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you [Music] good afternoon everybody this is Michael Keeley here and I am glad to be with you for another session devoted to managing a self-directed portfolio so this session is really established for those folks that would like to take some ownership personally on the accounts that they're working with or at least a portion or a sliver of those accounts and as you can see what the slide be you know it's behind me and about to see right here this session is really slanted towards sectors and industries so welcome aboard it is August the 19th we are making our way quickly through the tail end of the summer here I know that a lot of folks have children that are starting school I've got two of three already engaged so my college students started at the University of Utah last week was her orientation I went in for some parental orientation which was very enlightening about her business Scholars Program I'm delighted being in the business world myself and then my high schooler started today she's a sophomore and my sixth grader will be starting on Wednesday so busy times at the Keely household here let me just remind everybody that what we do is for informational purposes only we do not provide recommendations so there are no guarantees in the market and that can be traced to expectations that you have surrounding what the markets done in the past well past performance is never a guarantee of future investing performance and there's a lot of verbage on these slides that relate to different types of asset classes because those we can go into when it comes to portfolio management as a whole but today really will stay centralized on the world of equities and the focus will be on stock investments that lie within a spectrum of sectors that are moving and you'll see what I mean by that a little bit down the line so I with respect to I me demonstrating the functionality of the platform I will make use of the TD Ameritrade comm website and that will enable me to utilize certain tools and features and I would encourage each and every one of you to explore these tools to a further degree should you feel as if they are worthwhile in providing you some some insights hopefully I and some some ideas that surround opportunities that can lie in the market but realize that all investing involves risk including the risk of loss now this session is divided or I'm sorry the the lesson rather that I'm to be teaching has these bullet points and I want you to recognize that this is geared toward an intermediate level audience and so you know this certainly should satisfy the need for more information and hopefully practical information that you can that you could potentially use if you're on either end of the spectrum from beginning to advanced so I'm not making an you know an effort to lose those that are new to the market nor am I making an effort to really you know focus on those principles that are so heavyweight that I would lose the beginners in the market so I want this to have appeal for both you know those that have followed the markets for quite some while and those that haven't so the learning objectives this is what we are setting out to do folks become acquainted with the concept of what we call top-down analysis for the potential investigation of relative sector and Industry strengths define specific common sectors in industries and explore how changing market environments may cause strengths to rotate from one sector to another and that really is where lies a lot of the potential opportunities in the market is that money is in movement at certain times there's more money flowing from one area of the marketplace in the financial markets to the next now that could be money that's flowing let me hit you with a full camera view here that could be money that's flowing from an area like fixed income in bonds and over into something like commodities or over into cash or over into equities and so it can be all together you know hold whole asset classes where we see money moving and a lot of people will make use of things like ETFs that can be representative of an entire asset class real estate there's an ETF for that right there's numerous ETFs for that versus equities but today's session is really is really orienting toward the sectors of the equity market okay so that's the intent here apply these principles by continuing to build a sampleclass portfolio consisting of stocks from a range of sectors and industries so this will speak to diversification and it will also speak to the fact that you can use the TD Ameritrade platform to actually set your trades in motion off of the tools that you've been using to you know to to orchestrate the ideas in the first place okay so with that in mind now you know that last bullet point that really constitutes the next steps that I'd like folks to consider in terms of how you might make use of time in a very mundane or to the principles that are being taught here and now and that you're going through so I appreciate your being here folks let me take us through the world and the realm of top-down analysis so from the slide you can see that if you start broadly and you think about the the idea of where you might like to pursue home or apartment ownership right condo living what-have-you where you want to buy a home then you can start very broad and say well it makes sense for me to consider which area of the u.s. I'd like to be living within in the factors that go into that I and then sequentially down you get more honed in as as you think toward what you'd like to where you'd like to land eventually from the city to the neighborhood to even the streets and then ultimately the houses to make that final conclusion or the apartment or condo or what have you so that is a process of funneling down from the broad to the very narrow I in looking at that as a relationship to opportunities in the stock market then a lot of folks will consider this idea of funneling from broad as a starting point saying well how is the market operating and behaving right now is the market itself moving bullish Lee into the upside is it moving flatter is it moving lower that helps really represent your your market posture as being bullish neutral or bearish and let's say that you're bearish the overall market environment and we do have lots of Leicester you know lots of sessions webinars in-person events our network programming that you can see a distinct a distinct focus main theme on the nature of the overall market and lots of the the things that we teach here on the education side so let's say that you're bearish if you're bearish there can still be pockets of bullish opportunity that lie in various sectors and then industry groups and then of course the performance of sectors and industries is what feeds into what happens on the overall market in the performance of sectors and industries is driven by the performance of individual stocks individual equities so that funneling process is such that some investors might conclude that if they are bearish the overall market they're going to have a certain allocation of their portfolios into the areas that they feel are better situation for a downward market environment that might be fixed income in bonds that might be precious metals like gold that's had a heck of a run to the upside in spite of the markets tailspin to the downside when we've seen the markets tip you know spinning spinning South chances are you've seen gold moving higher right so people might look at asset allocation and say well I'll have a certain percentage in cash if the markets are bearish others might say well if the markets are bearish I at least want to slide into those areas of opportunity within the markets that are bearish and that might be sectors that are doing well or for you value investors that are out there you might you know you might try to capitalize on some areas that have been beat up so just bear that in mind there's always opportunities out there now we're going to start broad these are the sectors publicly traded companies are divided in two broad categories called sectors each sector contains companies that have similar products or services as a main group so these include what you see on screen the broad areas of the market from information technology you can just call it tech most people do - telecom services to utilities to healthcare and financials it should make sense as investors that not all of these groups are going to be behaving in the same manner all the time and that's a difficult feat to pull off for the market for everything to be performing in unison at the same pace that rarely happens so with this let me slide over on to the on to the TD Ameritrade website now and I have done that good afternoon Fred good to see you here greetings to everybody that's joined in probably from coast to coast and for those that will be watching the archives as well I really appreciate your in engagement with these sessions my hope is that you'll learn Lots and you can carry forward in further confidence to try and try and really use your time wisely with respect to how you engage with the markets and what you do with your investing so as we look at the main TDA you know I'm sorry TD Ameritrade comm webpage I what I'd like to do is slide over the area labeled research and ideas and then from there come down conveniently enough we have a whole section that's called sectors and industries and I've just clicked upon sectors and industries now for a lot of folks they might be intrigued with the goings on even during that one day in the market in fact that's the default setting on this bar chart that you see where we've got the performance of the S&P 500 quite strong today anything at 1% or higher is a strong move be it up for green or red for down you know one person or more that's just that's a significant move in the market so I would say that based upon you know just evaluating 1.2 percent gain on the S&P 500 the market is having a significant surge to the upside today and as to what's driving that you can see that there are three industry groups or I'm sorry sectors rather there are three sectors that are actually moving lower on the day that's thus far today which is you know about four twelve Eastern Time I and and so the markets just closed on the session right so industrials financials and consumer staples were the laggards of the day whereas I you know I could just put the top three as the as the the main movers to the upside on the day would include communication services real estate and consumer discretionary little hodgepodge as far as different types of sectors they're all right now you can go beyond that and you can open up the you know the the drop-down window in order to see well you know how have these sectors fared on the basis of oh let's say the last week and it loads immediately and we can see that in the last week far and away the longest gaining sector has been information technology that to this point over the past week is gained nearly 2 percent whereas if you went down to something like financials they've had a very fractional move in the last week only point zero six percent now you could look further still a lot of people do this they might look at something like a three month a six month a one-year mapping out of how the sectors have performed if we look at three months the you know the performance of technology has been incredibly strong almost an eighteen percent gain to the upside that is phenomenal as far as I where where we've seen performance out of these sectors that's nearly doubled the performance of the next best sector which is consumer discretionary down there at nine point one I want you to additionally notice financials there's a reason I'm pointing out this group a couple of times financials at four point one seven percent has been one of the laggards over the last three months not the worst energy has been the worst at minus three point four four now with all this in mind this could paint the picture of the overall market being in a bullish phase given the performance of these whole sectors that we see high single digits for the most part in the last three months that would point to more of an upside bullish environment than the downside bearish environment seeing these statistics now with that said when you come down a little bit lower into this big table with the same sectors represented sectors you know that include real estate which is the newest one that was added to the sector list maybe about a year a little over a year ago as I recall but this enables us to see some of the fundamentals on these sectors in other words what you know what's the size of sector a versus C and D well looking at it from a market capitalization perspective this is something we called market cap it denotes the size of the when you're looking at market cap for staples versus energy versus financials that's the size of the group market cap collectively or when you look at market cap for an individual firm that would be the size of that company which is represented or mapped out I guess is the better term it's mapped out by taking the share price of that company multiplied by the number of shares outstanding to equal market cap so the S&P 500 stands in a market cap of 25 trillion and out of the SP 500 sectors the sector's then have their corresponding market caps that range from here to there depending upon the size of the sector the smallest sector by market cap is materials at only eight hundred and seventy eight billion and the largest market cap is going to be financials no I'm sorry information technology rather in a six point eight trillion dollar market cap so that eclipses financials at four point three trillion buy a good shot doesn't it so you may not have known that if you don't know that then that's an important bit of information to know that information technology the tech world now constitutes the largest sector according to market cap in the smallest sector according to market cap once again as materials and then you've got some sectors that are in pretty close proximity to one another with market caps of 3.2 trillion for communication services or telecom and then three and a half trillion for consumer discretionary pretty close in those cases next the column directly over is p/e ratio now this is for those fundamental investors to take a glance at and say well where might I have the better values relative to earnings because price relative to earnings can represent inflated values when the p/e is high or deflated or undervalued levels when pe is low and what we see is that the PE s are for the most part above twenty with the exceptions being only one one exception financials does everybody see it financials at thirteen point three two as the p/e ratio for that group of stocks so the financials are coming in at the lowest PE and we could also glance at the dividend yield which is one column over this is the annualized dividend yield in assumed dividend based upon the last payment and that would be assumed over the next year that you would hold it and Racquet well let's just say racking up four quarterly payments of duty and we can see that in the case of financials that the annual dividend yield sits at 2.5% which is a good notch higher than other bellwether type of dividend paying sectors like communication services that's only carrying one point one percent dividend yield right now materials that's only carrying a two point zero percent annual dividend ret yield right now so you know the dividends are going to vary on a spectrum from you know from one sector to the next but the reason I wanted to point to this group of stocks within the financial sector is multi you know multiple reasons number one it's a big group four point three trillion number two it represents less less price per earnings at thirteen point three times earnings as the p/e ratio then the other groups of stocks the other sectors what's more you've got a buy rating relative to sell ratio out there amongst the analysts of two point nine to one that is amongst the strongest of that particular ratios of buy ratings relative to sell ratios so that's pretty interesting to see that all right let me come back over to the sli e deck for a moment here we go we want to go down one level deeper on the funneling from broad to narrow now industries are subsets of sectors it says sectors are to fight divided into smaller categories called industries for example the energy sector includes the oil and gas industry so if a sector is broad like let's just say information technology then industry groups are one knotch less broad and more granular because they will include for instance software relative to semiconductors within the sector information technology and a lot of times you can see quite different performance from the stance of taking a look at the industry groups that make up a sector so that's what I'd like to key in on next at the website where we just left off so I'm back over here to the website and in taking a look at a group of stocks let's just take a look at for example the financials group and by group really what I mean is sector in this case ok all right so I have pulled up the sector view here and I want you to take a look with me right over here make sure that's out of the way as we're taking a look at the sector's folks then we can see that the banks would be or I'm sorry the the industry groups the banks is listed as one of several industry groups that makes up the financial sector so if we were to take banks as a sub industry group of the financial sector then this would then tell us that the market cap on banks stands at one point six trillion which looks like it pretty much blows away everything else capital markets would be next on market cap at nine hundred and eighty five billion but the the big banks that are out there are really a huge waiting of the financial sector and now we can see how that sliced and diced the p/e ratio that we identify with here sits at 10.15 for the banks which is well under the p/e of 13.3 that exists for the whole financial sector so if we were to look at this list of Pease that lies down the you know down the list of of industry groups here then we can identify that the p/e ratios that are lowest are going to be found within the bank industry group as well as the consumer finance industry group value investors might use that as you know a rudder of sorts - perhaps steer into those areas thinking I could be paying less for the earnings in those firms given that p/e ratio sitting at that level what's more the banks show us an annual dividend yield of three point one six percent and that lies well above everything else the byte you know buy to sell ratio much higher here for the banks than the other sub industry groups and so I think I've made a good enough case hopefully of you know some of those factors that might compel an investor to take a deeper dive into these types of companies that make up the banks industry group in the financial sector okay let's have at that now going back to the desktop then in order to see a breakdown of these banks then all you have to do is just simply click on the term banks right there from the table itself and it'll take a moment to generate here they are okay and as we've loaded up that next page well let me just stop and pause here I this is you know layers deeper into the TD Ameritrade website that my hope is uh you know some folks here might see a value in order to further explore maybe there's an industry group and sector that you personally have a lot of involvement in or invest in you know investments in that sector this can be good to take a look at this folks I would you know I would advocate that's the word I'm looking for advocate as far as your next steps take this into some areas that are of keen interest to you personally and see what plays out with these kinds of ratios so as we've you know as we look at that next breakdown of the banks sub industry group I did want to point out that credit Swiss has a series of reports and it looks like the you know the most recent one was published only five days ago that lies right here and it's got its own hyperlink I just clicked on it to see and take a look at that all right we've got a couple of reports that stemmed from the report date of August 15th large cap banks consumer credit quality master trusts and macroeconomic data updates you've got large cap Canadian banks Canadian insolvencies rise further in June with a sizeable jump for businesses I did not know that wasn't it wasn't aware of that Canadian banks third quarter of 19 our innings preview head winds likely intense intensified in q3 already on to the q3 report right so if you wanted to look at some of this you by all means you could take a look at that but I'm pointing it out because in many many cases when you click on one of those industry group links then it it does a great job of using the algorithm to then pull forward the the news reports and analyst reports that pertain to that and notice the headlines over on the right hand side this is fantastic that you know this is kind of that machine learning that's built into the website here so it knows that since we're tuned into banks why not take a look at some recent headlines that would relate to banks and certainly bond yields would be prime focus for a lot of investors because you the interest rate scenario is going to you know is going to be a heavy factor on what develops with the banks as far as mortgage business and their own inherent profitability given the yield curve but this is not a session for the yield curve right now so I'm gonna leave that one on the backburner now what did it do it brought up does everybody see this up here at the top what's called a sub industry breakdown at this point and you've got a listing of bank ticker symbols now it could very well be that some of you folks do in fact have some of these money center you know internationally oriented banks here these are gigantic firms from JPM representing JPMorgan to be AC being Bank of America Wells Fargo we've got international banks we've got us-based banks and we've got a whole compilation of different PE ratios don't we now you notice that there's a 12-month trend over here and that's why l've on trend it looks pretty darn similar from you know the top listed bank of JP Morgan in fact when I hover over the ticker symbol and I did want to show this to you as well you can see with that shaded line graph there I that the stock you know has been moving like that which is to say pretty much sideways but closer to the peak than it is to the bottom over these last over these last three months or there abouts yeah that's more like a six month isn't it something like that yeah four or five months somewhere in there but you know that's been relatively flat but it's dropped off of late if we look at another one like Bank of America boy that looks like pretty much a replica chart with very little difference and then if we looked at something like oh let's just take Citigroup boy those sure look similar those three charts don't they I in fact you can make use folks okay so I wanted to show you some of this now this brings up the banks this doesn't necessarily lead you at this moment to a lot of fundamental details that might have you thinking okay I prefer a particular company like US Bank versus another Bank like PNC we really don't have that unless she wanted to go strictly off of a p/e ratio and maybe glancing at the market cap in the in in the snapshot chart of the of the stock but that doesn't give you a whole lot of insight on the fundamental characteristics of these companies so what you might think to do folks I would be to make use of additional tools that you know that we might want to you know to take a glance at those include for example notice you have a tab up here at the top of the table that says performance that would be one example of additional line items that we could load in for these banking companies that give us a sense of perspective of how they have traded up down or sideways over the various time frames so you're all with me now and you see that boy you know year-to-date statistics look for the most part pretty solid but notice there are you know 481 banks that lie within this table 481 that's you know that's overwhelming to be able to look at you know lots of data like this and say well I'd you know I'll use this as a sifting mechanism that's unlikely to happen you could look at ratings you could look at those ratings and you could look more for where the analysts are more bullish by the accumulates or less bullish by the reduces or somewhere in between like the holds but again you have to sort through a huge list of candidates notice there's 481 there's more than five pages of these and so my figuring is that you might have a better opportunity to do some sifting that makes sense by working off of the TD merit raid screeners and the way that you do that is by going from research and ideas over to the screeners tab so let me just read you know kind of recenter us for a moment let's let's recap what we've done to this point I you know I made a concerted effort to have you understanding that broad sectors might move differently and those investors that are willing to pay attention might try to tap into and capitalize on sector rotation sector rotation is a matter of performance and seeing what sectors have done relative to each other and some of those statistics that we looked at can help guide us toward where the sector's you know what the sectors are doing as far as their performance traits you can use screeners for that as well but realize that we went from the broad what you know what of the sectors done to the subgroup of the industry groups and said well as far as industry groups you know what could we look further at we could look at any of them but banks looked interesting given their higher degree of market cap in the lower p/e ratios that must exist on all those banks from there we're now looking at really you know compartmentalizing and saying well which of the banks might you know have better opportunity than another person and characteristics and this enables us to seek out diversification within a self-directed portfolio so what I'd like to do is to create a stock screen just from scratch that's this link right up here create a stock screen I have now clicked upon it and what I'm going to do is first off indicate that the exchanges that I would like to utilize are the the large major exchanges American Stock Exchange NASDAQ and New York Stock Exchange next I'd like to look within the financial sector at the banks now notice the banks can be sub grouped into even the you know smaller buckets now of diversified banks versus regional banks so if you wanted to go diversified banks there are 40 of them if you went regional banks there are 312 so diversified banks must be the big heavyweights that we saw out there because they're beyond the scope of regionals and so that would probably net us those 40 companies that lie within I you know that that listing of well-known or better known I better known banks that are out there next I load up a fundamental category and we could look at something such as something such as oh you could take something along the lines of let's just say EPS growth as a category that you could look for standout candidates in EPS growth you've got last quarter last year last five years projected next quarter projected next year even projected next five years what I'd like to utilize is projected next year are there any of these 40 companies whose EPS projections are for them to grow at 15 to 25 percent and the boiled down number would then be three boy that's not many what about less than 15 oh that's another 20 on that list that are less than 15 which leads me to thinking well there could be some that are above 25 percent and oh actually no the answer is no on that it's actually all of these yeah it's all of these less than 15 percent or 15 to 25 percent that would net us 20 candidates if we were to go that route now I we could also use a valuation metric and we could say well what about those that have price to earnings growth this is known as the PEG ratio I'm not going to teach fully on the PEG ratio it's a statistic that looks at the present PE for the firm in fact a trailing p/e in line with or as a relationship to the five-year EPS growth estimate on a go-forward basis five-year growth estimate so the lower the better on a PEG ratio if you can seek those you know those PEG ratios that are let's say below two then that would be considered stocks trading more cheaply relative to forward growth expectations then PEG ratio is above two so let me just make sure everybody got that with a PEG ratio price earnings to growth it is the PEG ratio desirable levels are lower not higher that means you've got a lower p/e right now relative to future growth expectations if your PE right now is 10 in the future growth estimate is 10 percent growth and earnings your peg is 1 on the other hand if your PE right now is 10 in the future EPS growth estimate is only 5 then that's a PEG ratio of 2 hopefully you caught that I know it's getting late in the afternoon all right so we've got 11 stocks that could fit this bill let's see what they might be here they are we've got banks like Bank of America Credit Corp Limited Citigroup HDFC Bank Oh cent under of chilly right eye we've got a number of foreign banks that lie on the list now below that list of companies folks you'll note that we have the EPS growth that's listed as a statistic now and you can see that the highest EPS gross are actually you know going to be associated with stocks like this for from the bottom of that particular table now if I load the whole complete table does everybody see this window where it says see complete table then that should clear things up to a degree and it does so that we can now see and let me make sure I've got this fully maxed for the group there we are we can now see what the EPS growth is is plotted at for each individual company so Bank of America next growth or next year's EPS growth expected at 7.7 the PEG ratio at one point six that is considered to be in the you know in the in the category you know of PEG ratios of being fairly decent PEG ratio again the lower the better if you were under one that would scream that that's a more attractive PE relative to future growth expectations right that would be the PE of ten against future growth expectations of let's say twenty two equate to a peck ratio of 0.5 in that case alright but there's a lot of opportunities here look at Citigroup with an 11 percent EPS growth expected next year against a PEG ratio of 0.7 so that stands that that stands very attractively priced relative to future growth as well I just loaded up Citigroup because I wanted to show you one other thing before we I finish up on a few slides and I give you some marching orders for I what what you might do with this information now so I just loaded up Citigroup and it's got a lot of statistics that lie in place now I just note that I you're able to go to the charts tab here charts and not everybody is familiar with some of the more advanced charting capabilities at the TD Ameritrade dot-com platform and so you know I do have a number of indicators that are in place just automatically in this case but what we could do is we could look for I we could look for let me just get rid of a couple of these line items here compared to company alright I wanted to show you that you can you can embed other ticker symbols Bank of America update chart you can embed other ticker symbols in a manner where if you like to compare one to the next I that is now available for you through this comparison feature compared to company and I could say well let's compare it to another large bank such as oh let's just say Wells Fargo update chart and this would show us that Bank of America has actually performed the best out of the three stocks individually Citigroup is next in the candlesticks and then last is Wells Fargo there and that's for a five-year chart were you wanting to look at something like oh let's say a six-month graph I then this shows us that Citigroup has actually outperformed the other two making for the best performance out of the last three six months and and I know that's pretty anemic it is in fact the definition of anem c that looks like it's about a zero percent performance there so that's the big goose egg but again performance like that folks is what can potentially produce compelling opportunities when it comes to valuations so let me get over to the slide deck well round this out sector and industry cycles sectors and industries often have unique reactions to changes in the overall economy higher inflation leads to stronger performance of materials and energy versus other sectors early and middle economic expansions are sometimes accompanied by comparatively stronger information technology and consumer discretionary sector performance as economic changes influence different sectors to move in and out of favor this can lead to sector rotation and sectors rotating is what's creating opportunities that are in motion for investors I'll finish this out with the case for diversification concentrating your assets within one key spot that opens the door a lot of risk in the portfolio right but the you know because they can be sensitive to very similar factors and behave you know in the same manner diversification across sectors however can potentially help decrease the effects of negative sector performance because of stocks in one sector fall stocks from other sectors may rise so let me just kind of make the case for your using this to a further degree at time sector rotation can be really evident especially if you pay keen attention to our own programming meaning if you dive into the educational events that we offer here they include I'm going to I'm going to really zero in on the webcasts at this point they include webcasts they include in-person events but as far as where you might where you might turn attention in the immediate future I then you can take a look at my sessions such as tonight's generating income with dividend stocks that's one strategy for investing that's income investing right how about swing trading with John McNichol tomorrow morning that's going to be the more active approach for those of you that really lit up when when you saw the stock chart that I pulled up with comparison charts then that might be the type of session that takes you further in that direction sector rotation can be applicable to all of this all of the sessions that we teach in essence even the options material because sector rotation can really produce a lot of a lot of performance aspects in stocks that that have options trading available so with that folks I let me thank you once again for being here the sessions recorded it'll be up on the archives for those of you that would like to catch that eye into the future you can review at your convenience remember that all of this was for educational intention only and my hope is that you found it valuable thanks for being here folks [Music]