Our Current Investment Status:
Friday, 5/3/2024: The S&P 500 is barely below its 50 day simple moving average (SMA). We are sitting on the sidelines waiting to buy back in. When the S&P 500 does go above its 50 day SMA, we plan to purchase META, GOOG, APPL, & FNGU.Recent transaction history:On 11/3/2023, soon after the S&P 500 went above its 50 day SMA, we began purchasing shares of META at an average price of $311.98. On 4/18/2024, soon after the S&P 500 fell below its 50 day SMA, we sold all of our shares at an average price of $510.26. We are very happy with our 63% return in less than six months.
Why did we purchase META?
- It has a fantastic upward trend. You may click here to view the Stockcharts graph.
- As of Sep 30, 2023, META had $37.22 billion available and gave authorization for stock share repurchases. Full story here.
- Meta currently trades at a next-12 months (NTM) price-to-earnings multiple of 19x. Full story here.
Why did we sell META?
- We are unhappy with the overall trend of the stock market. The S&P 500 is below its 50 day SMA.
On 11/3/2023, soon after the S&P 500 went above its 50 day SMA, we began purchasing shares of FNGU at an average price of $162.77. On 4/18/2024, soon after the S&P 500 fell below its 50 day SMA, we sold all of our shares at an average price of $298.19. We are extremely happy with our 83% return. This is a fantastic return for a less than six month investment. This is why we operate this website.Why did we purchase FNGU?
- It has a fantastic upward trend.
- The reasons listed on this website.
Why did we sell FNGU?
- We are unhappy with the overall trend of the stock market. The S&P 500 is below its 50 day SMA.
On 3/18/2024, we purchased shares of GOOG at an average price of 148.27. On 4/18/2024, soon after the S&P 500 fell below its 50 day SMA, we sold all of our shares at an average price of $157.32. We are happy with our 6% one month return.Why did we purchase GOOG?Why did we sell GOOG?
- Nearly 5% of their market cap in extra cash. More than double of META's 2.4%.
- Trailing P/E is around 25. Lower than the average of the S&P 500 and even META.
- Forward P/E expected to be around 21. Lower than META's expected P/E of 25.
- Very few short positions. Not many people are willing to bet against GOOG.
- We are unhappy with the overall trend of the stock market. The S&P 500 is below its 50 day SMA.
What's next?
- We will sit on the sideline waiting for the next upward trend.
- When the S&P increases above its 50 day SMA, we plan to be fully invested. We do our best to only be invested when the S&P 500 is above its 50 day SMA.
When do we sell?
Obviously, our goal is to sell at the peak. But in reality, we all know that is extremely tough, if not impossible to do consistently. We know we want to be totally out of these positions when the S&P falls below its 50 day SMA, but if we wait that long, we will have given back much of our profits. Therefore, when we are "considerably up", we begin moving stock market money (a large percentage of our recent gains) to other assets. In other words, we like to purchase investment real estate or other appreciating assets. We call this "Portfolio Balancing".
Why Are Moving Averages Important?
It's the trend. We truly believe in the phrase, "Don't fight the trend."When the S&P 500 is above its 50 day simple moving average, the trend is up. The average stock purchase made within the last 50 days (ten weeks) is currently positive. Obviously, this makes investors happy but it also introduces greed.When the S&P 500 is below its 50 day simple moving average, the trend is down. The average stock purchase made within the last 50 days (ten weeks) is currently negative. Obviously, this upsets investors and it introduces fear into the market.When the S&P 500 is below its 100 day simple moving average, the trend is really down. More upset investors. More fear.When the S&P 500 is below its 200 day simple moving average, there are a lot of upset investors. The fear is high. Investors may sell good stocks simply because they are scared.
Trend Detection Chart:
Our successful strategy is very straightforward. We only invest "long" when the S&P 500 is in an upward trend. We consider the stock market to be in an upward trend when the value of the S&P 500 is above its 50 day simple moving average (SMA).
- The 50 day SMA of the S&P 500
- The 200 day SMA of the S&P 500
It's easy to calculate the moving averages. For the 50 day simple moving average, simply add up the closing prices of the S&P 500 for the last 50 days and divide by 50. Fortunately we do not actually have to do the calculations. Stockscharts.com (and many other sites) do the work for us:
Long verses Short:
In general, most investors prefer to be invested "Long" in stocks.We are invested "long" when the overall stock market (the S&P 500) is in an upward trend. We aim to select the best companies that are in an upward trend combined with good historical earnings and good projected future earnings."Long" means owning the stocks (companies) with the hopes they will continue to go up in value."Short" means betting against the stocks with the hopes their stock prices will go down. When investors short a stock, they make a profit when the stock goes down.
Company Profits (PE Ratios):
Our portfolio focuses on companies that are generally consistantly profitable. Therefore, it is essential to have a method to compare profits from these and all publicly traded companies.Since companies are of various sizes and have different stock prices, the popular method of establishing a comparison metric is the price to earnings ratio (P/E or PE) for each company:
A lower P/E is considered to be more desirable. If a company's stock price is $200 and they earned $20 per share profit in the last twelve months, the P/E would be 10. This would be considered a strong P/E. Historically, a P/E approximating 15 is common for healthly companies and a healthy stock market.You may click on the links below to view current PE Ratios:
The above calculations omit an important part of evaluating the earnings health of a company. If a company is sitting on a lot of cash or heavily strapped with debt, that should influence a decision to invest in that particular stock. In other words, the calculations above do not reflect the amount of cash or debt a company has. The enterprise value over the market capitalization does; therefore to calculate the Enterprise P/E, you simply use this equation:
With the Enterprise P/E values calculated, you have a more complete picture to compare stocks.
Future Profits (PEG Ratios):
Companies with high profits are always desirable especially if it appears even larger profits are in their near future. Therefore, it is essential to have a metric that measures this crucial expected growth.The popular method of establishing a comparison metric between the companies is the price/earnings to growth ratio (PEG):
PEG Ratio - For example, if a company is growing at 30%, and has a P/E of 30.00, it would have a PEG of 1.00. A lower ratio than 1.00 indicates an undervalued stock, and a value above 1.00 indicates overvalued. The P/E ratio used in the calculation may be projected or trailing, and the annual growth rate may be the expected growth rate for the next year or the next five years. For a complete description of PEG Ratios, you may click here.You may click on the links below to view current PEG Ratios:
Alphabet/Google (GOOG)
Again, these calculations omit an important part of evaluating the earnings health of a company. If a company is sitting on a lot of cash or heavily strapped with debt, that should influence a decision to invest in that particular stock. In other words, the calculations above do not reflect the amount of cash or debt a company has. The enterprise value over the market capitalization does; therefore to calculate the Enterprise PEG, you simply use this equation:
With the Enterprise PEG values calculated, you have a more complete picture to compare stocks.
Warning: Investing in the stock market is dangerous. You can and will lose money. We are not giving advice. We are simply documenting our strategy. Please consult a professional before making any investment decisions. You may click here for a full disclosure document. Thank you.
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