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[Slide 1 00:00] What Makes A Good BuyGood afternoon everyone, this is Neil George and I'm welcoming you to our second webinar, "What Makes A Good Buy”. Thank you all for participating. I'm looking forward to giving you my rundown on where I see things standing in the marketplace, and then we're going to go through some examples on how I actually do some of the research and the evaluation of our positions, and then we have plenty of time and many questions that I'll be addressing at the end of the presentation. So again, thank you for joining and hopefully we'll all find this to be a useful. Let's go from there.[Slide 2 00:39] Where Are We Headed?Where are we headed right now in the marketplace? I think one of the key things that we need to start with is that the economy is pretty good. We've had the first quarter, which was in positive territory of 2.3%, one of the strongest first quarters for many years in the US economy. It continues the overall range that was heading towards 3% as far as annualized growth in GDP. That is basically providing a good deal of fundamental support for a lot of industries in a lot of sectors of within the stock market.Inflation is also very much subdued. We've just received in the past week the personal consumption expenditure index, the so called PCE. This is the broad barometer that the Federal Reserve and the Open Market Committee utilize to evaluate and establish what the true inflationary conditions are for the broadest part of consumer spending. It takes a look at all of the consumer expenditure that occurs in the US economy. Roughly two thirds or more of the overall economy is made up of consumer spending. It compares that entire amount on a month to month, quarter to quarter, and year after year basis. The core level for the most recent period was up a bit at 1.82%, but still well below the initial targeted rate that the FOMC has for what they would like to see for inflation. Therefore, this is considered very good news.While many people are saying, "Well, aren't we getting to that 2% range? Won't we see the Fed have to take more dire action?" The answer is no, and there are two very specific reasons for this. The first is that this is just one month of data for the inflationary measurement, and we will not get another one of these measurements until after the June meeting for the Open Market Committee. Therefore, the Open Market Committee is going to see at least a few months’ worth of this data. This is something that I addressed in last week's journal issue, when I evaluated the PCE information.The second factor as far as dealing with the PCE is the idea that we have had in the past, both in 2016 and 2017, brief, monthly spikes in the PCE, getting closer to 2% but not hitting that, and then falling back. We might very well see that occur again, and therefore the Fed, like what I'm looking for, is going to want to see some more sustained numbers showing healthy inflation.There's is an additional thing that I'd also draw your attention to: the Fed is looking to target the rate of 2%. It doesn't see that as being a problem. In fact, I perceive that the Fed would allow the PCE to actually increase to around two and a half if not more, if it's going along with correspondent growth and expansion in the economy. If it is not a one-off transaction, if it's not coming from a specific area but broader growth, improved pricing within the wage structure, healthy margins within the economy, I would see the Fed just continuing along the path of bringing us to more normalized interest rates.That normalized interest rates--I'm expecting at least another three tightening this year, and that would bring us up into the two plus percent range. All of that is positive for banks and financials as far as being able to increase their net interest margin, so it will be positive for a lot of other companies that would be looking to borrow and so forth. It would just basically make the market more normal, and that's all positive, from my perspective.In addition, consumers continue to spend. We have seen that employment conditions are quite positive. We have the overall rate down under 4%. We have not seen that for many years. There are the prospects that we might very well see more participation, that even broader base of consumers. Wages are also continuing to climb, but they're climbing at a subdued basis. It's a healthy level, currently running at about 2.6%. Therefore, we have more consumers employed in the economy, we have strong and improving wages. We don't have any necessarily inflationary pressures on the wage front, and therefore that's all positive. Everything is basically humming along.Lastly, all of that employment and wage growth is contributing to better consumer spending. We're seeing expenditures in various segments of the consumer area, and that all is basically fueling further investment from businesses. Businesses see the consumer is back in the marketplace and they're continuing to expand their spending, and therefore they're willing to invest in their own product and service offerings. Therefore, businesses are spending on two major areas. One, they're building up some of their inventories in anticipation of further sales, and two, their capital investment is also on the ascension, and it's coming in two different specific ways. One is in additional equipment: machinery, other sorts of items and so forth. But more importantly, showing the confidence level within the business community in the US, we're seeing fixed capital investment; in other words, buildings, factories and so forth, distribution centers. These are long-term commitments by businesses that see the economy in a very positive light and want to be able to capitalize on this. So the economy basically is doing fairly well and that should be good news for the stock market. [Slide 3 06:44] Outlook for StocksIf we look at the stocks... we've seen now a collection of the first quarter reports for a lot of our portfolio companies inside Profitable Investing as well as other companies that aren't necessarily in the newsletter yet. Those reports are showing some generally very good news. They are reflective of the tax cut that took place at the end of 2017. It's already basically dropping additional cash to the bottom lines of a wide range of companies, particularly those with a high concentration of domestic operations such as I discussed with Verizon, which did exceedingly well on the tax basis, and AT&T, another one that was benefiting from the tax cut. We also have a lot of benefits coming from regulatory reforms. Regulatory reforms are helping a lot of companies deal with more certainty with how they're running their business, how they're expanding their business and where they're investing in their businesses. One of the key things we always want to be aware of, regardless of your political proclivities, is that businesses would like to be able to know what the lay of the land is when it comes to regulatory changes, and if we can make things more certain for them, they can deal with a wide variety of rules. That is what we've been seeing occurring in many different industries. In addition, specific industries are getting benefits as far as some of the financial regulatory reforms. This is something that I've written about in the journal, and we had some discussions within the May issue of Profitable Investing: regulatory reform. Scaling back some of the Dodd-Frank, which has already basically passed the Senate. I expect to see that pass the House as well, with bi-partisan support. That will make it much easier for banks to be able to make loans, much more efficient for them to make loans, make compliance costs with some of the former regulations drop down dramatically. That's going to be positive going forward for their quarterly reports. We also have seen that regulatory reform in a lot of other heavily-capitalized industries, principally in the energy marketplace, oil and gas companies or pipeline companies. Those toll-takers, all of them are benefiting from some of the regulatory reforms that are making it less costly to have higher amounts of compliance in following along with their normal bits of operation.I mentioned earlier, consumers have more money in their pockets, there are more consumers employed, and that is also resulting in more consumer spending. That is helping a lot of the revenue gains that we're seeing in various facets of the marketplace in these quarter reports. As I mentioned a moment ago, businesses are investing. They're buying additional capital. They're building and expanding their fixed real estate bases. That has firmer permutations in other industries that will be supportive for many different businesses. All that is already starting to show up in the current quarter reports, and I would expect to see that continue into the second, third and fourth quarters. But at the same time, we aren't necessarily seeing the stock market fully reacting to this. As the old adage goes, a bull market climbs a wall of worry. I think that's very much true in our current environment. In other words, we have all sorts of good news, but at the same time we have a lot of people who are worrying about what could go wrong. That's something that I would embrace in many respects, because as I've started to mention in my writings and in some of my commentary in the last webinar, whenever I'm looking at a company, whenever I'm looking at a stock or fund, I always like to ask the question, what will go wrong and how will that investment, how will that stock, how will that fund deal with that challenge?I think right now the market has really honed in on what the Federal Reserve Open Market Committee, the so-called FOMC, what they're going to do. Are they going to be more aggressive, or are they going to bring things to more normal rates for interest rates? I think it's going to be the normalized rates. I don't see any rationale or any reason for them to make any changes or corrections, but the market still is fearful. Therefore, we're going to see the buildup to the June 13th announcement by the Fed concerning action right now. I don't think we're going to see any action.We also are concerned about the trade wars. We have continued negotiations that are occurring. We have various declarations coming out of the White House. We have other declarations coming out of other capital cities around the world. Therefore, there is the fear and the worry that the US might get into some skirmishes, cross-border investment in cross-border trade. That is one of those worries that are sitting out there, but at the same time, if we look at some of the deals that have already occurred as far as some of the exceptions to the steel and aluminum tariffs, we have seen very smooth allowances for some of our major trading partners. I think we will see that continue when looking at other segments of potential trade worries. We've already had, last week, some very good discussions between our trade and treasury representatives, spending time in Beijing and having some fruitful conversation. Beijing recognizes that there needs to be some progress here in order to make the politicos happy back in the United States. I think you're going to see some deals being cut. Therefore, while it is a worry in the marketplace, I think it's not something that's insurmountable. I think we can see some positive movement along with this. [Slide 4 12:46] Market Not Believing Good News?But again, the market is still going to be worried. I think that's why we've been seeing a stall out in the market. What we're looking at is the S&P 500 index for the prior year. We saw the big run-up with the tax cut and extending, and then we saw the peak, if you will, back on January 26th. Subsequently, we saw the correction on some of the fears over some of the trade policy changes or some of the fears over what the Fed might do. We've seen a bit of a rally back, but it still hasn't necessarily cleared yet.I think that's where we have this problem. The economy is doing well. The underpinnings of what should make for corporate profitability is there, and the market just needs to start catching up and get past some of the worries. I think if we can see that, I think we could end up seeing some more positive movements as we enter further in the second and third quarters of this year. But again, I am watching for those worries and I'm looking for, where are the potential real threats that could endanger some of the more positive earnings growth for our portfolio companies and how that might play out for the rest of the marketplace. So I'm not being complacent, but I do think the underlying condition we have in the US economy is good, and I think it should be supportive towards higher stock prices.[Slide 5 14:18] Outlook on BondsNext I want to take a look at the bond market. Now again, I already mentioned the idea that inflation is still not showing up in any significant way. The core PCE index is still sitting under 2%. I don't necessarily expect it to exceed it in the near term. If it does, the Fed is already prepared to sort of ratchet up some of the short term guidance for short term interest rates to get things into more normal levels. Therefore, I think that's generally positive. I also think from the market standpoint, this basically is setting us up for two major movements in the bond market: a shift away from Treasuries into some of the growth opportunities with corporate bonds. There is a lot of demand for good yield and also the higher yield that's, that's afforded by quality companies, and companies that are improving their credit condition means that a lot of investors, fund managers, institutional investors as well as individuals can step into the corporate world knowing that they're getting paid more to take a bit more risk. As the credit continues to improve with the overall further improvement in the underlying economy and economic conditions, I think that will basically be leading for some, some appreciation in the bond market, or at worst, a defensive move that would protect corporates even if Treasuries were to drift higher in yield.The second major opportunity that I wrote about in the May issue of Profitable Investing is the municipal bond market. Here again, we have improving credit on a lot of state and local municipalities. Tax revenues are up dramatically around the US, on the state and local basis. Therefore, coffers are basically being full. The US census basically takes a look at the tax receipts, and they issued their report last week. It confirmed that this trend is continuing, and therefore this is creating more credibility in the municipal bond front. So we have two things going for us. We have improved credit, improved the capability of the municipalities, and we still have some great yield opportunities. I brought you a few different municipal bond funds in the closed-end segment into the total return portfolio. We have the Blackrock Municipal Income Trust II, symbol BLE. We've got Nuveen Municipal Credit Income Fund, symbol NZF, and we have the Nuveen AMT-Free Municipal Credit Income Fund, NVG. All of these are paying yields that are higher than Treasury yields, even before we look at the tax benefit. If we add the tax benefit, these are all yielding, upwards into the 9% equivalent rates. These are some really great yield opportunities. As I wrote in the May issue, all three of these are trading at significant discounts to what their underlying bond portfolios are trading, and therefore all of them represent to me continued great buying opportunities in the current environment.[Slide 6 17:38] Corporates & Munis WorkingNow again, this also is sort of showing up with how we're seeing the market perform. Here we are looking at the two major indices. The orange is looking at the municipal bond market, and the white line is looking at the corporate higher-yielding bond market [Editor’s note: These remarks are correct—the original slide deck, as visible in the webinar video, had them mislabeled]. These are total return. These aren't price. They're taking into consideration not only the price movement of the bonds in both of these indexes, but also the coupons and interests that are being generated as well as the price appreciation, so it's the total overall compensation. Even though Treasury yields have been on the ascent over the last so many months, what this graph is showing you is that the higher-yielding corporate bond market is in positive territory quite significantly over the past year, and that the municipal bond market is also in positive territory over the past year. Not only do I see opportunities going forward, but this is the continuation of that trend showing you that all bonds do not trade in the same way, and that Treasuries can be flat. Treasuries can be slightly lower in price, and in other facets of the bond market, particularly in the corporate side and the municipal side can actually have very positive returns, providing higher yield now and some price appreciation going forward.[Slide 7 19:12] What Makes a Good Buy?What I want to start talking about is a little bit more about some of the methodology, beyond just where we stand in the current marketplace. I'd like to start with the title of the Webinar, "What Makes a Good Buy." Well, when we want to look at finding the next great buy and the next door of opportunity, we want to start looking for the market opportunities. I'm always looking at what's occurring in the overall market, whether it's in a particular industry that's providing some opportunity, whether it's some individual companies that are coming across something working well for them. Then I want to start identifying who those potential leaders within that particular segment are going to be.First I want to look at an industry leader. I want to look at the company that not only is one of the biggest in that segment, but one that has some of the most impressive products and services. The one that the customers, both business and individuals, want and desire to do business with. These effectively tend to be revenue leaders. They tend to be improving their revenue at a faster pace than their peer group. That's also going to be very positive for us. But then I also want to look not just at the revenues, but at the operating margins. In other words, taking a look at how much they're selling, how much it costs to deliver those goods and services, and then what is left as far as the operating profit. I want to see the revenues and I want to see the operating profits going up, and ideally I want to see the operating margin actually improving, so the more they sell, the greater the percentage that they make and in a greater economies of scale.Then I want to start taking a look the other way. I want to look at what will go wrong. With that in mind, I will look at the two sides of the coin. The first side is looking at the company as far as what's going to limit their sales, what's going to cause them to experience a sales drop-off, and then I'm going to look back at time and look to see how they dealt with it, how it played out for their dividend, how it played out for the rest of their operations, what happened to their investment, how did they address what that was. I basically do the workout. If I can't find a period of time when they were stressed under that condition, then I will run my own numbers. I'll get the calculator out and I will start to punch things in as far as how a drop in their revenue will play out each quarter and how that will impact our dividend. The other part of the equation is looking at the cost side. The costs, whether it be labor, whether it be energy, whether it be other input costs, how will that impact the operating margin, the operating profit. Again, either by history or by going forward, I'll run the numbers to see how that will play out. The key thing is to understand how the company will deal with the threat before it occurs, so it's not a surprise, or less of a surprise. Then we'll be able to have a plan for how the company will be able to work itself out, so we're not just reacting. We're being proactive before we buy the stock.Lastly, I want to look at it from a credit standpoint. I want to look at the idea that if I wouldn't lend money to them, I'm not going to want to buy the stock and I'm not going to recommend that you buy it either. I'll look at the debt. I'll look to see where the debt is spread out. Who actually owns the debt? Are those banks and bondholders more likely to want to roll over those credit lines and to buy additional debt? Again, the credit conditions of the company is going to be just as important as the income statement. Then going forward we can find many great companies, but it also has to be at the right price. Therefore, I want to look at the valuation of that company compared to its successful peers in that same industry group. I'm going to look at the price-to-book value. This is something whereby within industry groups you will see where the ideal is, where are the outliers, both the upside and the downside. If I can find a great company that has the revenues, the great margins, and has the wherewithal to be able to ride out various problems, and it's priced less than or comparable to the price-to-book ratio of its peers, then that makes for a good buy.I also want to look at the price-to-sales. This basically takes the overall price of the company against the trailing value of its sales. This is, again, a very clear apples-to-apples comparison with its peer group. Now, this is different than looking at a price-to-earnings number, a price-to-earnings being the earning number against the overall value of the company. The problem with the earnings is that there can be various vagrancies in any particular quarter, and there are a number of one-off bits of the transaction that allow a company to smooth out what they want to smooth out and effectively manage expectations quarter to quarter. They can't manage their sales revenue. They have to declare what the revenue is. They can't conceal what it costs to pay management and to pay for the operations and to pay for the cost of goods sold. You can't fudge those numbers, and therefore, you can't manage that.That's why I look at much more clean metrics when doing my evaluation and coming up with what I see as a good value for the company overall, and if it's priced at a discount to its peers and at its book value and I think the book value is going to improve or I see its sales are increasing at a steady pace and I see that occurring over the over the ensuing quarters, and it's priced at a discount to its sales compared to its peers, then I can identify and find where I think the target price for that stock is going to be over time. That's how we start to find what is a good buy and why.[Slide 8 25:44] Regions Financial (RF)I think a good example is looking at one of the recent additions to the Profitable Investing portfolios, and that's with Regions Financial, symbol RF. Now, as the name implies, this is a regional bank stock that has the majority of its holding in the south and southeastern US. Now, as I mentioned earlier in the webinar, as well as in the May issue of Profitable Investing, the banking market to me represents significant opportunities for improvement. The Dodd-Frank Act basically made banking prohibitively expensive. The cost of compliance with all sorts of disclosures and other rulemaking made it very difficult for banks to be able to go out to companies, evaluate the companies, make a determination that they're worthwhile making a loan, to pitch the company that they want to do business and actually take a loan from the bank, and then have all the compliance people on the payroll to review everything, to make sure everything fits with all the bits of the rules and regulations. Therefore, the cost of actually making a loan was very expensive.The same has been with other parts of regulations that are held from the office of the comptroller of the currency, the OCC, the Treasury Department, as well as the Federal Reserve and their oversight rules. And we've seen some significant reforms for each of those government agencies. All of that is, I think, set to reduce the overall costs of being in the banking business. In addition, with the economy expanding and with businesses starting to invest more, we're seeing a very supportive market to building bank revenues, through loans as well as through consumer banking activities with that healthy consumer segment that I mentioned earlier.But here's where we start to get to what I think represents the real value that we're going to see in the banks and how they're valued. One of the most telling ways of a profitability for a bank is what is known as the efficiency ratio. The efficiency ratio is quoting a percentage, and it talks about how many cents it costs to make a dollar of revenue. For Regions, in the most current quarterly statement, their efficiency ratio was sitting at 63.2%. That means it costs Regions about 63.2 cents to earn a dollar in revenue. Putting that in perspective, prior to all of the newer regulations over the past 10 years, efficiency ratios of good-quality, well-run banks would typically be sitting in the 30 to 40 percent range, and for very well run banks, we could see that number drop down into the 20 percent range. Means that would take only 20 to 40 cents to bring in a dollar in revenue. Therefore, I'm expecting many of the of the better and higher-quality banks in the US to see their efficiency ratios start to come down quarter after quarter. That's going to result in much better profits from their operations and the rest of their income statements. In addition, the overhead rate-- this is the amount that the bank has to spend as a percentage of its revenue-- the overhead rate is starting to come down thanks to some of its new programs to reduce costs across the board, streamlining bank operations, looking at where their branches are, looking at how their commercial bankers are situated and how they're operating and their costs associated with them. This overhead rate is already starting to see some improvement, and I would expect that number is going to start showing up, dropping in the ensuing quarters. That's going to drop down to a lot more profitability for Regions. Right now, the return on equity and return on assets are in a healthy category. When looking at banks, you always want to have a return on assets that's at least 1%, and then start to see it climb closer to 2%. Regions is already starting to see some improvement in its assets, particularly if we look at their earning assets, which I'll address in a second, and its return and equity. This is a broader measure of looking at profitability as far as what the overall base of its stock is. Right now at 8.5%, it's good. I'd like to see that number start to climb into the low double digits, and I think we're going to see that with some of the cost savings from regulatory reform as well as the overall market for banking and banking products.The next part we start coming to is what I mentioned with our return on assets: that net interest margin. This takes a look at what the bank spends, what it pays for interests, and what it actually receives in interest income. Put more simply, what it pays for deposits versus what it receives in loans, what it pays for some of its own borrowings and what it earns on some of its interest-bearing things. This is another crucial metric for banks, and last quarter we saw a further improvement in this net interest margin, now climbing up to about 3.34%. Regions is already starting to see some improvement, and I think this is going to climb fairly well.Now here's where we get to the value proposition, the price-to-book of the of the bank right now. In other words, the cost of the value of its stock to what its net asset value is, is sitting at 1.3 times. Now, traditionally, good banks will be valued at two times book and better banks can start climb during positive times into three or four times its book value. Therefore, Regions right now is very inexpensive, and given some improvements I see it in its operations metrics, I think the bank's stock price right now is going to rise over time somewhat significantly. That's one of the reasons I added it into the Total Return Portfolio.[Slide 9 32:02] Regions Financial (RF) Buy Under PriceNow, many of you asked about the idea, how does this translate into some of my buy prices, and how do I make a decision on what is the appropriate buy price? Well, when I made the slide deck, on May 7, the stock price of Regions was sitting at $18.75. If we just get it up to what is considered an okay value of two times book, that brings the stock price up to about $26.93. It also assumes that it doesn't build its book of business, just if the book stays as it is, and they improve the efficiencies, I think the bank could see its book value climb. If they build their book, then naturally the overall value of the stock itself will start to see further improvement.Now, why do I have the near-term buy under $19? What you're looking at now is the overall high, low and close history for the past trailing year for Regions. We've seen the improvement of recent because of some of the regulatory changes, because of the tax code change, that we saw coming in the fourth quarter of last year. That all is very positive. You're also looking for various price points placed out for the stock price. You have 13.02, 14.72, 15.76, 16.61, 70.46, all the way up to 20.21. Basically, you're looking at the percentage of Fibonacci numbers, which has no relevance whatsoever to what Regions Financial is, but it does have relevance in identifying price action points for the share price. I also recognize, and it will identify, where some of the trading areas and where the market's price sensitivity for the stock shares are in the current market environment. Therefore, from my perspective, I think that sensitivity right now is right around the $19 or a bit above the $19 figure. My initial buyer recommendation for you is, I think you should be able to buy the stock under $19. I would consider that a good price in the current market environment.That's in the near term. In the longer term I see much greater price appreciation and I see the dividend flow. But I'm not going to say buy it up to $26, I'm going to say we're going to buy it up to 19 now. I'm going to continue to watch, reserve, and review it as I do all the other stock positions and I'll make my price adjustments according to looking at where I see the overall value of the stock going forward and where I see the market's trading activity and where it's going to be more sensitive. If I can guide you to getting a better price for the stock, that's what I'm going to give you. I'm going to give to you in the journal and I'm going to reiterate it in the actual newsletter.[Slide 10 35:03] Mutual Fund SelectionNext thing I'd like to go through is talking a little bit about the methodology for the mutual fund selection process. When we're looking at the mutual funds, the idea of having funds is primarily there's a fund criteria for the portfolio. I'm going to want to look at the fund and see that it fits what that particular criteria is going to be. If it's going to be financials, if it's going to be looking at overall growth, if it's going to be in technology, if it's going to be health-focused. We have various specific criteria, so I'm going to look at the fund that's going to fit that criteria. In doing that, I'm going to identify the relevant index that these fund managers utilize as far as how they guide their portfolio. That's going to allow me to group like funds that are competitors within their specific peer groups. Then I'll identify within that group the performance leaders—in other words, not just those that track along with the index, but track along with that index and outperform it on a consistent basis. If I can then identify which are the ones that are doing better within their peer group, that's where I'm going to focus on. After I've reduced the number of those funds to a smaller number, I'm going to look at times of trouble for this particular market segment. I'm going to look at how the fund manager dealt with their challenges back in time, and how I would therefore get an expectation for how that fund manager is going to proceed going forward when we do have some further challenges. I also want to take a look along that same line, what is going to be the consistency of their positive performance. In other words, if we might have overall a positive performance, but we get certain quarters or certain years that have some dramatic drops followed by dramatic gain, I'm not necessarily going to see that as being all that positive. If you're going to lose five or ten percent one year and then make five or ten percent the following year and lose it in the following year, that's not going to be consistent enough for me. If I can have a slightly lower performer that is generating a positive return quarter after quarter, year after year, that's going to be much more of an attractive fund manager, and therefore much more attractive fund.I also want to look at the fee structure comparison within each fund segment. Now, not all funds have the same cost structures. If you're going to be running a Standard and Poor's 500 index fund, that's going to be a fairly inexpensive fund to manage because there's so much volume. There's very easy ways to synthetically represent those 500 stocks in that fund. Therefore, the costs associated with that are going to be much less versus if you're in a global equity fund or a global bond fund. There are many different costs associated with transactions, with settlements, with custody, as well as dealing with some of the other additional hedging and other activities that can be much more expensive. Therefore, the fee structure for those sorts of funds is going to be much different than for, let's say, a very plain vanilla S&P 500 index fund. Therefore, while I'm aware of what the various costs are associated with it, the idea that we always want to look at apples to apples. If I can find a top performing fund with consistent performance following the same indices and having that consistency and have a lower overall fee and expense ratio, that's what I'm going to go with. But I also have to recognize that different funds have different cost structures and they're going to be priced accordingly. [Slide 11 38:57] Look Under the HoodThe next part of looking at the funds is, we want to look under the hood. We want to look at the portfolio characteristics. We want to see what are the general holdings and how it relates to the index as well as what is the advertised objective of the fund. I want to look at the reported holdings and see what they are specifically. I also want to look at some of the transactions, both the sells and the buys. I can see that in near real-time via the Bloomberg terminal and some other fund reports that will come across. I'm going to want to see what the turnover is. I'm going to want to see how the fund manager deals with ups and downs in the marketplace. That will help me to assess the overall direction of the fund and what I can expect of that fund manager going forward. Then I want to look at the risk criteria of the holdings. If it's the idea of a stock or a bond, I'm going to look at things somewhat differently. But the first off, it's my fundamental assessment. I will not necessarily care as much about what some third-party, advertiser-sponsored companies will attach to their various stars to a fund. If it's dramatically different than what I'm looking at, sure, I will look at their rationale. But I'm going to start with my assessment first. I'm going to look at the risks on the stock side. I'm going to look at how leveraged they are, just specific shares. If they're over-weighted in certain specific shares that can be volatile or have some challenges to them, I'm going to be less excited, because I'm going to see that there's going to be more risk, that if those particular stocks have some bad days, that fund is going to be hit hard. I don't want to have those surprises for myself or for you. If it's on the bond market, again, I'm going to dig into the individual holdings. In many cases in the fixed income market, many times they'll have a fund that will have sub-funds. They'll have a fund that will have some more further bonds or other money market or loans or other portfolios, and even some of those funds might have sub-funds. Fortunately, I have access to some of the past and real-time information for the funds, so I can pull up the individual bonds. I can look at what the holdings are. I know where the credit is, and I can see where some of the risks are. I do all of that to try and identify the overall risk of the portfolio.As with that, I also want to look at leverage within the funds. Are they short various securities? Are they actually using preferred shares to raise capital, and therefore effectively some loans that're associated with the overall portfolio? I also look at the liquidity of their positions. If they have a lot of derivative securities or things are derived from other securities, those are going to be less liquid, so if they need to raise cash, they're going to have a more challenged time. If the fund manager has fairly liquid positions that are fairly plain-vanilla bonds or plain-vanilla stocks in readily tradeable markets, that sort of liquidity and so forth is highly valued. The idea is that I want to look at how the fund is going to deal with a challenge. I don't want to have a problem if in fact there any sort of shocks to the markets. By going through the individual holdings, I can basically help to identify if one of those funds is going to have a problem. [Slide 12 42:49] PONAX & OSTIXThis brings up one of the more recent examples in which we had to change from PIMCO. It's an income fund, and we replaced it with the Osterweis Strategic Income Fund. PIMCO, as you know, raised their fees, and even if some of the oldest subscribers had it, I always have to look at all subscribers and all sizes. Whether you're able to buy at the institutional side and have a lower fee or if you're a smaller investor and you'd have to face the larger fee. I basically want to look at the common denominator. Therefore, I needed to make it make a change. In looking at the segment of a go-anywhere global bond fund and looking at the peer groups is typically a higher fee because it is more complex, it is more costly to be able to buy, sell and hold the various individual securities and how to deal with it from the fund's cost standpoint. I am very aware of the of the fee and I want to basically look at the apple to apple comparisons of the peers within the segment. Osterweis is a leader in this area. They identified the good, consistent performance over the past decade, and the performance was fairly much in line with PIMCO, post the bill gross departure in 2014. It has one of the lower fee and expense ratios relative to its peer group in this in more expensive segment of the fund management. It is also, after looking at the individual holdings and drilling down into the individual bond holdings, it has less leverage, actually no leverage compared to what the PIMCO Fund had. It has significantly more liquidity than the PIMCO Fund, because its bond holdings were very much in the plain vanilla. They could be sold in the open market, versus PIMCO's fund had a lot of derived securities. It had a lot of sub- and sub-sub-funds, and it had a laundry list of many different positions, including some positions that I was questioning as far as how it would fit in to the portfolio's objective. Therefore, the Osterweis made it as a good replacement going forward for that segment of the portfolio.[Slide 13 45:14] When To Sell?Now, the other key question that many of you have had been bringing up is, how do we come to a sell recommendation? Well, I'm constantly reviewing all the facets of the portfolio of Profitable Investing from the Total Return to the Incredible Dividend Machine and so forth, and I'm reviewing with the eye of whether I'd want to buy each one of these positions anew, and the idea that if I can't really come to a conclusion that they're a good value to buy now, then I started to walk down the path of seeing whether we need to sell and reallocate the money to something else. I'm looking to market changes, the idea that we can see some segments are dealing with a changed market environment. I think a key example is in the consumer staples part of the equation, which I'll talk about in a moment. The market tastes have changed, and therefore a formerly defensive part of the market is not as defensive as it used to be. I also look at companies. Management is not always perfect. Through changes in management, or maybe management loses some of their skill sets, they start to slip and they have their failings. If they're not coming back and saying, "Here's how we're going to address our challenge and here's how we're going to do it," and have very straightforward messages, then that's a reason to start looking at where we need to sell. The idea that as risk starts to come on, we basically want to make sure that each of the companies is able to deal with those sorts of changes.Lastly, I never want to go with a hold and hope for a change, not without proof. So, yes, if a company is having some challenges, if it has some bad quarters where it's had some challenges in building some of its revenues, that's not necessarily just a reason to dump it, but the company has to have some proof elements in what it's doing, it is starting to have an impact and explaining why it's going to have an impact. I'm going to be reviewing those plans as the companies disclose them for if and how they are going to be successful. If it's not panning out, then we're not just going to hope for change. We're going to move on to another opportunity. [Slide 14 47:25] Kraft Heinz (KHC)This brings up one of our consumer staples. One of the things that you'll be seeing in the journal that's in the process of being posted is the discussion that we have a lot of consumer staples stocks in the portfolio. These were put in the portfolio last year under the thought that the market might have some challenging times, with the idea of having some defensive parts of the marketplace. Consumer staples tend to be defensive because consumers, as name implied, they want to keep coming back and buying staples. The toilet paper, the cookies, the milk, the coffee and so forth, the cheese. Unfortunately, the market has been changing, so this is not as defensive as it once was. There are many different new competitors. There are private label brands, there are more organic things, there are other things that consumers now desire, and they don't just blindly go with some of the old brands. This is what's changed in this segment. The consumer staples segment might very well be better, but not all companies in the segment are on the same footing.This graph is plotting out the normalized price of the S&P 500 consumer stock index. That's the orange line. As you see for the past year, it's down a bit, but it's not down as you might expect. The white line is the normalized price of Kraft Heinz, KHC. That is basically what is down quite dramatically over the past year. It's not only down dramatically, but it is dropping at a significantly greater pace than any sort of minor sell-off that we're seeing in the S&P Consumer Staples index. This has been showing a warning sign to me. Last week when we got the quarterly report for Kraft, it showed that that revenue was still being challenged and that their cost of producing the goods is still up, their cost of transporting their products is up. Their plan is that they're going to try to increase their marketing and they're going to increase some of their discounts. That’s really not necessarily I think, the appropriate response. The other thing that they were talking about is maybe we do a deal, maybe we either acquire another company and therefore bring some additional products into our mix. They really weren't that definitive as far as how they saw that that might play out and in what certain segments. That was really concerning. Not getting a good message from management about how they're going to address the challenges of the company and seeing a continuation of the revenue challenges as well as the cost challenges, at this point, I've come to conclusion that I think we need to lighten up on some of these consumer staples. As painful as it might be for those that that recently bought into the Kraft story from last October, yes, we're down, and yes, there was a little bit of a bounce recently, but again, I think that there's just not necessarily a plan of action that works for me and convinces me that there's proof. Doesn't mean that we can come back to it at some point, but we've got plenty of other consumer staple companies that we can have in the portfolio that do have a plan. I think a prime example is you can look at Mondelez, Mondelez and its cookies and other food products. Their quarter report was actually pretty good. It could've been much better, but at least they're showing some proof element that they are being very aggressive at trying to identify how they can make more money, how they can cut their costs, how they can improve their margins, how they can address the change in consumer tastes. Management made it very apparent that they are laser-focused on making their allocations of their time and company efforts to making the most for shareholders. I think we're starting to see some proof. At the compare and contrast, Mondelez still challenged, but the plan seems to have some credence; Kraft Heinz, not quite the same thing. We did sell it and move to another recommendation that you're going to see in the journal for today, which you'll see posted later this afternoon. [Slide 15 51:54] KHC & Consumer StaplesAnd therefore, again, the consumer market demand has changed. It's less defensive than it was historically. Revenues are down for Kraft Heinz, costs are rising. The plans for spending on promotions and discounting is just not working, and management just doesn't seem to be demonstrating a new plan. Therefore, now it's time to go.[Slide 16 52:18] Answers to Your QuestionsWith that, I'd like to start to start taking your questions and start to address some of your concerns. We have a question from Glenn who says, "I hold a few shares of Kinder Morgan, what should I do with them, if anything?" So, Glenn, I know that in Kinder Morgan, as well as some of the other toll takers in the pipeline segment, you have seen some selling, but I think there are some of what are very much positives. The first part of the equation is, there was some concern that the potential rise in interest rates might make the distributions of these sorts of companies to be less valuable. But as I've mentioned earlier in this conversation, I think those distributions are still very much better than what we will see in the Treasury market. I think there's much more opportunity there. The second part of the equation is that the demand for both crude natural gas as well as refined and finished products is still very much on the rise. We're seeing a lot of the toll takers are able to book contracts to increase their products that are running through their pipe networks. I think that I see that continuing, and I also see in addition to that, the export market. Again, with some of the regulatory changes and further allowances to bolster exports, the US in the prior month had one of the highest export rate for oil and gas in the history of the United States. That basically lends well to the pipeline segment. Whether we're looking at Kinder Morgan or whether we're also looking at some of the other ones, including Buckeye Partners, Enterprise Products, Pembina and Plains General Partnership Holdings, I think all of them continue to represent some good value. For those, in that you're looking for in the dividend with the tax advantages, focus on Enterprise Products and then also on Plains GP Holdings. Those basically are two that represent some very tax-advantaged, ta- shielded distributions.Then we have a question from Heather. "Is the reason that we've had a lot of discussions about Kraft Heinz and Walgreens Boots and so forth about some of the consumer stocks?" Well, the whole thing is that I've been evaluating what we're seeing this area and looking at it from a stock by stock basis. The Kraft Heinz is a sell in the recommendation for the Journal today. Looking at Kimberly Clark and some of the other firms. I also see that Walgreens I think has a lot of promise, particularly with some of the consolidation that I see between the pharmacy benefit managers, the drug companies, and even insurance segment. I think Walgreens is already working to address that. I'm reviewing all of these going forward.Next we have a question from Vipaton. Vipaton asks, "Would you please tell us the expense ratio of all mutual fund ETFs you recommend?" Well, again, that's something that is not necessarily as clear-cut as you might think, because when you're looking at mutual funds, I could see us having the fees in the portfolio table, and I'm going to look at that. But as I mentioned earlier, it really comes down to an apples to apples comparison. You shouldn't just look at a fund based upon solely its expense ratio. You need to look at what the segment is, what are the costs associated with it, and what are you buying that mutual fund for, as opposed to individual securities. Next is the question as it relates to exchange traded funds and all that. This is another interesting area, because as you might recall, when you're buying an exchange traded fund, you really aren't buying a fund per say. You're buying an interest in what is known as a creation unit. A creation unit is a collection of securities, many derived securities, so options, swaps, and other transactions that will be made between banks and brokerage firms that effectively license the use of the of the name and the index that they're looking to track. Therefore, you just have an interest in that individual basket of these other derived securities, so it's not really a fund per se. You don't own a basket of stocks. You don't have a basket of bonds. You have a basket of derived securities, and therefore, again, it's not quite as clear. What is more important, I think, would be looking at what is some of the underlying churn of the fund, how the ETF effectively tracks the stated index, because that would be a much cleaner measurement of the value. So if the index has a performance of, let's say, 10% for given period of time, and the ETF has an index performance of 9.9%, well that would be a fairly low cost mechanism to gain access to it. If that ETF has a performance of 9%t versus 10% of the index, then that would give me a bit more pause. Going forward, I could see making more of a comparison for you, just to show you what the performance is of the ETF for the individual buyer and how that relates to the actual fund that it is.Then we have a question from Tim, who asks about one of the new recommendations for the Blackrock Municipal Fund. He added an attachment looking at some of the independent firms, such as , which is a conglomeration of people that throw some of their viewpoints, in which he was saying that it was one of the lower ranked of its peer funds. Well, I took a look at that, and again, there's a lot of vagary in how that is. When I looked at Blackrock, which I followed actually going back into the 90s, and the same with the Nuveen funds, what I looked at is, just as I mentioned earlier, what is the performance of each one of these closed-end funds, as opposed to the open-ended funds, how they basically performed year in and year out during some of the down periods for the bond market in general and some of the challenges in the municipal bond market. What are the individual holdings, what is the liquidity for the individual holdings, but with liquidity being less important for a closed-end than for an open-ended. That's a little bit less of a concern. What I really want to look at is the credit-worthiness of the portfolio and its distribution history for that portfolio. Each one of these has a very good overall return for the last many years, and in addition to that, are really being mis-priced by the current market, with a huge discount to what their actual bond holdings are worth. That's what basically led me to make the recommendation.The next question we get from Jim is, "Buckeye Partners. It's down a bit. Is it still a recommendation?" And yes, it still is a recommendation. It's throwing off a fairly high yield at over 12%, and again I think it's a good value at 43. I mentioned earlier the pass-through securities, which Buckeye is one of, came under concerns because of the changes in the tax code, with that tax cut making corporations less of a disadvantage to their pass-through peers. But for individual investors, the tax cut did not apply, particularly for some of the higher income earners. The shielded tax advantage distributions from Buckeye, as well as some of the other pass-throughs, are very much a value. I like Buckeye, I think it's a good value at 43. I'll continue to review that going forward. Then we have Mark talking about in the May issue, talking the virtues of closed-end funds for municipal bonds. He said it very did a very good job of defaulting and credit risk, but what about the risk of rising interest rates on a longer-term closed-end municipal fund? Well, again, Mark, as I was mentioning earlier, if you look at the performance of the Municipal Total Return Index, that's one of the major ones for the marketplace, as Treasury yields have been rising, the overall total return in the Municipal Bond Market has actually been positive. I see this continuing, because municipal bonds are relatively inexpensive because of the economic challenges that the US had had, as well as some of the credit concerns that were out in the state and local markets with taxes flowing through state and local coffers. Credit risk is diminishing, and therefore prices can appreciate. Because municipals are trading at a yield advantage to Treasuries even without the tax benefit, I think there's more room for these closed-end funds to fare even better going forward. Therefore, I basically see it as a good buy.Then we have Leo basically asking, "Can you periodically review some of your recommendations as to what we should hold, sell, or buy more of?" Yes, Leo, one of the things that I've been doing as I've been steering through the portfolio and getting my hands around the various portfolio holdings, you'll see more discussions in the journal and of course in each issue. I'm working on the June issue right now in which you're going to see more discussions about what's the right buy price, what are some of the newer recommendations, and when we need to sell, like you saw in today's journal with Kraft Heinz. Jerry asks, "As a retiree, which one of your portfolios do you recommend that I follow?" Well, Jerry, I think the key thing I mention to all subscribers is that it really comes down to your own risk tolerances, and there's a lot of variety within Profitable Investing and the different portfolios. The Total Return Portfolio has a good mix of dividends and growth, so you get the dividends that are tax-advantaged that will allow you to have your portfolio generate income for you, then we also have the growth opportunities and some of some of the appreciation that helps to build up your portfolio to counter inflation over time and to grow your portfolio so that you can have a more profitable retirement. Total return is a good base for everybody. Then adding into the Incredible Dividend Machine portfolio. This is basically our collection of good dividend-paying stocks that pay the dividends throughout the year through each of the major dividend cycles. Adding that to the Total Return allocations would make for a good sort of retirement-style portfolio.Edward mentioned, "Richard Band obviously had been prepping us for a major decline towards the end of 2018 or into next year. What are you looking for?" Well, I think the key thing for me right now is, I think there's a lot of positives. I mentioned earlier the economy's doing fairly well. Business and consumers are well positioned. Interest rates are just being normalized, which has some positive implications. If anything I can see right now, I could see that the midterm elections might very well be an issue that I'm getting more concerned about. One of the things that I mentioned earlier has been some of the regulatory reform that's happened both on the legislative base as well as from the executive and administrative part of the process. If we were to see a major shock to the system, some of that regulatory reform and some of that certainty in various industries might go away. I'm reviewing that and looking at some of the primaries in the ensuing weeks and months to sort of see how that might play out and if it is going to have an impact to any of our stocks or to the general marketplace. That being said, I'm going to continue to follow what's happening with overall growth. I'm watching the consumer, I'm watching business investment, and I'm watching for what's happening on the credit market. I'm watching to make sure that banks are actually continuing to see further loans. If businesses are still taking loans out, that's going to be a positive indication. If we start to see a contraction, then I'm going to start looking for concerns. I do not see a major threat right now, but I'm always on the lookout for what's going to be a potential problem. Dennis asks, "What's the best method to save dividends and income in a down market in the future?" Well, I think, Dennis, one of the key things that I recommend is, don't just auto-reinvest dividends. Use your dividends to build up your cash hoard, and then use that cash when there's the next great buying opportunity. I've been bringing some new positions into the portfolio, and therefore for those of you that have been having some cash on hand, you're getting some new opportunities both for dividends as well as for growth. The idea is that if you're not living off your dividends you can sort of pile up that dividend cash in a sweep account or in your money market, and you have that so that you can buy when we have some new opportunities, whether it's a down market or some new opportunities that I might bring you going forward. Christopher asks about the direction for gold. Gold basically had been getting a little bit of benefit primarily, in my opinion, from the change in direction in the US dollar. But what gold will have as a challenge would be that the dollar is seeing some further appreciation with some of the near term interest rates, and with some of the normalization of short term interest rates in the US marketplace, it makes the cost of holding gold that much more expensive. I think those would be two things that might hold some further appreciation near-term for the price of gold. If the dollar basically is a bit stronger and as interest rates continue to normalize though, it's going to be more negative for gold. If the dollar basically pulls back from some of its gains and interest rates remain somewhat static, that I think will be positive for the price of gold. Then we have John asking, "Since I missed your last Webinar, can you point me to the recording and the slide deck?" Well, yes, if you go to the website you'll see the Live Events, and you can click through, see the deck and listen to the recording. Same thing that another John asked. We will have this webinar posted shortly and then the video stream will be edited and then posted in the coming days. You'll also get a notification on that.Howard asked, "What happened to the dollar trade with Japan?" Well, before I came in, the thought was that the Japanese yen might very well continue to appreciate against the US, but what's happened more recently is the change in short term interest rates in the US. Short term US dollar rates have been climbing a bit, and therefore we've seen a little bit of a bounce in the dollar relative to several currencies, including the Japanese yen. The Japanese interest rates are still very low to near zero. The Japanese yen now is perhaps being perceived as a cheaper funding currency to use for leveraged transaction. I'm going to be reviewing that, and I'll be looking to clarify where we stand on that position in the Niche portfolio.Then Joseph asks, "I'm down some 26% on Tanger factory outlet as well as Walgreens. What's the future of these two stocks?" Well, you're right that the retail segment, just like the consumer staple segment, has been going through some changes. Tanger effectively is really bucking that trend as far as retailers. It deals in the discounted outlet malls segment, which is cheaper land on the outskirts of metropolitan areas, so its cost structure is low. It's a very under-leveraged firm. It expands its properties with a very controlled risk viewpoint, and its actual rents on most of its properties we've actually seen some improvement. So I think the key problem with Tanger is it's in the segment. The REIT segment is off because of the fear that interest rates are going to move in an inverse fashion with Treasuries. I think it also looks that because of the tax cut to corporations that the tax-advantaged nature of the segment is less advantaged. Well, again, just like we saw with new and with corporates, REITs actually represent a dramatic great, great buying opportunity compared to the lower-yielding Treasury market, and I think that's being more recognized. The second part for individual investors, the REIT segment is very appealing, particularly for some of the higher-income things, because of the tax advantage. Remember that they don't have the double taxation on dividends because they don't have to pay corporate income tax. Two, a great deal of the income oftentimes is shielded with some of the tax advantages of the individual REIT. Third, the tax cut act also allows you to deduct 20% right off the top of the dividends paid to you and make that exempt from your own income tax. So again, the REIT segment I think is one of the more appealing and attractive segments, and Tanger has a good portfolio. It's very unlike the rest of the retail segment because of the demand for their discounted outlet stores.For Walgreens, again, the challenge there has been some of the shakeup we're seeing happening with between the drug stores, the pharmaceutical benefits managers, the middleman between the drug makers and the insurers, as well as the insurers. We've already started to see some co-ops between their competitors like CVS. I think Walgreens has basically been trying to work on building their alliance so that they can be much more efficient as they navigate, like the others navigate, in a changing health environment. I'm reviewing that with the idea that just like I mentioned earlier, just because the stock is down, it doesn't necessarily mean it's a value and it doesn't necessarily mean it's going to come back. It all comes down to how management's reacting to the changes. What are their plans? That's what I'm reviewing. You'll be seeing more in that going forward.Eric asked, "Does a high stock dividend justify a stock's price declining with regards to selling the stock?" I guess the key answer to that is it can. The idea that just because a stock has a high dividend doesn't necessarily mean it's going to be more risky, doesn't mean it's less risky. It all comes down to how is that dividend covered, what is the underlying business for that company and what are its prospects and what are risks to its revenue and what are its risks to the cost to generate that revenue. I look at a low or high dividend in the same way: how is that dividend defended, and what are the risks of that company? But at the same time, if I can have a company generally in good shape that has a higher dividend, that's going to be more beneficial, particularly if we're looking at a bear market or a general market selloff, because you can be paid to be more patient. If a stock from a good company, even if it's trending down a little bit, is still paying that higher dividend, or the same thing, for a fund, that can buy some patience, as long as the rest of the quality is there.Paul asked, "Closed-end bond funds seem to provide much higher returns than the open-ended funds that we currently have in the portfolio. Why not consider them?" Well, Paul as I said, we already have three I brought into the portfolio in the May issue. You're going to be seeing some other, both corporate as well as some preferred and then also some global bond funds that you'll be reading about as I bring those forward. So yes, there's a reason that some of the closed end funds have some of the higher returns. They don't have to deal with the churn of being open-ended. They have a set amount of capital and they work effectively much like a company. They raised their capital through an IPO. If they want to raise additional capital they can do a secondary offer, but it's all on the stock exchange, so they have a set amount of capital. The manager can be much more efficient in how they deploy that asset, since they don't have to worry about redemptions coming and going day in and day out. Therefore that provides them some other opportunities. In addition to that, if we can buy them at a discount to what they're actually worth, that makes the yield that much more impressive for us. And so I always like the closed-end segment, right? There are a lot of opportunities there. Bruce asks, "The impact of rate increases on high yield stocks like MLPs and REITs." Well, as I mentioned earlier, the idea of looking at a good reason for the sell-off in the pass-throughs and the real estate investment trusts was the fear that the higher yields might draw money away from those segments or that it might cost them more to be able to fund their growth or their current operations. The key thing is that the higher interest rates aren't necessarily putting that much of a stress because the margins for these companies are, if anything, very, very high. Therefore, the interest rates are merely getting normalized, so we're not looking at any sort of spikes in that environment. and to the idea that the, that the yields that are offered by the pass-throughs and the real estate investment trusts are so much higher than the Treasury market. That means it looks for much more opportunity, and therefore I think if anything, both the pass-throughs, including the LPs and the real estate investment trusts, for individual investors I think represent one of the better opportunities as far as adding to or buying anew right now. Then Ron asks, "A financial speaker said recently that there's a good reason for 12b-1 fees for mutual funds, is they have a way of paying for ongoing services to clients." Well, the 12b-1 fee is basically a fee that is levered in order to market the fund. My argument would be, a fund company should basically say, this is the sales charge. Here's the redemption fee, and have it at a fixed rate. Here is what we're going to charge you to manage this fund, and be very straightforward. I don't want you to conceal funds as having certain segments and have excuses for it. I'd like to see much more transparency and saying, here's the sales charge, here's the redemption fee, and here's my management fee. Just make it very clear for us. They need to calculate what it costs for them to service the clients, and that's what it should be. David asks, "Keeps us informed on stocks to have in retirement accounts and which to have in non-retirement accounts." One of the things that I brought in in the May issue, and expanding that in the June issue and beyond, is specifying taxable accounts or tax-free accounts. In other words, the key thing for this, which you read a bit more about in the May issue, I was looking at how the dividends are paid and if there are some tax advantages to having them in a taxable account or if there are some disadvantages to having them in a tax free. In some cases some of the tax-shielded things might become taxable if you had it in an IRA. That's why I've started to add this guidance. It's not always completely definitive, but I'm going to continue to expand on that and make reference to it in some of the discussions of the stock.B. writes, "What's your stock market outlook for the next one to two years?" I think looking at the rest of this year, with the exception of the risks I see in the midterms and obviously some unexpected shocks, I think the general stock market should be doing much better than it is currently. As I showed you in one of the graphs earlier in this webinar, I think the stock market has not been reflective of the positive conditions for the economy. It's not been reflective in the improved quarter reports that we have and should continue to see for many of the companies in the marketplace. I would be fairly bullish in the coming year. But again, I'm always on the lookout.Keith asks, "Is AT&T a buy here even before the conclusion over the antitrust and the approval to buy Time Warner?" Well, as I wrote in one of the journal updates of recent, AT&T is a very inexpensive stock compared to its peers in the telecommunication and phone market, being much very much at a discount to where Verizon is on its book and its price to sales basis. Its dividend is well defended, it's got a lot of cash, and therefore for a dividend stock, I think at the current market price it is a fairly cheap stock. If they do get approval for Time Warner it will only basically benefit. Right now I think the downside is fairly limited and the upside is very much there. If it's not Time Warner, AT&T has some other places to go with that cash for some further leverage.Alan asks, "What are your thoughts on high-yield corporate funds?" Again, I bring your attention to the Osterweis Fund that we recently added to the portfolio, OSTIX. Wait for the next couple of issues and you're going to see some closed-end high-yield funds that I follow and like, and I'm doing some updates on that. You'll see some of those coming in the near future.Barry asks, "Suggestions about high yield dividend stocks for an IRA?" Well, I just mentioned AT&T. I think Verizon makes for another good one. Dominion Resources would be one of the ones that have some of those higher rates, and because they're fully taxable, those fit very well into an IRA environment.Michael asks, "What securities are you buying for yourself with this environment? Do you eat your own cooking?" Michael, yes, I tend to do that. Right now I'm working through a lot of the existing portfolio, and therefore some of these aren't necessarily where I've been, but again, some of the things that you'll be seeing going forward will be the things that I like myself. One of the areas that I like, that offers a lot of opportunity over whatever term, is mini-bonds, and you'll be reading about those in the future. Those are retail-size stocks with $25 items that have yields in that six, seven plus percent range that look and trade like a preferred share. But again, one of the things that you also want to be aware of is that I basically won't buy a stock until after I've recommended it for a period of time. I'll delay if I'm going to sell for a period of time until after you've sold. The idea is that I don't want to benefit before you. I want to only act for my own portfolio after you've had the opportunity to buy and sell.William asked, "I liked your weekly report format on companies and announced earnings, will you continue?" Of course. I think when we have the important advice coming out of companies, you're going to see that in the journal, and if it's larger stories, we'll have that unfold in the actual issues.Meryl asked, "What about oil stocks like BP, the old British Petroleum?" I think the key thing about the oil market is, as I mentioned in past issues of the journal, I think the oil market is still very much on the upswing. I think the supply and demand lends me to see oil prices that are either going to be sustained or higher, and therefore a lot of producers as well as other facets of the oil market I think will benefit. The big integrated oils, like British Petroleum or ExxonMobil or Chevron, they've got some of their own concerns, because many of their portfolios are in the more costly areas like the offshore world or in some of the emerging markets area as opposed to the cheaper shale fields, particularly in the Permian Basin in the south central US. I like the oil segment. I've talked about a few of them we have in our portfolio that are already there, including ARC Energy and Schlumberger in the services segment. Again, we also have a lot of the toll takers and the pipelines. I will be looking at adding another producer, but I think it'll be more of the producer that's dealing on the cheaper side on the shale front right now.Gerald asked, "What do you think of using closed-end funds to boost your fixed income yields?" Well, I think I mentioned that earlier. We've already had the municipal front, and I think we're going to see some others going forward in the corporate as well as in the global front I'll be bringing to the letter, so stay tuned. You're going to see more of those going forward.We also have a question James has about General Mills and AT&T as possible buys. Well, General Mills I think has some of the challenges within the consumer staples segment, and again, I think you need to see some further plans from management as far as how they're going to be dealing with it more effectively. As for AT&T, as I mentioned just a moment ago, I think it's a fairly inexpensive price stock right now. I think it's basically on the bottom side being sort of under-priced relative to the Time Warner thing. If the Time Warner thing goes through, I think you're going to see improvement. If it doesn't, they still have a lot of cash. Dividends are still defended, and they'll still have an opportunity to do something else.I think we have one more question I'll deal with. George asks, "I'd be very interested in your stock selection criteria and how buy under and target prices are set." That's one of the questions I've got a lot of recently, and that's why the webinar, you'll look back at the chart, identify the key leaders in the stock. I go through the what ifs, I look to the leader, and then I look at where I see the value of the company overall going forward. Then I look at how is the stock priced and trading in the current environment. I basically will give you what I see as a good price as far as the market action for the stock, knowing what I see for the longer term value of the stock over time. That's basically how I set the buy under and the target prices. I'll have more discussion of that is as I go forward with the new recommendations.With that, I thank all of you for tuning in. I hope you found this to be worthwhile. I enjoyed all your questions. We had many more that I didn't get a chance to answer, but I'll be addressing some of those in the journal as well as in the June issue. Keep those comments and questions coming; that way you'll help me to continue to improve on Profitable Investing and help me with the having some best recommendations that suit your own needs. So with that, I hope you have a good afternoon or good evening and I'm done. Thank you so much. ................
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