Warren Buffett is likely the most quoted investor of all time. One of his most popular quotes has never been more relevant or bandied about then it is right now.
“Be fearful when others are greedy and greedy when others are fearful.”Warren Buffet
The fear in the market has created deep discounts and bargains in every sector. It is overwhelming and tantalizing. Companies with strong balance sheets, decades of dividend reliability, and bulwark business models, even in a recession, are now trading at levels investors could only dream of a few months ago.
Over my short trading and investing career, my stock watchlist has held companies I admired yet hesitated to buy due to their being overvalued in our long-running bull market. Dividend yields were boring-level low given the high valuations. Well, boring morphed into buying in a real hurry.
Investing with Fear and Greed
I am truly excited about this opportunity, but my excitement is countered by the fear of a misstep and the awareness of greed clouding my judgement. Nobody wants to throw away hard-earned money after a company that fizzles out in a hostile market environment. At the same time, most do not want to miss out on a golden opportunity. I think I’m good at moderation (boring I know), so I plan to balance these forces in my investing strategy. Thank you Mr. Buffett for your reminder. Thank you parents for modeling financial responsibility all your lives.
As much as I’d like to, I cannot invest in all the companies on my watchlist. So I reviewed my current portfolio and noticed a big blank space in the banking and financial sector. I have had my eye on Visa (V) and Mastercard (MA) in the financial services sector and Bank of America (BAC), JP Morgan (JPM), and T. Rowe Price (TROW) in banking. I dipped my toes in the water today picking up one share of Mastercard and one share of JP Morgan. If I can get the entries I want, I plan to buy shares in Bank of America and T. Row Price over the next few trading days. Eventually, I’d like to compare these three banking investments against each other. If I can pick up a few shares of each one, I’ll post a series of updates to discuss how they perform in comparison to each other.
Visa and Mastercard have huge long term potential; however, they both trade at a hefty per-share price and boast pretty tiny dividend yields. My one share of Mastercard set me back by $259.04. I won’t be stock-piling that stock given my funding levels. I do want to be invested though, and this dip in price gives me a chance. Do note that those who invested when fear was especially high last week could have bought Mastercard at $201. They are seeing a 30% profit in a matter of days.
More Bargain Hunting
I bought one share of Medtronic (MDT) to beef up my biotechnology sector. I’ll look to add a couple more shares should it dip back under $90.00.
I am heavy in REITs, and I am fine with that. It allows me to invest in real estate without the messiness of dealing with my own rental properties. I am not opposed to owning real estate beyond the home we currently live in, but right now, I do not have the hustle or liquidity to pursue that investment angle.
I reported in my February 2020 Dividend Builder update that I had a call option exercised causing me to sell 100 shares of New Residential Investment Corp (NRZ) for $17.00 a share. The long-term investor in me was sad to see most of that high yield holding gone. I didn’t know if I could get back in at my same entry point. It turns out that the call option being exercised was the best thing that could have happened. NRZ and other REITs were hit extremely hard by the fear and panic. The selloff was dramatic despite no evidence that real estate would be adversely impacted. Financial gurus are claiming this is not the same market environment that caused the housing crash of 2008.
I was able to reload my NRZ position with another 110 shares at an average of $6.58 a share. If NRZ can maintain their current quarterly dividend of $0.50, this gives me an annual yield of 30%. This feels a little ridiculous. I understand NRZ may need to cut their dividend, but even cutting it in half nets a yield of 15%. More to come on this one as the market evolves with COVID.
Fear and Greed in Review
That rounds out my first attempt to explain investing in the face of fear and greed. I hope to continue building my positions in banking and finance. I think it will be fun to track and compare how my three banking picks perform against each other and the broader market.
Thanks for taking the time to read along with me today as I refine my psychology as a trader and investor. My gut tells me I am making the right decision to invest with moderation in a time of fear. I believe I have captured companies at a time when they are priced right and offering up attractive dividend yields. Check back in with the blog as I’ll be transparent about results as we ride out this pandemic-influenced market.