This week began with a head fake to the upside on Monday followed by a breakdown on Tuesday all the way to S&P 2090. Wednesday moved down more but not disastrously, briefly passing through 2070 but holding 2080 at the close. Thursday saw about a bit under half a percent gain across all the indices. Friday's jobs report had been a concern - too good and it might portend an earlier interest rate hike by the Federal Reserve which might cause stock prices to decline. The report showed in increase of 223,000 non-farm jobs for April but the March number was revised down by 39,000. The result: by 9:00 AM futures were positive by nearly 1%. At lunch time the S&P had settled in up about 1.3% where it would stay for the rest of the day.
The portfolio is holding up well. The portfolio as a whole is still $4,813 in the green, though as you can see from the spreadsheet three positions are underwater at this point. I'm also still sitting on $9561 in cash so things are going about as well as can be expected given the last couple weeks. All told in the first two months of activity I'm seeing an average monthly gain of 2.63% which annualized comes to 36.54%.
On the annoying side of the ledger F has dropped to the point where it's beginning to make sense to average down. I'll be watching for a dip to $15.50 or below to purchase another 500 shares. That would bring my cost basis down to $15.97 but also eat up a good chunk of my cash reserve. At this point I think building that reserve is more important than short term cost averaging so I'll watch carefully and think about it some more while collecting that 3.7% dividend.
Beta!
With regard to stocks, beta is a measure of how a specific stock behaves relative the market as a whole. By definition, "the market" has a beta of 1. If the market as a whole moves by 5% a stock with a beta of 0.5 will be expected to change 2.5% and a stock with a beta of 1.5 will be expected to move 7.5%. Pretty easy to understand, right?
As a retiree, I'm going to get nervous if my portfolio exhibits wild swings in value. So I want my portfolio's beta as a whole to be as low as possible. But low beta stocks also have low time value in their options which reduces the amount of income I can earn in a given month. Nevertheless, low beta is a reasonable goal so I'm starting to look into how to accomplish that.
Right now, the portfolio looks like this:
The portfolio as a whole has a beta of 0.89, so it should be a little more stable than the market, and indeed that's what we've seen the last three weeks. But I think I can do better. ABBV sticks out like the proverbial sore thumb with a beta of 1.63. Right now that position is in the money so I'm thinking of letting it be assigned rather than rolling out next week. At that point I'd have a net gain of $3.85 per share ($2.05 capital gain, $0.51 dividend, $1.30 premium) or 6.13% for holding it just one month. Not bad at all and because this is a simulated IRA I don't have to be concerned with any tax consequences.
I'd then replace ABBV with MRK which has a beta of 0.47. Replacing ABBV equal quantity of MRK will bring my portfolio beta down to 0.75 but it will also slightly decreases my portfolio yield percentage.
The next highest beta stock in the portfolio is GE. I'll talk a little about that next week.
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