle - Getting The Odds On Your Side)
All I can say is this approach has worked enormously well for me for decades.
Peace and Penguins
12-22-2021, 09:41 AM (This post was last modified: 12-22-2021, 10:05 AM by rnsmth.)
I agree that valuation plays an important role in my investment decisions. I favor companies that are likely to be undervalued or in the fair value range. I get that information on a company specific level. Sector membership is a part of that company specific level view.
