The One Mistake Investors Can’t Stop Making

Michael Foster, Investment Strategist
Updated: March 2, 2017

Let’s face it: people make a lot of stupid mistakes.

You see it every day: they turn on to the freeway without signaling. They fall for obvious scams. They throw money away on useless things.

But here’s the good news: It’s possible—even easy—for savvy investors to profit from humanity’s lousy judgment.

How? By being a contrarian.

Contrarian investing means heading away from the crowds: buying heavily when everyone is fleeing in fear and selling when everyone says the asset is a sure thing. (I’ll show you 2 unloved funds ready to pop—plus 2 overbought names ready for a fall—in just a moment.)

Contrarian investors bet big against housing in 2007–08, like hedge fund mogul Michael Bury, who became famous thanks to the film The Big Short.
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Why Big Oil is Still a Big Dividend Trap

Brett Owens, Chief Investment Strategist
Updated: March 1, 2017

There are, literally, a billion reasons to avoid the energy sector right now.

Hedge funds now own a billion barrels worth of bets that crude oil prices are heading higher. Problem is, these guys are usually wrong – especially when they wager with such conviction!

In April 2014, I warned that then-$103 crude oil was due for a drop. U.S. crude oil inventories were at 5-year highs, yet money managers were “net long” 336,000 contracts on crude oil future. They were doubling down on the goo at the worst possible time.

When oil prices began to roll over, hedgies were forced to liquidate their bad bets in unison. It took them almost two years to clear their books, as they lightened up on their bullish bets until mid-January 2016: …
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The One Place to Find 6.5% Dividends and 82% Upside Now

Michael Foster, Investment Strategist
Updated: February 28, 2017

Things are tough for contrarian investors these days.

Back in August, for example, I recommended buying financial stocks. It was an easy call to make.

At the time, the Financial Select Sector SPDR Fund (XLF) was down 4% from a year earlier, and the worst performers had fallen much further. I specifically saw value in Wells Fargo (WFC), KeyCorp (KEY) and PNC Financial Services (PNC), which had fallen 14.5%, 17.6% and 12.0%, respectively.

I bought heavily into these three stocks at the time, expecting financials to recover over the short term, especially if Trump won the election.

Here’s how they’ve done since then:

Financials Rebound With Gusto
Financials-Run-Since-August

The strong recovery since August has convinced me to back off on financials, since the market has finally seen in these firms what I saw in them last summer. …
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3 Retirement Stocks to Buy Right Now – and 6 to Avoid

Brett Owens, Chief Investment Strategist
Updated: February 27, 2017

With the Trump bump squeezing stocks higher, retirees (and near-retirees) are asking me two questions a lot these days:

Is it still a good time to buy? And if so, what the heck should I buy?

The answer to the first is, undoubtedly, yes.

And it’s no secret what’s behind the second: according to FactSet, this market is trading at a forward price-to-earnings (P/E) ratio that hasn’t been seen in 13 years.

Investors Double Down
FactSet-PE-Ratio-Chart
Source: FactSet

No wonder folks are struggling with what to buy!

One thing I recommend avoiding now is an index fund like the SPDR S&P 500 ETF (SPY). At that price—and with an anemic 1.9% trailing-twelve-month dividend yield—you’re just not getting enough income for the risk you’re taking on. …
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5 Tax-Equivalent Yields up to 10.4%

Brett Owens, Chief Investment Strategist
Updated: February 24, 2017

Tax season can be a cringe-inducing affair for most investors, who have to fill out their 1040s, 1099s and K-1s with Uncle Sam hovering above, looking for his cut. But for investors who have bought into one of the five high-yielding funds I want to share with you today, this time of year is a friendly reminder of the greatness of municipal bonds and their fat, tax-free yields.

Most investors have money stashed away in bonds of some sort. Often, those bonds will be U.S. Treasury bills (debt issued by the federal government), though frequently, investors will have some exposure to corporate bonds (debt issued by companies). While both of these are good, secure sources of income, they have one downfall: federal taxable rates of up to 39. …
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These 8.7% Dividends Have Beaten the S&P 500 for Years

Michael Foster, Investment Strategist
Updated: February 23, 2017

Looking for a reliable benchmark for stock returns in the next decade?

I’ve got one for you: 7.1%.

I say “reliable” because that’s what the S&P 500 has returned, in price growth and dividends, over the last 10 years. And with that timeframe including the worst crash in living history, we can take it as a conservative benchmark for long-term stock returns for the next decade or longer.

Seven percent is great, especially when you’re only getting 1% in a bank account or CD. But there are two problems here.

The first is drawdowns. Over half of that return comes in the form of price growth, which means it’s a paper gain unless you sell your shares. If you need to tap your stock investments during a market correction or panic, you’ve got a problem: …
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How to “Write” Covered Calls for Safe 8% Yields

Brett Owens, Chief Investment Strategist
Updated: February 22, 2017

Most investors buy stocks and hope they’ll go up in price. They do nothing in the interim to generate cash flow from those stocks while they sit in their portfolio – like writing covered calls.

“Write” what?

I’ll explain. And I’ll also highlight some popular exchange-traded funds (ETFs) and closed-end funds (CEFs) that will help you generate 8% yields or better from this income strategy without actually handling an options contract yourself.

A call option is a contract that gives its buyer the right to purchase a stock from the seller for a certain price within a certain period of time. For that right, the buyer pays the seller a sum upfront, called a premium.

Option traders buy calls hoping they can multiply their money in a short period of time. …
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The Powerful Secret the ETF Companies Don’t Want You to Know

Michael Foster, Investment Strategist
Updated: February 21, 2017

I love passive investing—but not for the reason you might think.

I love it because, as I’ll demonstrate in a moment, it’s caused plenty of stocks to become mispriced, creating opportunities for active stock pickers who do their homework.

This makes the market more of a meritocracy: the people who work harder, smarter and spend more time and energy on their investments can get a higher return than those who buy index funds like the Vanguard Total Stock Market ETF (VTI) and call it a day.

Why?

Because the more people buy VTI and other index products, the more they drive up the prices of all the stocks in that index. And since these indices aren’t weighted toward any valuation metrics, that means pricier stocks get just as much of a price boost as cheaper ones. …
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5 “Hidden” High Yielders That Should Be on Your Radar

Brett Owens, Chief Investment Strategist
Updated: February 20, 2017

Today we’re going to head out to one of my favorite hunting grounds for cheap high-yield stocks: the midcap space.

“Wait,” you may be thinking. “Haven’t midcap stocks been on a tear? How can there be any bargains left?”

You’d be right about the first part … but not the second.

To get at why, let’s look at how the benchmark S&P MidCap 400 ETF (MDY) has performed vs. its large-cap cousin, the SPDR S&P 500 ETF (SPY) in the past year:

Midcaps Soar…
Midcaps-Soar-Since-2016-Chart

That rise has had a predictable effect on both funds’ dividend yields (because you calculate yield by dividing the annual dividend into the current share price):

…While Yields Shrink
SPY-MDY-Yields-Shrink-Chart
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5 High Yield ETFs Paying up to 5.8%

Brett Owens, Chief Investment Strategist
Updated: February 18, 2017

I get it – you want a diversified portfolio that lets you live off dividends alone. And you probably don’t want to spend most of your waking hours worrying about a million tickers either.

Consider exchange-traded funds (ETFs) then, which provide your portfolio with instant diversification through a single purchase. Pick a strategy you like (ie. high yield) and let the fund do the work for you.

Today we’ll highlight five dirt-cheap ETFs that distribute loads of cash … and let you walk away with the lion’s share of income. Now you and I both know that high fees rob you of returns. That’s why so many investors have moved out of high-cost actively managed mutual funds and into low-cost indexed ETFs. But even within the world of ETFs, it pays big-time to comparison shop for fees. …
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