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Jeff Bishop-10x Portfolio Blueprint PDF
Jeff Bishop-10x Portfolio Blueprint PDF
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Low-interest rates and inflation have killed that opportunity for you.
And with the Federal Reserve Bank injecting trillions of dollars in the market in March and April of
2020 to combat the COVID-19 pandemic—it’s a trend which I don’t see changing anytime soon.
Source: https://www.usinflationcalculator.com/
According to the stats, what we used to spend $1 on 20 years ago now costs us $1.50.
Now imagine if you bought shares of Apple in April of 2000 and held it for 20 years. A $10,000 in-
vestment would now be worth $746,945.
During that same time period a $10,000 investment would have turned into:
Think about it, Wall Street analysts are pressured to sound the same, and to be overly positive because
they want the companies they cover to work with the bank.
No wonder most mutual funds can’t beat the benchmark S&P 500.
To beat the market consistently you must be willing to do what others are scared to do.
I’m excited to share my process and give you the tools you’ll need to succeed.
• Control my risk. I choose how much I’m willing to invest on a specific stock based on my goals and
outlook. Additionally, I can pick whether I want to be aggressive or conservative on an investment.
• Actually own a piece of the company when I invest. I can also generate passive income (if a
company is profitable and rewards shareholders with dividends — more on that later).
○ That means if I’m invested in a company and the stock price goes up, I have unrealized profits.
Investing takes skill, the ability to conduct due diligence and manage risk properly.
With that being said, I don’t treat investing as a form of gambling — and I don’t believe those who
want to make it as a “stock picker” should treat it that way. Throughout this book, I will reveal the
techniques I use to find what I believe are the best investment opportunities to build a potentially
time-tested portfolio.
Now, that you understand investing in stocks — to me — is not a form of glorified gambling. I also
don’t believe it’s in anyway similar to speculation or trading (even though there are speculative in-
vestments out there).
I care more about how the company is growing, whether it’s filling unmet needs, and the viability of
its business for decades to come.
You see, as an investor, I have to think of my portfolio over the long run… and focusing on the daily price
action would just drive me crazy. I want to be able to find the next Apple, Microsoft, Amazon, or Facebook.
When I buy a stock for my long-term portfolio, I don’t really care if the stock finishes lower by 5% in a
week because I’m looking at the business model, which can produce hefty returns for me in the future.
I know, I know… things get a little muddy when we talk about investing and speculating. However, I
think showing you a long-term chart and a chart I would look at if I were to trade a stock to give you a
good idea of the true difference between the two.
Here’s a look at a long-term chart of the SPDR S&P 500 ETF (SPY):
A typical long-term investor might look at how much value the S&P 500 could contribute over the
next decade (or longer). The chart above is the monthly chart between April 1, 2009 and April 1,
2020. As you can see, there are different movements along the way, but the overall trend is up.
On the other hand, a speculator may look at the shorter-term trend to identify potential shifts and
profit off them. For example, if I’m looking to trade a stock, I would look at moving averages to see
So the way I see it is speculation is more focused on the price action of the stock, not the company
itself. A speculator may place a trade to express their opinion on whether a stock will run higher after
a quarterly earnings release, a news event, or a technical pattern.
Typically, speculators might not care about what the company does… they may just look to a specific
indicator.
I like to think of investing as potentially building wealth gradually over time, whereas speculating (trading)
involves frequent buying and selling of stocks or options to potentially generate returns over the short-term.
• Long-Term. This type of investor looks to hold onto an investment for at least 10 years.
• Medium-Term. This group of investors looks to hold a stock for anywhere between 3 to 10 years.
• Short-Term. The short-term investor typically does not want to hold onto a stock for more than 3 years.
Now that I’ve got that out of the way, I want to show you why I believe long-term investing can be
more advantageous than speculation (trading).
I know what you’re probably wondering, “What the heck are compound returns?”
Basically, you generate compound returns when your investment grows in addition to the original
investment amount. For speculators, this typically doesn’t occur over the long-term because they are
typically not in a stock long enough to reap the rewards of compound returns.
Let me show you how it works. I love to use blue chip companies as examples, so let’s take a look at
Apple Inc. (AAPL).
It might not seem like a whole lot to you at first glance, but let me show you how it works. Keep in
mind that, for simplicity, I’ll be using the dollar amount invested and taking into account stock splits
over this period.
Let’s say an investor was able to buy $2,500 worth of AAPL in the beginning of 2009. Well, at the end
of 2018 (heading into 2019)... that investment would’ve been worth more than $32K!
Let’s assume an investor noticed the potential in Amazon.com (AMZN) at the start of 2010, and was
able to purchase $2,500 worth of the stock.
Assuming the investor held for this entire period (between the start of 2010 and then end of 2019),
that $2,500 would’ve been worth more than $34K.
Keep in mind, this is just a small sample size, and finding the next AAPL and AMZN does take a bit
of skill and experience. However, I believe these examples show the true power of compound returns.
Basically, if I can pick a financially sound company that continues to grow over time, an investment
could be worth much more than I would expect over the long haul.
That’s not the only benefit I believe investing in stocks has to offer. There’s also something known as
dividends — a payment that well-established companies may offer to its shareholders.
Investors have the option to collect the cash after every dividend payout or put it back into the compa-
ny or exchange-traded fund (ETF).
Instead of collecting the cash after every payout, I believe it can be beneficial to put it back to work
by reinvesting that money into the stock once a quarter.
This strategy can not only increase the number of shares owned over time, but it can generate more
income, boost your returns, and accelerate wealth growth.
The difference between reinvesting your dividends and simply keeping them is quite incredible. Take
a look at this chart in the S&P 500 over the last decade.
S&P 500 TOTAL RETURN VERSUS S&P 500 % PRICE CHANGE (NO DIVIDENDS)
Source: YCharts
As shown above, investors who reinvest their dividends can earn a massive boost to their overall wealth.
The thing is, I don’t just look for investments that offer dividends (and you’ll see why in a later sec-
tion — Don’t Fall In Love With Dividend or Growth Stocks).
Now, that I’ve gone over some of the basics of investing, I want to walk you through some of the
attributes I believe an investor should have.
• A contrarian view.
• The ability to remain realistic.
• Patience.
• The ability to remove emotions from investing.
• A passionate interest in investing and desire to educate themselves.
The thing is, I don’t believe in the school of thought that someone is born with the ability to pick
stocks. I believe that you can learn these attributes over time and put yourself in a position to poten-
tially become a successful investor over the long run.
I believe the same thing when it comes to investing. In other words, I love to go against the herd. If
you look at the build up into each financial crisis, I think the unwisdom of crowds took over. Just take
a look at the months leading up to the global financial crisis between 2007 to 2008.
It was pure euphoria. The market was running higher and the housing market was booming. Everything
looked great in the market… until the bubble popped, and fear ensued the heard — leading to panic selling.
Take a look at the weekly chart of the SPDR S&P 500 ETF (SPY) between January 2006 and Decem-
ber 2008.
Why?
Well, one of the main reasons that crowd mentality takes over is to put to bed fears, in my opinion.
If everyone else is buying stocks, beginning investors tend to follow suit because they feel safe and
think they can’t be wrong because so many other investors are in. That’s what I believe typically fuels
bubbles, as well as the fear of missing out.
Sure, this strategy may work sometimes — following the herd — but in the long run, I don’t think the
strategy is viable.
Think about it like this, imagine you bought shares of stocks when the market was at its peak… then
all of a sudden, all your positions take a dive and you exit at the bottom. That’s what I believe crowd
mentality can do to an investor.
To me, the herd mentality takes “buy low, sell high” and flips it to “buy high, sell low”.
If you look at some of the investing titans of our time, they tend to follow a contrarian approach and
go against the herd mentality.
Basically, when others are selling and panicking, I see potential opportunities and may look to buy
stocks if my analysis checks out.
That’s just one quality I think successful investors have. The next is being realistic.
It’s rare to buy a portfolio of stocks and all the stocks skyrocket. Investing is a heck of a lot different
to me, and I find it’s helpful to have realistic goals and expectations.
For me personally, I know I’m going to invest in a financially sound and stable company that has the
ability to expand operations. However, I don’t kid myself and think the market value of the stock will
magically increase in a matter of months. I understand it may take years or even a decade to reap the
potential reward.
In other words, I’m firmly believe that the market “pays” investors to take risk. If I wanted zero stress,
I would just put my would-be investment capital into the bank or Treasury bonds. Of course, to me,
those would be least “stressful” ways to generate returns. However, down the road, those returns pale
in comparison to what the stock market offers.
When I’m invested in a stock over the long-term, I don’t panic when there are short-term market events
that cause shockwaves. For the most part, I try to find companies that will be around for years to come,
so I don’t find it advantageous to just head for the doors once there’s a headline that hits the market.
Of course, if I’m invested in a company, I conduct my due diligence and adapt whenever there’s new
information. However, I don’t necessarily have to listen to the talking heads on the T.V. harp about the
market.
If you just look at times where there were signs of trouble in the market, many who dumped shares of
well-established companies and didn’t buy back, missed out on upside potential.
What I mean by this is that the successful investors don’t let emotions overpower their minds. Those
who don’t have a good control of their emotions tend to forgo rational thinking and either panic sell at
the bottom or buy at the top.
Some investors find it helpful to take a step back to collect their thoughts and revisit the potential
investment opportunity before making a decision.
When I look at all the great investors, they all seem to be passionate about investing. Not only that,
but they have a thirst for knowledge and generally have questions about all investment opportunities.
I believe it’s imperative that investors seek to educate themselves on different types of investment
strategies, how sectors operate, and the inner workings of specific companies.
Before I show you some of the techniques I use to find potential stocks to invest in, there’s one factor
I need to mention: age.
For example, you probably don’t want to own a basket of stocks that have the potential to decline
50% or more, if you’re approaching retirement and planning on living off your investments.
However, if you’re young, it makes sense to take a few shots. If it doesn’t work out, who cares, you’ll
have plenty of time to bounce back from a loss.
An old rule of thumb has always been to subtract your age by 100 and that will tell you how much of
your portfolio should be in stocks.
For example, if you are 40 then you should have 60% in stocks and the rest in other assets like real
estate and bonds.
However, I don’t believe bonds really have a place anymore in an investment portfolio given how low
yields are. But that’s a discussion you should consider having with your broker or investment advisor.
Now that that’s out of the way, I believe it’s important for potential investors to understand the busi-
ness cycle, and it’ll become clear why I need to cover this “boring” section when I show you one type
of investment approach.
1. Expansion: Real GDP increases and the job market experiences a low unemployment rate.
During this cycle, an investor can get aggressive and look for more speculative growth stocks to
add to their portfolio. When the economy starts to take off you want to be along for the ride.
2. Peak: When output stops increasing and starts to show signs of a decline.
As an investor, it’s important to pay attention to how the market is reacting to the economic envi-
ronment because there will be periods of dislocation. For example, bad economic headlines can be
swept under the rug while the market continues to soar (and vice versa).
3. Recession: Output is now clearly decreasing and the job market has become unstable with unem-
ployment rates rising.
As an investor, this will be some of your best chances to scoop up good quality companies for pen-
nies on the dollar. Recessions in the U.S. don’t last long historically and generally offer great buy
the dip opportunities.
4. Trough: This is when stocks bottom out and the economy struggles. Months later, buyers finally
come in and the economy starts to rebound.
While no one can ever predict when an economy will hit the bottom. Buying stocks during the first
stages of recovery is advantageous as you’ll learn when I cover the market cycle.
Why?
Because Wall Street believes the Federal Reserve Bank will step in to support the markets. Which
it has done ever since the financial crisis of 2009, and is doing again in 2020, during the COVID-19
pandemic.
As you can see, bull markets tend to last significantly longer than bear markets. And that’s why you
shouldn’t panic during a market sell-off or be trying to pick bottoms.
Market sell-offs tend to be hard and fast and can take stocks to extremely oversold conditions. If
you’re waiting for a good sign, then you’ll be slightly late to the party.
That’s why it’s important to go back and look at the business and market cycles.
The beauty of investing is that you don’t need to be precise like a day trader to make a lot of money.
With that being said, I want to show you different investment approaches, how to analyze stocks, and
key financial ratios that I use to uncover opportunities.
There are thousands of stocks to potentially invest in, but finding the right one for me starts with in-
vestment ideas.
Of course, at the most basic level, reading is a must. I like to research as much as I can to generate my
investment ideas.
• MarketWatch
• Bloomberg
• CNBC
• The Wall Street Journal
• Reuters
By staying tuned into the market, I find idea generation gets a lot easier. I believe after reading, there
are two ways to approach the search for a potential investment: the bottom-up approach and the top-
down approach.
With the bottom-up approach, the focus is primarily on the company itself. On the other hand, the top-
down approach is looking for opportunities based on a sector or macro theme.
For example, back during the financial crisis of 2007-2008, the macro theme for a contrarian investor
was the Fed, which was most likely going to bail out the banks.
There are different sector trends that could signal which specific stocks could be around for years to
come. For example, e-commerce, technology, the cloud, and social media have been secular themes
and the ability to spot those trends has rewarded many investors.
For me personally, I believe it’s important to identify secular shifts in the market because they will
eventually shape and mold the future. For example, if you were able to figure out that e-commerce
was going to become what it is, and spotted the potential in Amazon.com (AMZN)... you can imagine
how profitable that investment may have turned out.
Maybe you notice people in your town or city are all buying the new iPhone, or whenever you go to
your grocery store, they run out of a specific brand of meat… or maybe you notice.
You never know where or when an investment idea could pop into your mind if you just observe
what’s around you. However, it takes practice and time to develop that mindset. For me personally, I
like to use a combination of the two, which should become clear to you when I show you how I ana-
lyze stocks.
You see, whether you use the top-down or bottom-up approach, you end up finding some potential
stock investments, but buying stocks without conducting due diligence would is just gambling in my
view.
Not only that, but I think the potential investments should be in line with the goals of the portfolio,
and every investor is different. For the most part, I think stocks can be broken down into three differ-
ent categories, and thereby investment styles.
There’s no right answer here, and it all depends on your personality and skill set.
For the most part, I think investors buy stocks with one of three goals in mind:
1. They want to buy stocks that will increase over the long term.
2. They want to generate passive income through dividends.
3. They want to buy stocks that could generate high returns, and collect dividends.
In order to fully understand what type of investor you may want to be, it’s important to know the dif-
ferent categories of stocks out there.
Growth Stocks
You can probably guess by the name, but publicly-traded companies that are placed in this group are
those with immense growth potential. Typically, these companies may be outpacing the overall market
or their respective sectors.
Of course, there are growth companies in nearly every corner of the market, but typically, many
of these stocks can be found in the technology, biotech and pharmaceutical, and alternative energy
sectors.
Generally, many investors view growth stocks as “newer” companies with products and services that
could disrupt their sector and impact the overall market.
Typically, well-established and financially sound companies offer dividends to shareholders. Howev-
er, it’s at the company’s board of directors’ discretion to provide a dividend or not. The board also has
the power to cut dividends, or worse, remove dividends.
Some investors choose to opt into DRIP (if they’re invested in a stock that offers it) in an attempt to
compound their returns (as I mentioned earlier).
When it comes to dividend stocks, there are four important dates to keep in mind:
1. Announcement date. This is the day when the company’s management team lets the public know
about dividends, and thereafter, it must be approved by stockholders before they’re paid out.
2. Ex-dividend date. This date is crucial because it lets shareholders know that if they buy shares
after this date, they will not qualify to receive the next dividend. Nowadays, shareholders could
purchase shares the trading day before the ex-dividend date to be considered for the dividend.
3. Record date. After the ex-dividend date, there’s the record date. Shareholders must be on record
for holding the stock on this date to be eligible to receive the dividend.
4. Payout date. This is when the company issues the dividend, and investors must still hold the stock
up until this day to receive the dividend.
Keep in mind, a dividend stock’s price can be impacted around dividend announcement and the ex-div-
idend date. However, long-term investors do not necessarily care about the short-term price action.
Value Stocks
You’ve probably heard the term “value investors”, or someone say a stock is “undervalued” or “over-
valued”. When it comes to value stocks, I think it’s quite clear we’re talking about undervalued com-
panies here.
A value stock is one that trades at a discount to where it “should” be based on financial ratios, the sta-
tus of the company, or even technical indicators. There are different financial ratios that could signal
whether a company is undervalued.
To be honest, I don’t really have a type. I look for opportunities in all areas of the market, whether it
be growth, value, or income stocks. For me personally, I don’t think it really matters because different
stocks offer different types of advantages for a portfolio.
Why?
Well, with income stocks, the dividend could be cut at any point in time. That would be an indication
the company may not be financially sound. Consequently, that can scare investors and cause them to
dump their shares. Not only that, but short sellers may use that catalyst event to short the stock.
Just take a look at General Electric Co. (GE) which was having financial difficulties in 2018 and
forced the board of directors to cut its dividend.
When it comes to growth stocks, you never know when the economy can turn and cause people to sell
their shares of these potentially high-flying stocks. With value stocks, you never really know whether
a stock will recover over the long-term.
Now, in order to uncover potential opportunities, I conduct my due diligence and I want to show you
some ways to conduct investment analysis.
• Is the company’s business model sustainable over the long term and has it established an economic
moat (an advantage over its competitors)?
• Has the company proven its ability to grow its earnings?
• What’s the company’s core business?
• What risks are posed to the company?
• What problems or unmet needs does the company solve or fill?
That’s the barebones when it comes to business due diligence. If I don’t have a clear answer or am
uncomfortable with one of the answers, then I’ll pass on the investment — or put it on a watchlist for
the future.
Of course, business due diligence is qualitative and there really is no right or wrong answer here. It’s
all based on an investor’s personality and view of the world.
Don’t worry if any of this sounds unfamiliar to you at all, I will show you in a later section how I con-
duct my due diligence. That way, you can get an idea of how I think about investments.
I think is equally as important as business due diligence is financial due diligence. However, financial
due diligence is more black and white, and is quantitative in nature. If you’re not a math whiz, don’t
worry because the basics suffice and there are free tools out that have already calculated some import-
ant financials for us.
If you choose to use a third-party website for the financials, make sure to double check they’re in line
with what the company reports.
Now, when it comes to financial analysis, I think there are some key questions to ask yourself about
the company:
Of course, financial statement analysis can be an entire book on its own. However, I want to provide
you with some quick notes about analyzing a company’s financials.
I believe there are three important financial statements investors may want to look into:
• Balance sheet
• Income statement
• Cash flow statement
The other two are the stockholders’ equity statement and the statement of comprehensive income
(which won’t be covered here because this isn’t a book about accounting).
The balance sheet includes the breakdown of a company’s assets, liabilities, and shareholders’ equity.
The assets include cash, property, plant and equipment, and inventory, and the assets can be broken
The total liabilities include current and non-current (long-term debt). The shareholders’ equity in-
cludes share capital and retained earnings.
First, I want to go over the income statement and cash flow statement.
Consequently, it can help us figure out whether a company may be undervalued in relation to the over-
all market or its sector.
Here’s a look at Apple’s Income Statement. Note, you may see it as “Condensed Consolidated State-
ments of Operations” sometimes, but as long as you see net sales or revenues on the left hand side,
you’re probably looking at the right statement (if you went to the company website).
This gives investors an idea of the company’s ability to increase its cash over time. Of course, you
could probably guess, the more cash on hand, the more financially sound a company is.
Well, they provide actionable information about a company. The best part here is that all of this in-
formation is public and can be found in the financial statements, you would just need to know how to
calculate and interpret the ratios.
Of course, I don’t believe there’s a one-size fits all ratio, so it’s important to analyze ratios from these
categories. When it comes to financial ratios, investors typically use them to compare a stock with its
peers, the overall industry or sector, and the changes in the financial ratio over time, to name a few.
Now, I won’t bore you with all the nuances of these ratios, but I believe it’s important to know how to
calculate and interpret a few key ratios. For me personally, I don’t necessarily look at all the financial
ratios out there, just the ones that I find are important.
For the most part, a strong company will be able to grow its EPS over time. Keep in mind, companies may
buy back shares of their stock to reduce the number of shares outstanding to artificially boost EPS. That
said, make sure to stay up to date of any corporate actions, namely buyqbacks if you want to use this ratio.
This ratio is calculated by dividing the dividends over a specified period by the net income for the
same period. If a company’s dividend payout ratio continues to rise over time, and reaches more than
100%, it should definitely throw up some red flags.
Dividend yield indicates how much a company pays out in the form of dividends in relation to its
share price at a specific point in time.
Debt ratio is calculated as the total liabilities divided by total assets. If a large portion of a compa-
ny’s total assets is made up of liabilities (debt), it may be an indication the company is not financially
sound. However, keep in mind, one ratio does not paint the entire picture of a company.
Debt to equity ratio measures a company’s financial leverage. Basically, it tells us how much debt a
company is using at a specific time to finance its debt, relative to its shareholders’ equity.
Gross profit margin gives us an indication of how profitable a company is… the higher the figure the
better. This ratio tells us the percentage of total revenue that actually became a profit for the company.
Of course, the list goes on and on for financial ratios. However, I believe these ratios can be sufficient
to conduct due diligence for my portfolio. Of course, if you’re interested in financial ratios, by all
means feel free to research the financial ratios because that can potentially help you become a better
investor.
There are other factors that go into my decision-making process, such as technical analysis and other
fundamentals.
The thing is, I can continue to bore you with the details of financial statements, all the financial ratios,
and go through different chart patterns. However, I don’t think it will benefit you a whole lot. Instead,
I want to show you how I find potential investment opportunities and analyze them.
But first, I want to show you how to build a portfolio for generations to come.
That being said, there’s one important factor to understand when it comes to portfolio construction:
diversification.
Sure, in theory, buying stocks in different sectors can help to mitigate some risk. However, too much
of a good thing can actually be bad (we’ve all heard that saying before), and I believe that it’s true…
because there is such a thing as over-diversification.
Take a look at the trailing returns for the Vanguard Total Stock Market ETF (VTI).
Source: Morningstar
This fund holds 3,551 stocks and aims to track the performance of the CRSP U.S. Total Market Index,
and it holds small-, mid-, and large-cap stocks across growth and value styles. When you look at the
long-term average annual return (over the past 15 years, as of April 13, 2020), it’s only 8.13%.
Source: Morningstar
I’m not saying that I concentrate my investment portfolio into one sector, I’m just using these two
ETFs for a demonstration that an extremely diversified portfolio is not always better.
Again, don’t get it twisted, I do believe that diversification is necessary to an extent, but that doesn’t
mean I’m going out and loading up my portfolio with hundreds or thousands of stocks. When there
are so many holdings, it actually becomes difficult to outperform the market.
The reason why diversification to an extent is important is due to the fact that not all industries and
sectors move in tandem. If I mix it up in my portfolio, I won’t necessarily see a big drop in my portfo-
lio value if a specific sector or stock takes a hit due to a catalyst.
There’s one thing to keep in mind, no matter how much one diversifies their portfolio, risk can never
be eliminated. However, it does help to reduce single-stock risk.
I think diversification can be achieved with 10 to 20 good companies that are uncorrelated in terms
of returns, and you’ll see how I analyze different stocks to construct a portfolio when I discuss my
investment philosophy.
Now in order to properly “diversify” your portfolio, it’s crucial to consider your appetite for risk. Dif-
ferent stocks entail different levels and types of risk, and your financial adviser or broker can help you
determine what your risk tolerance is.
Once that’s figured out and you understand the risks involved with investments, you can start to look
at the different types of stocks out there.
Keep in mind, this is based on historical prices and returns, and sometimes… it doesn’t necessarily
matter and stocks may move over a specified period of time in tandem based on other market forces.
However, it’s a good tool to keep in your back pocket in my opinion.
Here’s a look at a stock correlation matrix. Don’t get scared off by this term, because you can just en-
ter the tickers you have in mind and then look at the correlation between those stocks. For this specific
matrix, I put in AAPL, MSFT, Exxon Mobil (XOM), Verizon (VZ), and Wynn Resorts (WYNN).
This is the correlation matrix between April 2009 and April 2020. Basically the ones in the diagonal
line are the stock’s “correlation” with each other. A correlation of 1 indicates two stocks move with
each other. What matters are the numbers below the diagonals.
For example, MSFT is heavily correlated with AAPL (the closer the number is to 1, the more the
stocks move with each other). On the other hand, XOM isn’t correlated with MSFT (the number is
0.3134, and the closer the number is to 0, the less the stocks move together).
So if you think about it, you can actually do this with a bit of common sense. An oil company (XOM)
is typically not going to move in lockstep with a tech company (MSFT). Additionally, WYNN (a casi-
no company) probably won’t have the same performance as a tech company like AAPL or MSFT.
Of course, you’re probably wondering, “This is great and all Jeff, but how do you actually find these
potential investments and actually construct a portfolio?”
That said, it’s the moment you’ve been waiting for… my investment philosophy and how I analyze
potential investments.
With that being said, I broke down what I believe is a powerful and simple way to hedge a portfolio.
Although the COVID-19 pandemic is widely accepted as a “black swan” event, there were steps in-
vestors could have taken to protect their portfolios in advance.
One of the best ways to hedge against downside risk in a portfolio is by utilizing options.
There are several ways you can achieve your hedging goals, but for the case of simplicity, I’m going
to walk you through the three most basic methods.
Married Put
A married put is a strategy that utilizes stock and and a put option.
For example, let’s say an investor is long 1,000 shares of Micron Technology at $41.22.
Theoretically, this investor has $41,220 worth of risk on—unlikely, but mathematically possible.
During the market sell-off in 2020, several oil stocks fell by 80-90% because of a botched oil deal
between the Saudi’s and the Russians.
However, if an investor buys a put option against their long stock position.
For example:
The investor could buy $35 puts expiring 286 days out, for $4.75.
We take the strike price and subtract it from the premium ($4.75)
In this case, the investor would not lose a dime beyond $30.22.
A married put position has the same risk profile as a long call option.
Married Put
Benefits: Reduces and defines risk; allows you to maintain your upside potential.
For example, if the investor paid $4.75, they would need the stock to trade above ($4.75 plus $41.22)
= $45.97 before they can start earning money.
Buying a put option against your stock holding can be expensive if volatility in the options are expensive.
One alternative is to buy near-term puts expiring, and then simply roll them over to the next contract,
until you see volatility and options begin to cheapen.
You don’t have to buy long-dated options to hedge, this was simply an example.
There is a cost to doing business, the more you hedge, the more it will eat away at your potential prof-
its. And vice versa. No hedge at all leaves you completely exposed.
There are several ways you can establish a married put hedge.
If you go further out-of-the-money, it will cost you less, but also give you less protection.
I’ll tell you why I call it a partial hedge, but first let me explain to you how the strategy works.
Let’s say, an investor is long 100 shares of Microsoft at $153.83. And the investor wants to protect
themselves against a slight downside move.
So they decide to sell out-the-money calls, the $160 calls expiring in 20 days, and collect a premium
of $4.15.
The investor puts $415 in their pocket. Which now serves as their downside protection.
You see, if the investor collects $4.15 per share, the stock can drop to $149.68 and they still haven’t
lost a dime.
What they lose in the stock position, they make from the call premium.
By selling the call against their stock, the investor has given up their upside.
However, they would lose $1,585 from being short the $160 calls.
So that is one of the clear downsides of covered-calls, giving up your right for unlimited profit potential.
But again, if you’re applying this strategy as a hedge, you are more concerned about your risk than the
profit potential.
Benefits: Acts as a partial hedge. You get paid to put on the position. If the stock trades
range-bound you’ll profit from the premium collected.
Cons: Limits upside gain. Does not fully protect the investor against a large decline in the stock.
This is a great strategy to apply in low volatile markets where you don’t believe there is much upside
in the underlying stock, as it offers you a partial hedge.
However, if you’re concerned about your risk exposure then this is not the strategy that will protect you.
Collar Spread
The collar spread is what you get when you merge the covered call with the married put.
The collard put includes a long stock position, a long put position, and a short call position.
In other words, to bring the hedging costs down, the investor sells calls to finance their put purchase.
Let’s say an investor holds 100 shares of Exxon Mobil (XOM) at $39.21.
They want to hedge because of an upcoming OPEC meeting, so they decide to buy the $37 puts expir-
ing five days from now for $0.80. To help bring down their cost, they sell the $42 calls for $.70.
If the OPEC deal goes south, and XOM goes to $20, how much does the investor lose?
Here’s how:
They bought the $37 put, so they are protected from $36.90 down.
If XOM goes to 20, the investor loses money on their long stock position. But gains from their short
call, as well as their long put option.
The Collar
Benefits: Cheap way to fully hedge your investment. It’s cheaper than the married put, and
offers greater protection than the covered write.
Hedging Thoughts
The key to hedging is keeping costs low. That’s why the collar strategy is perfect if you’re worried
about a market sell-off.
Also, do you want to hedge each stock position or is there something easier that requires less time
management?
You could also consider buying deep out-the-money puts in an index ETF like the SPY, DIA, QQQ, or
even IWM— whatever you feel best represents your portfolio.
Now that I showed you some things I think can help with risk management, let’s take a look at my
investment philosophy. When it comes to selecting potential investments for my portfolio, I look for
stocks that have good management, are leaders in an industry (or I believe they’ll become one), are
financially sound, and may be undervalued at their current price.
Keep in mind, these are not stock recommendations, they are simply my analysis of the specific compa-
nies at that point in time. I just want to provide you with the method I use to find potential investments.
This is one stock everyone and their brother probably knows about.
After all, it was the world’s first publicly-traded companies to reach $1T in market value and they
have a global footprint like no other. If you just look around, so many people have Apple products,
and that’s where the idea came from.
That being said, this is one of my favorite investment ideas for the long term.
If you don’t already know, Apple was founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald
Wayne… and just a few decades later, Apple became the world’s first trillion-dollar company.
The reason?
The company’s ability to innovate the technology industry and provide consumers with sleek, state-
of-the-art computers, mobile devices, as well as software and services.
Of course, if you just look around, you’ll notice many consumers own either an iPhone, iPad, Mac, or
airpods.
Not only that, but if you ask around chances are they use iMessage, iCloud, mac, iTunes, Apple Pay
and the app store.
With such strong brand loyalty and name recognition, I don’t think Apple is going anywhere anytime
soon, and there are many factors that prove the company has staying power.
Here’s a fun fact: Apple stands as the largest technology company by revenue, as well as market capi-
talization at the time of this writing.
However, Apple has proven its ability to take market share and outperform some of the most influen-
tial and innovative companies.
That signals to me Apple is a resilient company and will continue to grow its brand for years to come.
When it comes to due diligence, I like to see what areas a company is dominant in.
Right now, Apple has a majority of the market share in the U.S.
In February 2020, Apple had about 26% market share of the smartphone operating systems worldwide.
I don’t see this as a weakness because if Apple is able to take just a few more percentage points in the
global smartphone market, that would equate to billions more in revenues and net earnings.
You see, although Apple dominates with its products in the US, its foreign revenues have been declin-
ing over the years.
The reason this is happening is because of the high price point on iPhones. The vast majority of mo-
bile phone sales are under $316 while the average iPhone costs $758.
However, Apple is showing promise as it’s looked to tackle this problem by slating rollout of its latest
iPhone in Spring 2020 — which is expected to retail around $400.
Not only that, but Apple has started to slash some prices on its luxury phones, such as the iPhone 8
and iPhone XR.
The company generates a majority of its revenue from the sale of iPhones (61% of total revenue).
Which should see a decline this year.
Apple’s subscription services business should continue to provide strong revenue for the company.
And even in this environment, App Store, Apple Pay, Apple Music, and AppleCare should thrive.
This side of the business generated about 18% of the firm’s total sales in fiscal 2019.
Another fast growing segment for Apple has been wearables. Its wearables revenue grew by 44% in
fiscal 2019.
Of course, the story and headlines of what Apple is doing to innovate aren’t the only factors I analyze.
I like to look at the long-term chart, then dig deeper into the fundamentals.
As you can see, the stock is still in a long-term upward trend. However, the coronavirus has caused
the stock to pull back from the $320 area.
There are key areas in which the stock looks extremely attractive — around the 50-period moving
average and 200-period moving averages on the daily and weekly charts. Keep in mind, these levels
do change over time.
However, those moving averages tend to be key support levels. In other words, there are investors
willing to step in and buy the stock, and therefore, “supporting” the stock at those prices.
Of course, it’s beneficial to know where AAPL is currently trading, but I also love to look at the finan-
cials to give me an inside look at how the company is doing.
For example, during the start of the coronavirus pandemic, Apple was among the first companies to
come out, back in February 17, to announce that it would be missing its quarterly guidance due to
COVID-19 concerns.
Although the company is predicting a decline in its iPhone sales volume, I believe that is just a short-
term bump in the road. You see, analysts at some of the largest investment banks are still projecting
year over year growth in Apple’s revenues and earnings per share.
Please take the numbers below with a grain of salt. The COVID-19 pandemic is ongoing, and it’s
caused a lot of economic slowdown.
When it comes to conducting due diligence on investment ideas, it’s beneficial to compare the num-
bers to the industry standard. If you look below, Apple has some relatively attractive values.
For example, look at the price to earnings (P/E) — one of the most widely used financial ratios out
there.
Apple trades at about 20 times its earnings, which is below the industry average.
Moreover, Apple has proven its ability to grow year over year, according to the profitability metrics
below.
Source: TradeStation
The firm disclosed last summer that it had a 62.8% profit margin from its services business.
• Value
The stock is trading 27% off its highs, and pays its investors a cash dividend of $4.83 per
share.
Let’s take a look at my investment analysis on another stock I believe will stick around for years to
come.
AT&T Inc. (originally named Southwestern Bell) was founded in 1877 by Alexander Graham Bell
after he patented the telephone. So, the company has history to it, and chances are (to me), it will stay
that way.
AT&T has established a network of subsidiaries in the U.S., Canada, Latin America, and the Asia Pa-
cific. For a while, it was a monopoly and the world’s largest phone/telecommunications company.
• Communication – provides wireless and wireline telecom, video, and broadband services to con-
sumers. Its business units include Mobility, Entertainment Group, and Business Wireline.
• WarnerMedia – develops, produces, and distributes feature films, television, gaming, and other
content over various physical and digital formats. Its business units include Turner, HBO, and War-
ner Bros, and its portfolio includes cable channels like TNT and CNN.
• Latin America – provides entertainment services in Latin America and wireless services in Mexico.
Its business units include Viro and Mexico.
• Xandr – provides advertising services.
AT&T has made some bold moves to continue to take market share from its competitors, including
that controversial merger with Time Warner.
The old-school phone giant faces competition in the Telecom Services industry from firms like Veri-
zon, Spectrum, COX, Cricket, Comcast, CenturyLink, & Dish — and that’s not to even mention the
newly created two-headed monster of T-Mobile and Sprint.
But AT&T is nimble and innovative. It stands at the forefront of one of the hottest tech trends in 2020:
But 5G – being deployed right now – is up to 200 times faster and smoother than its predecessor.
Now, there are a lot of ways to tap into 5G. Investors can buy into network developers, chip manufac-
turers, and software designers.
Personally, I want to go where the money is – in the consumers’ pockets. The U.S. economy is 70%
consumer-driven, and they will flock to 5G services.
And some of the world’s leading companies will look to partner with AT&T.
In March 2020, the company officially partnered with Google Cloud to use its 5G edge computing
technologies.
I expect AT&T to completely dominate this industry and build on its existing market share. At the end
of Q3 2019, AT&T owned nearly 40% of the wireless subscription market.
And while the merger of T-Mobile (TMUS) and Sprint (S) create a larger competitor, the consolida-
tion of the two companies will likely lead to higher – not lower – prices across the industry.
AT&T was trading at $27.46 per share, as of 4/3/2020. It has struggled during the past decade to break
out of resistance at $45.
Source: finviz.com
Now, AT&T used a lot of leverage to make acquisitions during the past five years. On December
31, 2019, the company had a Total Debt of $220.22 billion. The Total Debt to Equity ratio is high at
88.56, though it’s comfortably lower than the industry average of 194.11.
Overall, its financial statements are steady, with only single-digit changes over the past few years.
Overall, AT&T’s stock price is poised for a breakout with its launch of HBO MAX in 2020, capitaliz-
ing on merger synergies, deleveraging, and operational efficiencies.
Here are additional reasons why I expect AT&T to succeed in the months and years ahead.
Now, let’s move onto one last investment analysis in a well-known casino company.
I know that Las Vegas has largely shut down due to the coronavirus pandemic.
So have the shimmering casinos in Macau, China, the world’s largest gambling market. These tempo-
rary closures have fueled a sharp downturn in casino stocks… and some investors have been dumping
gambling stocks left and right.
When the dust settles, I believe a few survivors will gobble up market share and return to all-time
highs.
The ones that cater to high-end gamblers are the best bet to rebound first, given that wealthy travelers
typically can afford to take a vacation.
Wynn Resorts (WYNN) is my favorite to bounce back much faster than second-tier hotel operators
who cater to lower-income visitors.
Founded by casino pioneer Steve Wynn in 2002, the firm offers extravagant hotel rooms and top-of-
the-line amenities. In fact, Wynn Resorts has received more five-star awards than any other company
in the world.
The company’s global reach and ability to cater to a wealthier clientele — the ones shielded from an
economic downturn — put it in the best position for maximum gains in the long term.
The company operates luxury five-star resorts and casinos in four developed properties:
We can look at Wynn against its top competitors. Those rivals are Caesars Entertainment, Las Vegas
Sands, MGM Resorts, Marriott, Mandarin Oriental, Hilton, Eldorado Resorts, Penn National Gaming,
Boyd Gaming, and Kempinski Hotels.
So, why is Wynn a better buy than the rest of these companies?
First, the sharp pullback makes it extremely attractive from a long-term perspective.
Second, the company has a very rare economic moat in its largest market that will help it dominate
over the next few years.
Finally, it has an ace in the hole (for those poker players reading). This one attribute that separates it
from its competitors could unlock billions of dollars for long-term investors.
Source: Finviz.com
Right up front, the chart shows that it’s been a rough two years for Wynn Resorts.
In 2018, shares took a hit after founder and CEO Steve Wynn’s company sexual allegations.
Before the coronavirus shutdowns, WYNN had been trading in a channel for a year and a half be-
tween $100 - $140. It is now trading at a steep discount at just $60.85, as of April 7, 2020.
As you can see in the chart, this is the lowest it has traded since a sharp pullback in 2015.
It has a market cap of $6.56 billion, an average volume of 4.7 million, and offers an excellent divi-
dend yield of 6.5%.
Wynn has a modest $2.35 billion in cash and cash equivalents to weather the coronavirus storm, com-
pared to its $10 billion of debt.
However, the company has been investing in multiple projects that will increase revenue in the other
Macau segments, aimed for completion in Q4 2019. The total project cost is $125 million for hotel
renovations, two new specialty restaurants, and retail store developments.
The Las Vegas properties bring in revenues across all segment categories. This is because the compa-
ny has been focused on creating an incredible all-around customer experience. The luxury hotel rooms
Wynn expects revenues to increase over the next few years as many expansion and renovations proj-
ects were completed in 2018 and 2019.
Although the company made over $4.5 billion in revenues, its high operating expenses caused it to
have a low net profit margin of 1.9% in 2019.
Macau gaming data just showed that gambling revenues plunged 79.7% in March 2020 as the world’s
largest casino hub shut its doors.
On April 1, Wynn announced that amid its coronavirus shutdowns, it would continue to pay all its
employees in North America through May 15.
There is a fair amount of risk involved here, but much of it is already priced in.
As the company opens back up and demand returns, these state-of-the-art facilities will be ready to
rock and roll.
Shares have plunged from the 200-day moving average of $116.16 and just pressed back above its
20-day average of $60.01. (as of April 7). In the short term, there is fair reason to expect the stock to
move much higher on up days for the market.
However, the longer-term outlook has largely been dismissed by institutions and shareholders who
rushed to cash over the last month. History has proven time and time again that companies like Wynn
won’t stay down forever.
Which brings me to the biggest reason why the stock is poised for a great run in the future.
In 2019, its Macau property represented 76% of the company’s EBITDA. This five-star property is the
only resort in the world to earn eight Forbes five-star awards since its inception.
This includes the new bridge from Hong Kong in 2018, the recent light-rail system implemented last
year and reclaimed land development over the next five years. Given Wynn’s contributions to growing
the Macau market, the company should easily renew one of only six gambling licenses in the Macau
market.
At this price, the economic moat for this company is extremely undervalued.
Well, unlike its competitors MGM and Caesars Entertainment, Wynn owns its properties across the
world. MGM and Caesars sold their properties to REITs in recent deals that allowed them to cash out
on their properties and focus solely on their casino operations.
Recent deals have included MGM’s $4.25 billion deal to sell the Bellagio casino at a stunning metric
of 17.3 times rent.
Wynn still owns its properties with far greater land and individual rooms than the massive Bellagio
property. The company could still use this card to boost its cash position and pay down debt. This is
a major opportunity that will allow it to add billions of dollars to its balance sheet and consider a
number of alternatives. They include selling those properties and returning capital to investors.
The firm could also pay off debt, fund new projects in nations like Japan (a potentially massive mar-
ket in the years ahead), or even boost its dividend for shareholders.
• Value
Shares of Wynn are trading well under their 50-day and 200-day averages and traded in “over-
sold” territory in March. Forced selling by institutions and a rush to cash creates a unique
opportunity to invest in the company best-positioned to dominate the gambling sector.
From these examples of my investment analysis, you should have a good understanding of my ap-
proach to finding stocks for my long-term portfolio. As you can see, my approach is not concentrated
on a specific sector, and that allows me to diversify my return stream.
If this doesn’t make sense to you at first, that’s okay. Re-read and study the areas that may seem un-
clear to you, and overtime, things might start to click for you — just as they did for me.
In fact, focusing on fundamentals like book value and earnings can help you find good companies..
Paying attention to a company’s debt levels, cash-flow, PE multiples, and other factors are great ways
to filter.
They don’t wait for good news before they start buying stocks.
And instead of buying the hottest stocks in the market, they’re looking for companies that have fallen
out of favor with low risk.
Think about it, let’s say you have a business that is crushing earnings, has high profit margins, and
consistently grows.
On the other hand, a beaten down stock has very little upside in the eyes of Wall Street.
Expectations are low and any good news can send its shares higher.
And despite the stock looking weak, one could argue it’s less risky than say buying a high flying blue-
chip stock.
The ideas laid out in this eBook are designed to get you thinking about long term buy-and-hold
opportunities.
It’s meant to give you confidence that yes, you can do this.
Because at the end of the day, we can’t rely on 401Ks, pensions, or the banks to help us.