How To Invest In A Low Interest Rate Environment
- Posted by ppearlman
- on May 30th, 2012
The ten year yield is making crazy record low yields ($TNX) this morning…
Here’s what I have been doing whether we are in a super low interest rate environment or not but this is especially powerful I think during such periods…
When it comes to trading, my pal @Fibline likes to say, “keep it simple stupid.”
I think of long term investing the same way and its so simple and so classic that I think many gloss it over in search of more complex strategies that are too smart by half.
This is my execution strategy which I usually tweet in real time as I add, reduce and sell premium:
1. I follow closely the stocks and ETFs I want and track fundamentals, price and near dated options pricing daily.
2. Every year there are usually 2 or 3 corrections whether we are in a bull market or not. We have been having one recently as the $SPX gave up 8% or so between April 3 and May 19.
When these corrections occur, I buy the stock or sell near dated out or near money puts. I sometimes do this in partials as well during smaller pull backs depending on the dynamics of the specific name.
I am playing for the long term in these accounts and am happy to miss opportunities but earn yield if the stocks close above the strike price at expiration as I know there will be more opportunities to buy during the next correction.
3. When the market rallies or the specific names I am in do, I sell call premium. Again, if the stock gets called I don’t really care as I know there will be another opportunity soon either in the name or somewhere else.
I also sometimes only sell calls in portions of the position, usually a third to half.
4. I do this gradually across my positions and am never fully invested much less on margin.
5. As you can see from the list of stocks, I do this with high quality names or ETFs which diffuse single name risk a bit.
My guess is that sometime before I retire or my kids reach adulthood, interests rates will rise and may even overshoot. Because I am handling these positions in this way and never get fully invested, I am not too worried about it but could lighten this strategy in favor of another one although I don’t think so.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Phil is the interactive editor at Yahoo! Finance. Formerly, he was the executive editor at StockTwits. He is a partner at Social Leverage, LLC and makes early stage investments in web based companies. (More)