The DYME3Y Investment Club

Current Balance: $491,557.41 USD

Performance since inception: –1.69%

Cash	Investments	Total	Margin
$557,327.41	-$65,750	$491,557.41	$403,192.41

There were four positions initiated in November, the first month for the DYME3Y Investment Club:

• Long position in Alcoa (AA)
• Long position in Carnival Cruise Lines (CCL)
• Short position in Advanced Micro Devices (AMD)
• Short position in Netflix (NFLX)

On November 1^st, when CCL was approximately $43.50 per share, we sold 10 CCL Jan 50 puts that will expire in January 2022, receiving premium of approximately $12.50 per share.  This position will require us to pay $50 per share for CCL any time over the next 26 months.  It is our belief that CCL is undervalued and before 2020 is out, it will hit $60 per share.  If and when it does, it is likely we will close off this position, allowing us to redeploy the margin tied up more productively.

With a complementary trade on the same day, we bought 15 CCL Jan 30 calls that will also expire in January 2022, paying approximately $14.00 per share.  This is a leveraged way to express the view that CCL will indeed hit $60 within the next two years.  Had we purchased CCL at $43.50 and had it went up to $60, we would have made a profit of $16.50 per share, a return of $16.50/$43.50 or 38%.  With the strategy we employed, if CCL hits $60, then the percentage return will be in the neighbourhood of 114%.  Depending on the charts at the time, we plan to close the position at or around $60 per share.

On November 4^th, when NFLX was approximately $285, we sold 2 NFLX Jan. 200 calls that will expire in January 2021, receiving premium of approximately $103 per share.  This position was entered in the belief that fair value for NFLX is approximately $200 and it will be realized before expiration.  This trade has not gone our way:  NFLX is currently $315, up about 10% from our entry point.  Our opinion on NFLX has not changed:  We believe that the market is under-estimating the importance of the competitors that will damped NFLX’s rate of growth, and its ability to raise prices.  We are monitoring this position carefully.

On November 8^th, when AA was approximately $22 per share, we sold 33 AA Jan 18 puts that will expire in January 2021, receiving approximately $2.00 in premium on a per share basis.  This will require us to purchase AA at $18 anytime up to next January.  It is our belief that AA is under-valued at $18 which means that we will be happy to purchase it should it hit that price.  Our hope and belief, however, is that it will never decline to $18, and we will keep the premium.

On November 21^st, when AMD was approximately $38.75 per share, we sold 20 AMD May 20 calls that will expire approximately 6 months from now, receiving $19.25 in premium.  Essentially, we short-sold AMD at $39.25, in the belief that it is greatly over-valued and fair value is in the $20 range.

To summarize where the various positions stand as of the end of November:

• CCL trades are down approximately $500
• NFLX trade is down approximately $5,400
• AA trade is down approximately $1,475
• AMD trade is down approximately $1,050

This is hardly the start we were hoping for, but it’s still early, we continue to believe in each of these decisions, and we are actively looking for other opportunities, given how much margin is still available in the account.

Michael Hlinka

Opening Balance (November 1, 2019): $500,000

Ending Balance (December 31, 2019): $494,057

Performance Since Inception: -1.19%

Cash	Investments	Total	Margin
$560,576	-$66,518	$494,057	$376,397

There were four positions initiated in November and all four remain open as of December 31st, 2019:

• Long position in Alcoa (up $905)
• Long position in Carnival Cruise Lines (up $14,298)
• Short position in Advanced Micro Devices (down $14,535)
• Short position in Netflix (down $6,856)

There was a single new position initiated in November:

• Long position in Signet Jewelers, SIG

On December 12th, when SIG was approximately $21, we sold 30 $16 puts, expiring April 2020, receiving a premium of approximately $1.10 per share. This strategy means that if SIG ever trades below $16 per share, we would be forced to pay $16 for it. The risk with this strategy is that SIG sells off dramatically (it has been as low as $10.40 this year), yet we’re on the hook paying $16. However, it is our belief that Signet Jewelers is fairly valued at $21 and greatly under-valued at $16 per share. We believe that SIG will remain comfortably above $16 for the next four months and we will keep 100% of the premiums we received, which were (after commissions) $3,252.

The SIG position is unchanged over the past three weeks.

At this point in time, we believe that the market is fully valued, which makes it difficult to initiate new positions… that being said, we are carefully scouring the market for new opportunities.

Here’s to a Happy, Healthy, and Wealth-Generating 2020!

Michael Hlinka

Opening Balance (November 1, 2019): $500,000

Ending Balance (January 31, 2020): $463,405

Performance Since Inception: -7.32%

Cash	Investments	Total	Margin
$475,995	–$12,550	$463,405	$381,006

There were two positions closed in January and two positions initiated:

• Short position in Netflix closed
• Short position in AMD closed
• Long position in Ventas (VTR)
• Long position Foot Locker (FL)

On January 8th when AMD was approximately $50 per share, we bought back the 20 $30 calls at $30 per contact. We continue to believe that the market is wrong about the growth prospects of AMD; however the momentum is against us and we thought it prudent to cut our losses on this position.

On January 8th when NFLX was approximately $330 per share, we bought back the 2 $200 calls at $147 per contract. We still cannot justify the price of NFLX based on discounted cash flow analysis. That being said, the market doesn’t see it that way. This is a position we will continue to monitor: If and when sentiment turns, it could be with blinding speed.

On January 14th when Ventas (VTR) was $57 per share, we sold 20 August 50 puts, receiving $1.25 per share in premium. This means that if Ventas should fall below $50, we will be obligated to buy at that price. Ventas is a real estate investment trust that specializes in health care/senior’s living, two sectors that we believe will grow in the years to come. We truly hope that we will be assigned. But we think it more likely that this will not be the case, and we’ll only be keeping the premium.

On January 22nd when Foot Locker (FL) was $38 per share, we sold 15 August 30 puts, receiving $1.30 per share in premium. This is another case of where we think that assignment is unlikely: We would love the opportunity to buy Foot Locker at that price.

As of the end of January, here is the summary of our positions:

• Long position in AA (down $6,090)
• Long position in CCL (up $3,418)
• Long position in FL (down $560)
• Long position in SIG (up $2,292)
• Long position in VTR (up $365)

We continue to be cautious about a market that seems very frothy. That being said, when value presents itself, we will act quickly and decisively.

Michael Hlinka

Opening Balance (November 1, 2019): $500,000

Ending Balance (February 29, 2020): $437,449

Performance Since Inception: -12.51%

Cash	Investments	Total	Margin
$431,579	$5,910	$437,449	$323,517

There was one position closed in February and four positions initiated:

• Long position in Carnival Cruise Lines closed
• Long position in Kraft Heinz (KHC) initiated
• Long position is US Steel (X) initiated
• Short position in Rosetta Stone (RST) initiated
• Long position in GAP Stores (GPS) initiated

On February 5th, we purchased 5,000 shares of US Steel at $9.29. We believe that this is a deep value play and that as steel prices firm and given the expected fiscal stimulus in advance of the 2020 US election, we continue to believe that this is undervalued.

On February 6th, when Kraft Heinz was approximately $29 per share, we bought 20 calls that will expire in January of 2022, and simultaneously sold calls with a higher strike price for a couple of months out. Since entering the order, KHC has sold off – it now stands around $25 per share – but much of this is attributable (we believe) to the recent Corona Virus scare. We continue to believe in this position.

On February 11th, when CCL was approximately $43 per share, we closed two positions. This was in the early stages of Corona Virus, and we are very happy that we closed this position because the stock has sold off markedly since then.

On February 20th, when RST was $21 per share, we sold 20 17.5 calls that will expire in June. As long as RST closes at $17.50 or below (and it is currently $17.32) and we believe that if should the markets recover, this company will be left behind.

On February 27th, when GPS was $14 per share, we sold 35 13 puts that will expire in June, receiving $1.08 in premium on a per share basis. We do not believe that GPS will decline to $13, but if it does, we are happy to own it, given its dividend yield and sales per share.

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This commentary is being written in the midst of the coronavirus pandemic. There is a tremendous amount of uncertainty in the markets and we will be proceeding very, very cautiously in the foreseeable future.

Michael

Opening Balance (November 1, 2019): $500,000

Ending Balance (March 31, 2020): $274,326

Performance Since Inception: -45.13%

Cash	Investments	Total	Margin
$404,816	-$130,490	$274,326	$210,088

There was one trade in the month of March:  We bought back the Signet Puts and now have the following open positions in the account:

• Long position in Alcoa (AA)
• Long position in Foot Locker (FL)
• Long position in The Gap (GPS)
• Long position in Kraft Heinz (KHC)
• Short position in Rosetta Stone (RST)
• Long position in US Steel (X)
• Long position in Ventas (VTR)

I would like to take this opportunity to explain our rationale in holding each of these positions:  It is the unanimous opinion of yours truly and the rest of the Investment Committee that while there is significant downside possible, on a risk-reward basis we would be making a mistake to close any of these positions right now.

In the wake of coronavirus, there is going to be massive stimulus spending.  What we just saw in the United States – the $2 trillion package – should not be understood as a stimulus package:  This was a “rescue” package.  There will be calls on both sides of the aisle in the US to “get America back to work” and we believe that this bodes well for companies like Alcoa and US Steel.  We are actively looking for other companies who could similarly benefit from what we think is coming down the pike in the near future.

We believe that the high-end luxury segment will take a long time to recover, but the basic, middle-class providers of needed products like running shoes and denim should outperform, hence our continued exposure to Foot Locker and The Gap.  There is the chance of bankruptcy… no question about that… but if you’re a large property owner like the Simon Group, do you really want to see either Gap or Foot Locker go out of business?  We believe that both of these entities will escape bankruptcy, and if they do, then they should return relatively soon to the profitability that they enjoyed pre-COVID 19.

Kraft Heinz is, to us, a turn-around story and we believe that of all the companies in this space, there is the greatest upside potential for it. 

We also believe that post-coronavirus, risk premiums will return to the market in a significant way, and a company like Rosetta Stone, that has lost money year after year after year, will not see new capital flowing into it.

Ventas is a bit of a trickier proposition.  This is the world’s largest provider of Senior Care facilities, and it and other companies in this space have been brutally punished because of the fact that the mortality rate associated with the virus is so high for the elderly and particularly elderly people with pre-existing health conditions.  However, when we step back and look at the bigger picture, the cohort of the elderly continues to grow in the developed world.  Coming out of COVID-19, it’s difficult to see a great deal of investment capital flowing into this industry.  Ventas just paid out its regular quarterly dividend and while we’re not sure that this dividend is safe, we see this as a highly liquid company whose share price right now doesn’t even cover the value of its real estate holdings.  We believe that it would be a mistake to close our position on Ventas right now as well.

Finally, I personally feel terrible about the performance of this Investment Club.  What has occurred… that is an almost entire shut-down of the developed economies of the world… was simply beyond my imagination – and beyond the imagination of other Investment Committee members as well.  However that being said:  Our discipline going into this was based on finding those companies with solid balance sheets and then relying on discounted cash flow analysis to determine where we would employ our capital.  This continues to be our discipline.

I hope that everyone is staying safe and doing their best to enjoy these days, as trying as they are in so many respects.

Michael

Opening Balance (November 1, 2019): $500,000

Ending Balance (April 30, 2020): $324,073

Performance Since Inception: -35.19%

Cash	Investments	Total	Margin
		$324,073

There were no trades executed in the month of April.  We were pleased to see that the account recovered somewhat from the end of March; however we are not confident that a broad market rally will continue.

It is the collective belief of the Investment Committee that we are (if I may use a baseball metaphor) in the first inning of this game.  We believe that it will be a very long time before the economy recovers to where it was this past January – and if you recall, at that time we were concerned about valuations.

We have already seen unprecedented fiscal and monetary stimulus.  It seems to us that there is little more that the Bank of Canada and Federal Reserve can do.  Short-term interest rates will be at zero percent for a very, very long time.  That means there will be massive fiscal stimulus, the only possible political response to keep the economy afloat.  In the wake of this, there will be inflation, which is, essentially, a drag on everyone’s real standard of living.

The basics of life are going to get more expensive.  The collapse of oil prices has a strong anti-inflationary impact in the short run.  However, at some point oil prices will firm, and then likely rally higher.  (Even given the demand destruction that we will be witnessing.)  We expect that necessities will become more expensive, and consumers to become much more cost-conscious.  It will be difficult for producers to pass along price increases, which will depress corporate profitability.  It will take a very long time – years if not a decade – for the consumer to come back… for a variety of reasons.

First, there is the employment picture.  We do not see a V-shaped recovery in the labour markets… does anyone really believe that the airline industry is going to bounce back any time soon?  Yes, over time resources will move to where opportunities lie, but it will be a long, drawn out process.  Many businesses and individuals will have to declare personal bankruptcy along the way, destroying their ability to access credit in the future.  We would not be surprised to see a great deal of regulation and legislation coming out of this:  Is it beyond the realm of possibility that, for example, credit card companies will see limits on the interest they can charge?  Bottom line:  We don’t see the consumer “bouncing back” any time soon.

So what are the investment implications?  We are nervous about retail; however the companies we own:  The Gap and Foot Locker, are not high end.  People still need clothes and shoes and as weaker competitors fall by the wayside, more business will go to the survivors. US Steel and Alcoa will benefit from the infrastructure spending we see coming in advance of the 2020 Presidential Election.  Senior citizens will still need a place to live, and Ventas with its solid balance sheet and diversified real estate portfolio, should be able to weather this storm. Kraft Heinz has seen its business benefit from more people staying at home and eating in.

When we formed this Investment Club, I and the Investment Committee – all CFA Charter holders – agreed that we would make our investment decisions based on fundamental analysis and discounted cash flow.  Given the uncertainties faced right now, we will continue to monitor the economy and deploy our remaining capital (and we have a lot) when we feel that the time is right.   

Opening Balance (November 1, 2019): $500,000

Ending Balance (May 31, 2020): $340,228

Performance Since Inception: -31.95%

Cash	Investments	Total	Margin
		$340,228

There were no trades executed during the month of May in this account.

We continue to be extremely nervous about the general level of the market.  As I write, on top of the risks the health and economic risk, the United States is in the midst of a political crisis in the wake of the death of George Floyd.

It is the consensus opinion of the group prior to last week that it would be a very gradual recovery, and the protests and destruction in the wake of them surely won’t help.

I have been involved in capital markets since the early 1990’s and it has never been this challenging.  That being said, however, there are some eternal truths in valuing equities:  At the end of the day, owning a common share means owning a proportionate share of the profits of an individual company, irrespective of the general economic environment.

-Michael Hlinka

Opening Balance (November 1, 2019): $500,000

Ending Balance (June 30, 2020): $378,406

Performance Since Inception: -24.3%

Cash	Investments	Total	Margin
		$378,406

After no trading in May, we were very active on your behalf during the month of June.  Before getting into the particulars of each trade, let me provide you with an overview of where we see the economy – and markets – heading over the foreseeable future.

We believe that the underlying “real” economy is in far worse shape than is being reflected in the stock market.  We will be looking at a variety of industries:  Retail, hospitality, real estate, airlines, entertainment and financial services, that will be laying workers off, and given that consumer spending is 70% of the economy, this will filter through to ALL industries.      

The only thing keeping the economy afloat are government checks… Central Banks all over the world are simply printing money… and there will be inflation in one form or another.  The question is where it will be and what it will look like.

Historically, this would suggest the following asset classes:  Commodities and real estate.  However, there are unique problems associated with each of these asset classes.  We think that there are some commodities that are more attractive than others:  Aluminum and copper in particular.  The difficulty we have with real estate is that commercial real estate will be devastated in the wake of COVID-19 and we’re not crazy about residential real estate, given the number of tenants who are not paying rent right now.  But we are looking for opportunities in the home builders… the entry point just isn’t that attractive right now.

It is the unanimous opinion of all members of the Investment Committee that the markets are likely to be lower three months from now, and we have placed all of the following trades with that outlook in mind. 

Now to the trades.

Early in the month, we purchased 1,100 shares of Walgreen (WBA) at a price of $43.65.  We think that fair value lies somewhere in the mid 50’s, and we immediately sold the July 50 calls, picking up a few hundred dollars in premium.  We will continue to sell calls against the position, picking up premium in addition to the generous dividend.

US Steel (X) which we paid $9.30 for, rallied early in June and we took the opportunity to sell calls with a $12 strike price, picking up $1,000 in premium, on half the position. 

We were assigned 3,500 shares of the Gap (GPS), paying a price of $13 per share.  We have sold calls on all of these shares:  1,500 at a $13 strike price for September and 2,000 at a $15 strike price for July. 

We short-sold 100 shares of Chipotle Mexican Grill (CMG) at a price of $1,025.  We believe that this company is greatly over-valued and fair value is somewhere between $650 to $750.

We were assigned a short position of 2,000 shares of Rosetta Stone (RST) at a price of $15.  We believe that RST is greatly over-valued, and to pick up some extra income, have sold 10 August 15 puts, which would mean we would be buying back half of our position at $15.

We sold 20 calls on Advanced Micro Devices (AMD) at a strike price of $45 for the month of August, receiving $10.50 in premium.  We believe that this company is greatly over-valued, and fair value is somewhere in the $30 to $40 range.

We sold 1 call on the OEX, expiring in October, with an exercise price of 1100 and we picked up 301 in premium.  This is an insurance policy of sorts:  We believe that the market has gotten well ahead of itself and expect a pull-back over the next few months.

Michael Hlinka

Opening Balance (November 1, 2019): $500,000

Ending Balance (July 31, 2020): $317,082

Performance Since Inception: -36.6%

Cash	Investments	Total	Margin
		$317,082

At the beginning of last month, the members of the Investment Committee had a long discussion about our belief about where the markets would be heading over the next few months.  We believed that stocks were greatly overvalued given the underlying economic fundamentals, and positioned our trades accordingly.  With 20-20 hindsight, we can see that this was not the appropriate strategy.

Earnings season is almost past us.  It seems that the market is putting a fantastic premium on top-line growth which was rewarded accordingly with companies like Amazon and Facebook.  As a result, while we still believe that the markets are richer than they’ve ever been in my lifetime (even more than 1999 – 2000 given the underlying economic fundamentals); however we have adjusted and will continue to adjust our strategy accordingly.

Now on to the positions:

• Short position in Advanced Micro Devices (AMD)
• Short position in New York Times (NYT)
• Short position in Rosetta Stone (RST)
• Long position in Alcoa (AA)
• Long position in Foot Locker (FL)
• Long position in The Gap (GPS)
• Long position in Ventas (VTR)
• Long position in Walgreen Boots Alliance (WBA)

Right now, with August commencing, we are actively looking for those short positions that will maximize return on a risk-adjusted basis.

All of us are disappointed by the results-to-date.  But it’s still early in the game, and speaking on behalf of all members of the Investment Committee, we remain fully committed to living up to the name of this Investment Club, DYME3Y.

Michael

Opening Balance (November 1, 2019): $500,000

Ending Balance (August 31, 2020): $303,097

Performance Since Inception: -39.4%

Cash	Investments	Total	Margin
		$303,097

The underperformance in August was due to short positions, in particular a short position in Advanced Micro Devices. That position has been closed off, and given the zeitgeist of the market, we are not looking to initiate any more short positions any time soon.

Here are the positions that are currently open and the logic behind each:

· Long 25 January 2022 calls for AT&T (T), position entered at $5.70. This would imply a break-even of $30.70 where we believe that fair value for AT & T is somewhere in the $40 range. The dividend yield for AT & T is currently 7% which is ahistorically high. Given the low interest rate environment, we think that this will be corrected within the next nine months

· Short 33 January 2021 puts for Alcoa (AA), requiring us to buy it at $18. The current market price is $15, which means that we are essentially breaking even on this position. We believe that the upside for Alcoa is much greater than downside risk at current levels which is why we choose to keep the position open

· Short 25 October 25 puts for Bank of America (BAC), requiring us to buy it at $25. The current market price is $25.71, and we believe that fair value is between $30 and $35. We think that we will not be assigned on this position, allowing us to keep the premium. If we are assigned, we will likely start writing calls against the position, picking up premium and getting “paid” to wait until it hits intrinsic value

· Long Costamare (CMRE) at $4.89. The current price is $4.99 and we have a price target of $8 per share within the next 12 months. The dividend yield is currently exceeding 8%, and this shipping company will benefit from the bounce-back in international trade, post COVID-19. Historically, the yield of CMRE has ranged from 5% to 8%, which helps establish our price target

· Long The Gap (GPS) at $17, with $13 calls written against it. We will almost certainly be selling this position out in the near future, freeing valuable margin to enter other positions. This position was entered pre-COVID and we are generally nervous about bricks-and-mortar retail

· Long Lloyd’s Banking Group (LYG) at $1.43. The current price is $1.39 and we have a price target of $2.50 to $2.75 within the next 12 months. LYG is Great Britain’s largest mortgage lender: Think of it as their equivalent of Royal Bank of Canada. The balance sheet is LYG is rock-solid and we think it’s likely that the dividend that it was asked to suspend by Great Britain’s regulator, will be re-instituted in the near future

· Short October 40 calls of the New York Times (NYT). Combined with the premium, we have essentially short-sold NYT at $45.70 per share. It is currently trading at $43.72 which means we are up marginally on this position. We believe that fair value for NYT is in the $30 to $35 range

· Short October 40 calls of Rosetta Stone (RST). RST is currently $30 per share and this position would require us to short sell at $40, should it appreciate 33% or more over the next few weeks. We think this is unlikely and will pick up the premium

· Short November 30 puts of Ventas (VTR). VTR is currently $41 per share and we think it is unlikely that it will put back and we will face assignment. If we do, we will cheerfully buy it at $30: We put fair value for the company in the $40 to $45 range

· Long January 2022 30 calls for Walgreen’s Boots Alliance (WBA). WBA is currently $36.76 and we put fair value in the range of $50 to $55

There is no way to sugar-coat the performance so far: It has been terrible. We can attribute the under-performance in the first five months to bad luck: Our portfolio was perfectly WRONG for a pandemic. That being said, the underperformance over the past five months has been because of bad decisions.

We believe that we have learned from our mistakes and will not be repeating them in the future.

Opening Balance (November 1, 2019): $500,000

Ending Balance (September 30, 2020): $289,688

Performance Since Inception: -42.1%

Cash	Investments	Total	Margin
		$289, 688

There was limited activity in the account this month. We closed our short position in the New York Times at a slight profit, and the remaining shares of The Gap were called away from us. Given the uncertain state of bricks-and-mortar retail, we were happy to exit that position.

Here are the positions that are currently open and the logic behind each:

• Long 25 January 2022 calls for AT&T (T), position entered at $5.70. AT&T closed today at $28.67. This would imply a break-even of $30.70, where we believe that fair value for AT & T is around $40 per share. The dividend yield for AT & T is currently 7% which is ahistorically high. Given the low interest rate environment, we think that this mis-pricing will be corrected within the next nine months
• Short 33 January 2021 puts for Alcoa (AA), requiring us to buy it at $18. The current market price is $11.82. We believe that the upside for Alcoa is much greater than downside risk at current levels which is why we choose to keep the position open
• Short 25 October 25 puts for Bank of America (BAC), requiring us to buy it at $25. The current market price is $24.21, and we believe that fair value is between $30 and $35. We will be actively monitoring this position, ready to close it should the stock rally to $25 to $26 per share over the next two weeks
• Long Costamare (CMRE) at $4.89. The current price is $6.38 and we have a price target of $8 per share within the next 12 months. The dividend yield is currently exceeding 6%, and this shipping company will benefit from the bounce-back in international trade, post COVID-19. Historically, the yield of CMRE has ranged from 5% to 8%, which helps establish our price target. Right now, there is strong upward momentum with the stock and we are ready to place stop-sell orders on it, should that momentum wane
• Long Lloyd’s Banking Group (LYG) at $1.43. The current price is $1.35 and we have a price target of $2.50 to $2.75 within the next 12 months. LYG is Great Britain’s largest mortgage lender: Think of it as their equivalent of Royal Bank of Canada. The balance sheet is LYG is rock-solid and we think it’s likely that the dividend that it was asked to suspend by Great Britain’s regulator, will be re-instituted in the near future
• Short October 40 calls of Rosetta Stone (RST). The company is being bought out later this year at $30 per share, and this position will almost certainly expire worthless in two weeks.
• Short November 30 puts of Ventas (VTR). VTR is currently $44.11 and we think it is unlikely that it will put back and we will face assignment. If we do, we will cheerfully buy it at $30: We put fair value for the company in the $40 to $45 range
• Long January 2022 30 calls for Walgreen’s Boots Alliance (WBA). WBA is currently $36.62 and we put fair value in the range of $50 to $55

Here is our outlook on the overall economy and markets over the next two years. There will be an economic recovery; however it will not be the V-shaped one that all of us hope for. We think that elevated levels of unemployment will be with us for an extended period of time, putting downward pressure on wages. If this is true, then inflation (as measured by the CPI) should not be an issue for the market as a whole.

Right now, the market seems to place little value on dividends. This explains the prices of companies that have been traditionally understood as “dividend aristocrats” such as AT&T and Walgreens. We expect this to correct, as there is an evolving appreciation that the recovery will be slow, even while it is undergirded by very low interest rates.

We believe that if there is one “sweet spot” in the market right now, it is the Financials (explaining our position in both Bank of America and Lloyd’s Banking Group) and we are looking to add positions in other blue chip banking names with generous and sustainable dividends.

Michael