Delaware AAII Investing SIG January 2020 Report

One of the fun things we do at our meetings is have a presentation on a topic of interest to the group.  This month, member Andrew gave a presentation on what he called "Friendly Investing".  He takes the interesting view of stocks as though they are your friends.  First you check them out a bit ("have coffee with them") and if you like the stock, purchase a little bit of it to see how it does.  If you like them, then you become more acquainted with them and learn more about them via press releases or company presentations.  He likes companies that tell you what they are going to do, (or what went wrong and what they plan to do about it) and then follow through with what they said they would do.  Just like real friends.  Likewise, he might have some "best friends" (BFF?) that he watches closely to see what they do.  He'll  read their 10-Q (quarterly) and 10-K (annual) reports.  He'll attend the listen-only quarterly conference calls with analysts and may even contact their investor relations department to ask a question or two for clarification.  He has a much larger investment in the stocks of these companies.  Interestingly enough, with smaller companies, the "investor relations" person who gets back to him might even be the CFO or even the CEO!  He's had it happen!  Oh, and just like friends who tend to move on or change their personality, sometimes a friend stock he likes, changes and he drifts apart from the friendship.  It was a rather interesting presentation.

Now let's see how our paper portfolio did this past month.

Two of our stocks paid dividends, which we just store in our cash portion and don't reinvest. In addition, we sold our position in Edwards Lifesciences (EW).  This was a stock that I had recommended a few months ago.  I liked the stock, but the valuation seemed too high for me.  But yet it continued to go up with the overall market.  So my recommendation was to purchase the stock, but put a tighter stop-loss on it so that if the market changed (or the stock had news that would AAII DElaware SIG imagechange the price pattern), we wouldn't end up sitting on a large loss.  That turned out to be the right decision as it dropped with the market and we got out with about a 6% loss (only about $300 in our paper portfolio).

Taking a look at Analog Devices (ADI) Bruce provided updated goal and sell prices.  Bruce tends to look at stocks for the much longer term so his revised stop-loss is still about 20% down from our buy price, and the goal was only about 5% higher than the previous goal.  Bruce likes to look at monthly charts, so that means it of the markers on his charts represent a full month of activity.  He also tends to look for a short-term gain of 5-10% and then sell, so that explains his upside-downside ratio of 1:2.  Most investors tend to want to see 2:1 or better when buying a stock.  That means at the current price, your target price is about twice the amount above as your stop-loss price is below.  For example, if the price of a stock is $10, and you think that it might go up to $14 ($4 gain) or it might drop to $8 ($2 loss), then the ratio of possible gain is $4 to $2 or 2:1.

At our January meeting we took a look at four more stocks.  Ed talked about Parker-Hannifin (PH).  Ed tends to be a more conservative investor and likes large-cap stocks that pay a good dividend.  PH is an interesting company in that it makes a lot of things and tends to be the leader in many of those markets.  However, no one customer provides much more that 1% of sales so they are very diversified. Ed liked the stock, but felt its price was dropping and wasn't sure when it would bottom out.  Given the saying,
"Never catch a falling knife!", we decided to put this stock on a watch list.

The same story played out for the other three stocks that were presented:  Union Pacific (UNP), Target (TGT) and a revisit of Alaska Airlines (ALK).  They all seemed like interesting companies, but either their price was falling, or we thought the price was too high already.  What we mean by "too high" is that in our analysis, we believe the upside potential is lower than its downside potential.  Thus, we believe that the chance of losing money is greater than the chance of making money.  So these three were put on our watch list to see what they do over the coming months.

If you would like to see the portfolio update for January 2020, it can be found here.

Posted in Finance.