Greece – Democracy at Work
Greece’s Prime Minister George Papandreou is in the doghouse with world leaders only because he dared to offer voters a choice. Link to full story.
Greece is the headline story whether we like it or not. It has trapped our stock market simply because we do not have a clue on what happens to the global financial system should Greece default in an unstructured way.
The USA seems to have achieved a modest sense of financial stability. Certainly, the unemployment numbers are not acceptable. There is plenty of structural work to do in addressing the tax code, looming deficits and divisive politics. What we do have are companies mostly surprising with their positive earnings results. We have a stock market that has broken out of the trading range it was trapped in for what seemed like forever, but in reality was only three months.
If it were not for the referendum news from Greece and Europe, we might be well on our way to the year-end rally most of us have been expecting. LOTM does not want to minimize the Greek situation. We do not know the final outcome. On the other hand, we want to go about our business as much as possible. Technically, we might still be on track for a strong year-end rally. The market so far is pulling back to support – the top of the former trading range. Another week will tell us more. Will support hold or are we breaking down again? So far, this is still in the area of a normal pull back after a channel breakout. Support is 120.50 plus or minus. The 50-day moving average will be a second support level. On the S&P 500 (SPY), the 50-day is at 119.04.
Our strategy at LOTM is to accumulate shares in a portfolio of healthy small and micro cap companies while also looking for high dividend opportunities. Our LOTM Under $10 Idea List is down about 13% year to date after dividends and closed out trades. We still feel a positive return on our portfolio of Under $10 Ideas for 2011 is within reach. Remember, our LOTM Under $10 approach returned 69% in 2009 and 26.5% in 2010. We are not done with 2011 yet! November and December are historically two of the best stock market months of the year.
Where are we finding dividend opportunities? The Business Development Companies (BDC) sector is paying dividends between 7% and 13%. BDC’s are not taxed at the corporate level as long as they pay out 90% of their earnings as dividends. BDC’s lend money to businesses, usually in amounts between $5 million and $50 million. They also take equity positions in private companies but usually as part of a lending package. The risk for investors in BDC’s is that you own a loan package. If the economy worsens, or the loan committee reaches to make risky loans, the BDC itself could go out of business quickly. Not all BDC’s are equal. Many suspended dividends during the 2008 and 2009 financial crisis. A Google search under Business Development companies will produce names of many of the companies. Seeking Alpha also has many articles on Business Development companies.
MAKIN’ a MILLION Challenge Update
Our quest to turn $5,000 into $1 Million was derailed by the Euro Debt Crisis. Our starting amount of $5,000 in mid-July dropped to as low as $3,449 at the end of September but is now on the comeback trail. The Makin’ a Million account closed at $4,165 at the end of October. This account owns one company. We do not expect to own more than three companies over the course of turning $5,000 into $1 million. I did this once before, I would like to think it was ability more than luck. That is why I doing it again.
|Goal: Double every twelve months|
I am very comfortable with the one company currently in the account. It has high growth in revenue and earnings with a low valuation and a very strong balance sheet.
If you’d like to join the Makin’ a Million journey subscribe to our newsletter. We will share with you our LOTM Under $10 Idea List of thirty stocks trading Under $10 that we profiled using 20 plus criteria, Our Makin’ a Million trades as we make them and share our High Dividend Ideas we find of particular interest.