Lesson 3 – Databases, Stocks, Closed End Funds, and Weekly Scans
Databases
There is a multitude of places you can get your information and data from. There are free places such as Yahoo Finance, Google Finance, and a couple of others. There are paid services that can get you everything from news feeds, hot tips, newsletters, trading rooms, tick data, live data streams, and the list goes on. We concentrate on the prices and the stocks that possess those prices. The databases can be different from platform to platform so it’s good to stick with one when searching for potential securities to invest in. You may find one platform will not carry stock/CEF that another one will. On the NYSE stock exchange, there are over 2400 stocks. On the NASDAQ there are over 3300 stocks. And that is just two of the big markets. Not all of these pay dividends so that will narrow our search considerably. And this is where we boil them down to stocks and closed-end funds.
Stocks
We are looking for specifically those stocks that pay dividends on a monthly or quarterly basis. Growth stocks do not pay dividends so they are eliminated right off the bat. It really doesn’t matter which exchange they are traded on but we only pull from those companies in the United States. Next on the grocery list is CEF’s. You will notice that very few of these are actually even mentioned in chat rooms, trade rooms, etc. Brand names do make the scans from time to time but they tend to be on the more expensive side and our metric tend to not allow us to purchase them in smaller accounts. More on this later.
Closed-End Funds
Next on the grocery list is CEF’s. These are fairly steady income producers that don’t have a lot of volatility and when priced fairly low can yield some extraordinary returns. You can research these on a site called cefa.com. There are hundreds of closed-end funds and these are anything from a hodgepodge of stocks to municipal bonds. There are interesting things to learn about them, but we are only interested in whether or not they meet our criteria.
Weekly Proprietary Scans
We have scans that are a culmination of both stocks and CEF’s that has a list of criteria each must meet before we consider them for the scan. Scans can and do vary from week to week and are available on Sundays on the website for a fee. If the scans come in under 15 securities, they are free. This approach is designed to take emotion out of your trades and just concentrate on the strategies and the rules that go along with the system. If you want to send me your list of stocks to implement our risk management metrics we can discuss it. Be aware that the maximum amount of symbols for your own securities is limited to 30 stocks for the prices listed on the website. The scan will be good for one week. If you are new to trading and investing and want to get a feel for how this works. The scans are not magic, unless you understand the rules and the system, think twice before purchasing.
Breaking down the scans
- The Symbol column is simple made up of “dividend” paying stocks and CEF’s, which are also dividend-paying. We do not use any growth stocks, ETN’s or ETF’s for our scans.
- The Last column is the closing price on Friday. Note this does not take into account any after-hours trading and these values may be different from platform to platform. If you have questions, please ask.
- The Max Shares column is the maximum amount of shares permitted for any portfolio under $900,000. Diversification is key. Note: Anything above this amount is for another lesson.
- The Shares column is the amount per trade allowed by the size of the account. In this example, we are showing you an account trade risk metric for a portfolio under 100k. We can see that it represents 10% of the Max shares. As the portfolio grows that value will increase to 20% over 100k -200k and so on.
- The Dividend amount column will always represent the yearly dividend payable per year regardless of the period such as quarterly or monthly. It is also our target value for profit-taking. Some may use this as their strategy for targeting a specific amount they want or the minimum they are willing to accept for investing in that company.
- The Yield column is the percentage amount that you can expect to earn as a percentage of the price as it relates to the dividend amount. Be aware that yield fluctuates and when the price is rising, yield is going lower. And as the price goes lower yield increases. This too can be used as a strategy for identifying those securities that fit with your objectives.
- The Vega column represents the expected volatility away from the Last price. It is always a 50/50 assumption, but this can guide you to make better decisions about portfolio risk and portfolio trade risk. Again many of our team members use Vega as yet another way of identifying those with the better probabilities of making a profit. Hint: A good combination is a high Vega with high Div. We will go more in-depth about probabilities later.
- The last column is the Limit. This is a pretty simple metric but it allows us to approach the market from a defensive position. I encourage anyone with a portfolio of less than 100k to use one of two strategies when using these numbers for entries. We will get into the mechanics of the trades in the following lessons. The limit is the Div amount below the Last.
Miscellaneous scan items.
- Organizing your scan is up to you. Feel free to ask questions if you need a starting point.
- It will come as an excel file.
- If you see highlighted yellow boxes, stay away from these if your account is under the 100k threshold. We do not do partial shares trading.
- Scans are always different because markets are constantly changing. It’s rare that we would buy everything on the scan because it comes down to the strategy implemented and funds available, and the size of the scan.
- Let the market come to you.
Summary
These scans are not only locating those stocks that we are looking for but also allow us to manage risk on any size portfolio. The algorithm is time-tested and has served us well. Check out our track record. The scan, a strategy, and money management, as well as risk management, equals a powerful investing tool.