Despite Friday’s substantial sell off, I’m looking across my portfolio and I’m not sure that I want to add any more shares, even at prices that would have seemed attractive a few weeks or months ago.

Apparently I’m not the only one holding back. Buying on the dip helped keep the market from falling into correction territory during many sell offs in the long bull market. Now, from what I read and observe, people aren’t jumping into the market nearly as eagerly when share prices fall a few percentage points.

Part of that reflects the anticipation of higher interest rates. Just when the Fed seems to ease market concerns about how aggressively it may raise rates, market forces conspire to rekindle fears of imminent increases. And with many companies looking ahead at an environment when they may have to refinance debt at higher interest rates, it’s easy to see why investors are wary.

Case in point: AT&T. Distinguished company that made a bold, and perhaps risky, move by purchasing Time Warner. Now it’s saddled with a large debt burden that can only be managed if it’s add content strategy succeeds. The company pays an attractive dividend, which could be one of the first things that comes under threat of AT&T is forced to lower it’s debt burden to manage rising rates.

So blame me for the recent correction. I’m part of that horde of investors who once reliably rushed in to buy on the dip who’ve now turned skittish.

 

At the risk of chasing a once impeccable stock down, I’ve just added Gannett, publisher of USA Today, to my portfolio.

I’m old enough to remember when USA Today was the fresh face among major daily newspapers. In those days I did a lot of business travel, and there was a profound pleasure in opening a hotel room door and finding a copy at your footstep. The stories were breezy and reliable, perfect for the business traveler on the go.

So is this the sentimental pick of an old newspaperman (I spent more than 20 years working mostly on trade journals, and I spent some time back in the 1980s in the news room of small Midwestern daily)? Maybe. But take a look at the numbers before shrugging off my pick.

The company, which in addition to its USA Today franchise publishes a bunch of significant regional newspapers and also owns digital marketing assets, saw a significant drop (about 5%) in operating revenue in the third quarter. And the company trimmed its revenue outlook for the year.

All newspapers are struggling with the decline of print publishing and print advertising as they try to navigate the crossing toward a digital news environment. Gannett’s “digital revenue” rose 8% year-over-year and now accounts for 37% of total revenue. That doesn’t exactly make it a digital company, but it is progress toward a digitally driven business model.

The company also posted digital only subscriber growth of 48% year-over-year.

But here’s what’s really to like. The shares are beaten down so much that the dividend yield is north of 6%. And at roughly $18 million quarterly, the dividend payment seems manageable if the company can stem the declines in print revenue while revving up digital revenue streams. (Not everyone is so sanguine. Argus Research put out a note warning that management’s focus on acquisitions, coupled with falling free cash flow, could put the dividend at risk.)

Gannett’s stock took a hit on Wednesday, Dec. 5, when the company announced that CEO Robert J. Dickey will step down next year. It recovered a bit the following day.

I haven’t followed the company or Mr. Dickey long enough to evaluate whether this good or bad news. But my instinct tells me that having a 29-year company veteran at the helm during a time of rapid restructuring and repositioning might not be advantageous. Perhaps new and fresher eyes will see where Gannett can grow and prosper in a changing media landscape.

In the meantime, I’m hopeful that the stock’s price will appreciate, in part to reflect the value of its dividend. Currently, the market seems to be treating Gannett like a company who’s growth prospects are weak and dividend payout rate at risk. I’m willing to take the other side of that bet.

Shakespeare, via the character Polonius in Hamlet, counsels that it is best to “neither a borrower nor a lender be.” In an ideal world, that may have been good advice. And a royal such as Prince Hamlet had resources that probably would have let him follow that advice. For the rest of us, borrowing and lending are pretty much as inescapable as death and taxes.

But buying and selling stocks is another matter. We can choose when to get in the market, and when to take gains (or losses) and sit out the turmoil. I heard a debate on CNBC this week about whether now’s the time to “buy on the dip or sell on the blip.”

As I write this, Wednesday Nov. 28, the Dow is up more than 2%, as are other major indices. If I were taking action today, I’d be a sell on the blip guy. Market participants expect continued volatility in the equity market, and volatility tends to undermine confidence. The Fed is likely to continue raising interest rates. (Federal Reserve chairman Jerome Powell, speaking in New York, said the “economy is now close to both of those objectives” — meaning low inflation and full employment.)

Markets reacted positively to Mr. Powell’s remarks, which were interpreted as foreshadowing a less aggressive approach to raising interest rates than some had feared. But Mr. Powell sounded some cautionary notes in his speech as well, noting that the Fed is closely following the growth in corporate debt at many corporations.

Mr. Powell reassured markets that policy makers should try to prepare in advance for adversity, and he argued that the financial system is stronger than it was before the financial crisis that spurred the Great Recession.

“Systemic stability risks can take root and blossom in good times,” he noted.

One concern today is not so much the overall growth of corporate debt, but where that growth is concentrated, he said.

“Firms with high leverage and interest burdens have been increasing their debt burdens the most,” he said.

 

 

 

Given the performance of my recent “dividend picks,” it’s something of a relief to look at my Word Press dashboard and see that I have yet to reach a large readership.

Of the stocks I’ve recommended in this column, the drop of SNH’s share price has surprised and bothered me the most. From what I can tell, a general market disenchantment with externally managed REITs (the company’s operations are managed by the RMR Group) and the large share of SNH’s senior housing portfolio that is managed by Five Star, a senior housing operator that has come under financial pressure, is behind the decline in SNH’s share price relative to its peers. According to an investor presentation on SNH’s website, Five Star operates 184 of SNH’s portfolio of 304 senior housing communities.

SNH’s debt load has grown in recent years, reaching 41.3% of gross asset value at the end of last year, about what the senior housing REIT industry average is.

Bottom line: the market is treating SNH like a company that may have to reduce its dividend because of headwinds facing the senior housing rental industry.

So am I gobbling up shares, trying to take advantage of a dip? At first I did, but as the share price has kept slipping I stopped.

One of the errors investors make — and I’ve done it many times – is letting psychological “anchoring” get in the way of making rational investing decisions. Anchoring essentially means that an investor’s thoughts about a stock’s value are unduly influenced by a historical or extraneous fact, such as the purchase price or a recent high point.

Here’s what Investopedia has to say about anchoring.

“In the context of investing, one consequence of anchoring is that market participants with an anchoring bias tend to hold investments that have lost value because they have anchored their fair value estimate to the original price rather than to fundamentals. As a result, market participants assume greater risk by holding the investment in the hope the security will return to its purchase price. Market participants are often aware that their anchor is imperfect and attempt to make adjustments to reflect subsequent information and analysis. However, these adjustments often produce outcomes that reflect the bias of the original anchors.”

It’s not just SNH. When I think about how I chased GE’s stock down, buying at 20 and 15 and 12, always thinking it can’t go down any further, my bias was anchored in the company’s previous recent highs or my purchase price points. Now I know I’ve got to do a better job of restraining my “anchoring bias” in analyzing stock values.