A 10 year tale of three ETFs "Growth versus Value"

We are starting to see articles about it is time for value focused stocks to have their day in the sun. Hmmm. Most of my family's assets are in low overhead Vanguard ETFs to prevent a hot head like me from making some stupid rash decision.

If we look at this Google Finance chart comparing Vanguard Growth and Value, you can see over ten years Growth is the better bet, but MORE IMPORTANTLY, they are highly correlated, one goes up, the other goes up, etc.

Now just for fun, I added a 3rd ETF, a highly overhead Value, that gives Vanguard Growth, VIGAX more of a run for its money.

With the money that I have set aside for personal investing, more as a hobby than anything else, I am starting to fall into a bit of a trap. As detailed in other posts, my family did well with big plays on spectacular growth stories. We took our profits are are largely on the sidelines trying to get back in. With an 8 year bull run behind me, I am expecting some buying opportunities. My brain keeps being focused on large, safe, companies and getting them at a good price. There is nothing wrong with this strategy, except that unless I really devote a lot of time and brain power, I will simply be correlated with various ETFs and could have used the time to do other things.

How to break the code?  

1) My first temptation was to buy some RPV on a dip. Yikes, what am I NOT thinking? While it is performing very well compared to Vanguard's value, it is still massively correlated and for good reason, the top choices of the fund are in the 2% or slightly less of the total fund range. That means they do a great job of spreading risk across multiple companies, but so do all of my other ETFs. No!

2) I could go overweight with a company that appears to be undervalued and ready to ascend. That is every investor's dream. The problem with that is I only really know and understand a finite number of companies. No!

3) Try to figure out what the next macro trends are and the companies that stand to benefit. This strategy has two parts, getting in on the hype early and I think my family's successful investments in AMZN and TSLA were just that. Then we profit took and jumped out. But, the longer view of investing in, staying with, learning more about a few companies with the right business model, purchased at the right price, (WMT < 70, AMZN < 900 etc), is probably the best strategy. Some thoughts about Macro trends:

- Demise of malls, ok, people still need shoes and groceries, where will they shop?

- Overt consumerism, at some point people will wonder why they have closets full of clothes and drawers full of pocket knife, companies with really good, really useful products will be in good shape. In 2008 after the downturn there were a number of articles about consumerism is not sustainable, consumerism is dead and so forth, but while the message is muted in 2017, the numbers are there. And the link to the decline of shopping malls is clear and obvious. 

- The robotic economy.  From bricklaying to hamburger cooking, robotics are increasingly entering the workforce. Who is making them, who is selling them, who is using them, who is making money because they use them? the ETF ROBO is doing well, but has an almost 1% management fee. Buying on a dip might be a short term way to get some exposure.

The war for retail will be won in groceries AMZN, WMT, KR, COST

8/26/17 I read that the war for retail will be won in groceries on a CNN blog so it must be true! But please forgive my twisted mind for diving deeper. The article is centered around Amazon and Whole Foods which is < 2% of the grocery market. This blog post will consider other retail than groceries, but they are a sector that begs watching.

The problem with the CNN Thesis is that groceries tend to be a defensive stock. As the Investopedia article points out, they do better in harder times, have slower growth in good times. It claims: "Despite this eat, drink or smoke perception and despite modern-day developments, tobacco shares have miraculously never disappeared or been wiped out. Not all food companies are actually defensive stocks, but a good rule is that if the bulk of the sales comes from grocery stores, the stock is probably a defensive one." 

Perhaps, but WMT, AMZN, COST, KR all did fairly well post great recession. Our family benefited from their performance. But only KR has a weak footprint in non-grocery, but they certainly have feet in that camp, (Fred Meyer is a major local presence in Washington State). So perhaps the thesis is better stated:

9/9/17 The war for retail will be won by vendors that balance consumer goods and groceries well. I think that is a more accurate thesis. It helps explain why a number of retailers and such are struggling. 

AMZN

9/25/17 Seeking Alpha, "The company may well be fully valued for essentially all future growth." Grated this thesis is a bit brash, but it does help with perspective.

Here are some more stories, I am guessing this is more about Monday being the day the acquisition is complete instead of actual news, NPR, Fortune, Bloomberg, and a story about beauty supplier Ulta, (keep in mind Wal-Mart is not out of position here either). Then for desert, I saw a story that should be considered seriously about how Amazon is the most overhyped company in the world.

I understand and agree that Amazon disrupted a lot of retail. Their total retail is 5% according to CNBC. And we all know and agree the classic big box stores are struggling with more growth going to online.

A really big statement in the CNBC article is: "But this is coupled with big names in the retail space — Wal-Mart, Costco, Home Depot, Target — seen as losing market share as their margins shrink and dollars shift back to Jeff Bezos' company, the analyst added." Hmmm, maybe, maybe not. 8/31/17 A bit of sanity, AMZN might be the weakest of the major retailers.

Those are four companies that I am following closely, the only one that I am not ready to open a position on tomorrow, if prices drop and the time is right, is Target.
One thing that will be interesting to watch are the brands themselves. Whole Foods has many "house" brands, (as do the rest). One of the Consumer Packaged Goods, (CPG) brands is Campbell Soup and they have the increasing problem that demand is decreasing for what they are peddling.

COST

Bias alert! Kathy and I spend winters on Kauai, Costco and Wal-Mart are the best grocery buys on the island by a far piece.

8/27/17 There is an article that is better than most about why COST might be in for more of a dip in prices, naturally the AMZN Whole Foods is mentioned, but they point out poor eCommerce performance and lower membership rate than AMZN Prime, plus much higher PE than Wal-Mart.

WMT

The recent 2% drop in WMT yesterday was not enough to tempt, it is still really close to 80 and in my dreams I buy in below 70. However, the 8% drop in KR, was enough to get me to set a limit buy in case it dropped again today, (it rose).

I don't want to be a Blockbuster or Circuit City dinosaur and blindly bet against AMZN. We held the stock until June 26, 2017 and sold it for 1009.14. Today AMZN is trading for 945.26. It just isn't clear to me why WMT which is slightly up for the same 3 month time period is the next Blockbuster.

Nobody died and left me smart, but if we are in fact riding an 8 year old bull market, change could be in the air. The magic of the growth companies may be coming to an end. We didn't just sell AMZN in June, we sold:
COST @ 158.19 now 152.45
GOOGL @ 990.00 now 930.50
TSLA @ 386.69 now 348.05

And thank them all from the bottom of our hearts for their hard work that made profit taking possible. Now, with bull market ending, the thought of value coming back into style conceivable, we want to get back in the game. Leaving a lot of money on the sidelines does not make sense.

I am leaning towards larger companies right now. We have managed to get a position in IBM, I want to add more, but the pesky stock keeps going up. I did establish a position in XOM and may add just a little more if it drops enough. WMT and KR are on the shopping list.

KR

Kroger is big enough that they should be able to compete, but they may be out of step, sort of like Chili's, Applebees, Radio Shack and so forth, if their model doesn't work they will get creamed. We still have a limit order in for KR.

9/8/17 250 limit@ 18.02

I may drop it further. Between 2008 and 2012 going into 2013 they spent a long time in the $12 - 15 dollar range.

Buy list

8/31/17 Thesis, there will be some uncertainty in the markets if Congress screws up the debt ceiling and Government continuing resolution. Kathy and I have been able to buy some:
The potential buy list:
                     Today          52L        52H     Limit1   Limit2

AAPL          163.35         102.53   163.89
AMZN         967.59        710.10    1083.31
COST          154.44         142.11     183.18
GOOGL      943.63         743.59    1008.61
IBM              142.56       139.13      182.79
KR                  22.20         20.46        36.44
WMT             78.54          65.28        81.99
XOM              76.10         76.05        93.21


At reasonable prices on dips. We expect them to drop even further. Have to balance being careful with letting the opportunity pass. Plan to start using historical 52 week low as a guide.
NOTE: XOM is below the 52 week low when we bought it.

The problem is that even a 52 week low is potentially high since it is an 8 year bull. And any stock that has not appreciated since five years ago is not likely to now, unless there is one heck of a story.

Limits 8/31/17
KR    200 20.02
WMT 50 77.02
XOM 50 75.02

8/24/17 AMZN announced it was dropping prices on Whole Foods and KR dropped 8%, WMT 2%. Also, the US Government is having a tough time with their budget. Let's start setting some limits for worthy companies, who knows, wish us luck, will revisit ROK soon?

WMT 50 77.53
WMT 50 77.02
KR 200 20.52

XOM

After cashing out, I am trying to get back in the game at reasonable prices.

Exxon, (XOM) thesis: One of the largest companies in the world. They have been whacked by sustained cheap oil. They have debt and cash flow under control. They fell under their 52 week low today.

8/9/17 50 shares market 80.015 (opening the position to force me to spend a lot more time watching the company)

8/9/17 Limit 200 shares@77.74, I would not be surprised if that hits the week of Aug 14, current: 87.17. Even after the limit hits I would not be surprised to see the stock drop. I am tempted to break this into two orders, one even lower, but if I get too greedy, I may miss the bus, no reason not to sleep on it as is.

8/15/17 Limit hit 200 @ 77.94

DOW 22,000 and Cramer

I'm not a Cramer disciple by any means. However, he does make a lot of sense especially at major tops and bottoms. I thought this was sensible and want to remind myself of this:

"I found the celebration particularly disturbing because the last thousand Dow points were really the work of a handful of stocks — actually, just four of them: Boeing, McDonald's, UnitedHealth and Apple," the "Mad Money" host said. "In other words, the strength in the Dow isn't much of a tell for the broader market."

I agree with the analysis not that I have any right to second guess Mr. Cramer's analysis and would extend the observation to some non DOW stocks that are bringing the market higher, AMZN, TSLA, GOOG etc. He goes on to say:

"The Dow surged towards this arbitrary mark just as a large fund began selling its positions in a slew of Nasdaq stocks, otherwise known on Wall Street as a "sell program," Cramer said."

That is the whole point of this trading notebook. I am a small investor without access to Wall Street trading algorithms, supercomputers, and lightning fast trading. Right or wrong, and only time will tell my family jumped out of AMZN, TSLA, GOOG at the end of June 2017.

That money is on the sidelines currently. I think IBM is a candidate for getting back in, but need to be patient, right stock at the right price and all of that.  Back to Mr. Cramer:

What matters, though, is that there are plenty of companies out there that saw their stocks get laid low by these sell programs, and when they get taken down like that, you're always going to hear the sirens of panic telling you to sell everything," Cramer said. "In reality, it's more likely to be the sound of opportunity knocking. You just have to have some cash ready to buy the dip in a responsible way."

I tend to agree, so what are the buying opportunities? I still have my eye on Wal-Mart, but the price is very high. I agree with Cramer on transport and came to that conclusion myself, but still trying to study.

Stocks of companies with no, (or very little), debt and 1 year performance include: CTSX +8, LSI -9, -9, FFIV -12, TROW + 10, ISRG +52%. FRX -6, RHT +25, CTSH -18, ADSK -9, MA +42, EXPD -21.

Mini-thesis: if I can find solid companies with no debt, they will have an advantage. One to look at closely is Mastercard. It is up and I doubt it will drop much, but it almost perfectly matches Visa.

I held ISRG in the past and it was good, lost it in the switch to ETFs. Not sure if I want to add it back with my "mad money".

I want to like F5, FFIV, they just do not seem to have a really compelling product line. I ended up going with Palo Alto, PANW and did a bit better, but just sold it two weeks ago for an ETF. Citrix too,  CTSX, was really in a good place ten years ago, but I think the whole cloud thing thumped them a good one.  Some of these companies I really don't know, I used to use AutoCad every day, would be fun to start getting to know Autodesk, ADSK again.