So much for the big four bank stocks taking a beating on the back of findings in the Murray review.
So much for pundits like those in the AFR saying things like "high capital reserves are likely to lower profits and dividends."
Yesterday, the stock market had its say. It sent the shares of Commonwealth Bank of Australia (ASX: CBA) and its mates up 1% or more.
Who's afraid of the Big Bad Murray Review?
Not the bank shareholders… yet, anyway.
Call it blind faith.
Put it down to the political reality, sadly, of few recommendations of the Murray review being implemented — particularly the abolition of negative gearing and of the dividend imputation system.
The former would hit house prices, and therefore bank profits. The latter would hit bank share prices, and those of other fully franked dividend paying stocks.
The market has spoken. Both are safe. As you were…
You won't find me buying an investment property, negative gearing or not. House prices are way too high. Rental yields are way too low. Maintenance, repairs, rates, agents and tenants all too bothersome to deal with.
By comparison, give me a good old dividend paying stock any day, preferably of the fully franked variety.
Speaking of which, after the market close today, Andrew Page will reveal his brand new Motley Fool Dividend Investor stock pick, exclusively to members of that premium service.
I did suggest he take a look at BHP Billiton Limited (ASX: BHP) now the stock has fallen decisively below $30, where it trades on a fully franked forward dividend yield of close to 5%.
But Andrew's his own man. He's got his eye on another beaten-down blue chip stock that's also paying a juicy, fully franked dividend.
Hopefully it's a case of everyone's a winner. All will be revealed in a matter of hours.
Today, the ASX is definitely on the nose. Energy stocks are having an absolute stinker.
It's times like these when it's best to roll out our time honoured 3-step Foolish Investing Technique that takes all the emotion and volatility out of investing…
Step #1: Buy great companies, run by great managers.
Step #2: Buy them at fair prices, the lower the better (like today).
Step #3: Ignore the share price movement, and let management, combined with the wonders of compound returns, do their work, over the long-term.
I'll add a fourth step too — reinvest your dividends.
Ask any investor how such a technique has worked for investors who bought Commonwealth Bank at their IPO some 20 years ago. They've turned a modest sum of money into a small fortune by following the Foolish Investing Technique, as described above.
I know. My family is one of those that turned a modest IPO investment in Commonwealth Bank into a small fortune.
It took time — 20 years — but in this game, time is an investor's best friend.
Unlike greed, fear and panic — an investor's worst friend. The latter two are on display today.
Overnight, the Dow lost 100 points.
In the "old days", that would have been cause for concern. But with that index riding at close to 18,000, it's nothing more than a tiny blip.
Still, it didn't stop the VIX — a measure of volatility, but most widely known as the fear index — jumping 20%, although admittedly that was coming off a low base.
Fear, it seems, is lurking just around the corner.
Maybe investors are nervous simply because the market is riding high.
Maybe investors are high on margin loans, adding to their anxiety levels and a "sell first, ask questions later" mentality. When markets fall, avoiding a margin call is their number one priority, regardless of underlying value.
I just don't get it.
Why would anyone put themselves through the stresses of a margin loan?
It simply is only a matter of time before the vast majority receive a margin call — forcing them to sell out of stocks, and the market, at the worst possible time.
The stock market — a great place to make money slowly, and an easy place to lose money very quickly.
Speaking of which, what's the story with the oil price?
It slumped again overnight, hitting a 5-year low at around $US63 a barrel, dragging the good, the bad and the ugly oil stocks down with it.
Here in Australia, few are being spared — Senex Energy Ltd (ASX: SXY) down a whopping 15%, and Santos Ltd (ASX: STO) and Karoon Gas Australia Limited (ASX: KAR) both off another 8%.
If you thought that was bad, spare a thought for our Canadian friends. Overnight, their leading index sank 300 points, or 2.28%, its biggest one-day fall since April 2013.
Not surprisingly, the slumping market dragged my small-cap Canadian-quoted oil company down with it, the junior producer's share price plunging a massive 14%. It's now down over 50% so far in 2014.
Given it started the year as one of my largest positions, and I foolishly topped up my holding just last month, my Canadian dalliance is looking like a failed affair.
Luckily for me, other winners, and the falling Aussie dollar, have more than cushioned the blow.
Overnight, my biggest holding of them all, Warren Buffett's Berkshire Hathaway, hit a new all-time high, up 28% so far in 2014.
That, coupled with the falling Aussie dollar, has more than made up for my mis-timed, and potentially very expensive affair with the aforementioned Canadian junior oil stock.
As ever, I'm very tempted to top-up my holding, again, especially given the panicked nature of the most recent sell-off. It's at times like these, when others are indiscriminately selling, regardless of value, that a bargain-hunter can pounce.
But I'm waiting. It's a case of once burnt, twice shy. Plus, in my experience, when you think the stock market, and especially stocks within a particular sector, can't fall any further, they usually do.
A case in point — mining services stocks are still falling today, way after they looked cheap.
Same goes for iron ore stocks — Atlas Iron Limited (ASX: AGO) has hit another 52-week low today, despite the shares already being down 87% over the past year.
When things turn, they can get really ugly.
I'm not tempted to bottom fish the iron ore sector, given the marginal cost of new production is still well below today's $US70 a tonne.
Sure, the low price will knock out some production, but it will be replaced, and more, by new production, including from Rio Tinto Limited (ASX: RIO), BHP Billiton) and Gina Rinehart's new Roy Hill mine.
Oil, on the other hand, is different. Famous last words, I know, but hear me out.
Its marginal cost to produce a new barrel of oil is widely accepted to be around the $US80 to $US90 mark. With oil now trading at $US63 a barrel, simple economics would suggest the only way for the oil price from here is up.
The only issue is timing. Current supply exceeds current demand. But for how long?
Again, it's often longer than you think. And with OPEC not scheduled to meet again until June 2015, it's a situation likely to persist for longer than seems rational.
To emphasise the point, Morgan Stanley has become the latest to cut its price forecast for oil, the AFR reporting its bear case scenario of just $US43 a barrel.
Admittedly, that is their worst-case scenario. The Morgan Stanley base case forecast for 2015 is $US70 and $US88 for 2016.
Given both forecasts are above today's level, it's tempting to hit the buy button today.
Against my own advice, I admit I'm dabbling in the sector, including on our very own BHP Billiton.
It may not quite have made the grade for Andrew Page's Motley Fool Dividend Investor, but with the shares well below $30, I'm not sitting idly by.
As I've long stated in this column, I'd be interested in topping up my holding in the Big Australian at below $30.
The shares breached that mark last week. Today, again, they trade below $30, now swapping hands for close to $29, a 52-week low.
True to my word, last week I added to my already decently-sized BHP Billiton position. But I didn't add to my ASX position.
Instead, I went Stateside, trading options on BHP's US-quoted ADR shares.
Here's my unusual BHP trade…
I sold $US47.50 strike, 20th February 2015 expiry put options on the US-quoted BHP shares, being paid $US1.35 per contract.
I first introduced put-writing — my favourite options-trading technique — back in August, when I gave details of my forthcoming trade in CarMax.
So far so good on that one, as I'm currently on track to book a full 100% gain, pocketing a cool $780 income in the process.
Right now, I'm not feeling so confident about booking a full gain on my BHP put-writing options trade.
If the US-quoted BHP shares are above $US47.50 come 20th February 2015, I will keep the $US1.35 per contract I was paid when I took out the position.
If not, I'll be on the hook to buy the BHP ADRs at a net buy price of $US46.15 ($US47.50 less the $US1.35 I've already been paid).
On current exchange rates, that equates to a net buy price for the ASX-quoted BHP Billiton shares of around $27.50.
Here's the thing — if BHP's ASX-quoted shares were to fall that low, they'd be trading on a forecast fully franked dividend yield of about 5.2%.
In a low interest rate environment, my bet is the yield alone will put somewhat of a floor under the BHP share price.
Nothing's guaranteed of course. Dividends can be cut. Commodity prices can keep falling. Forecasts can be wrong. BHP shares could fall as low as $25.
But successful investing is about putting the odds in your favour.
Buying BHP at the equivalent of a net price of around $27.50 — or else pocketing a few hundred dollars if the shares close above around $28.25 come 20th February 2015 — may not be a certain winner, but I certainly fancy my chances.
Unlike I do picking the bottom for these oil stocks.
