My last article about my IRA and how I use My Mad Method [MyMM] to help me manage it was a recap of how things turned out at the end of Q1 of this year. I ended that article by saying that I "[didn't] expect to make as many trades in the current quarter", meaning this quarter, Q2. However, I did leave the door open to potentially take a small amount of profits from some positions that have had some impressive gains and which were substantially (or even just somewhat) over the parity percentage allocation of 3.45% that I've been trying to get all of the 29 stocks in my IRA to.
Well, as it turns out, I did indeed book some small profits and deployed them to further my goals of turning my IRA into the best income producing machine that I can make it before I retire in about 16 years.
Just A Bit More, Please…
But before I decided to do that, I made a simple acquisition with the dividends that had accumulated since mid-March to take advantage of a stock that was well below parity and had been taking a bit of a beating, and I want to report that to you here, too.
I first purchased some shares of Harris Corporation (NYSE:HRS) back on February 20th of this year. I wanted to diversify a bit more into the telecommunications space, and didn't want to invest in any more carriers at that time. As it turns out, by buying HRS I also diversified a bit more into the defense sector, as I didn't realize that HRS had so many large government contracts when I bought my first batch of it.
Since then, HRS has continued to drop, despite the market being up considerably overall. So with the monthly batch of dividends that I had collected by this point in time, I added 23.1% more shares to my HRS position, bringing it up from an allocation percentage of 2.22% to 2.74%. Not a huge bump, but slow and steady wins the race, right?
I chose HRS to use this month's dividends to add to because out of all of the positions that were below the 3.45% parity level, it was the second lowest below parity (after recently acquired Philip Morris International (NYSE:PM)), but it also had the best Weighted MyMM Ranking after I weighted the MyMM spreadsheet in the following manner:
- Yield - 30% weighting - 5.10 weight multiplier.
- 5 Year Dividend CAGR - 30% weighting - 5.10 weight multiplier.
- BMW Return Factor - 0% weighting - 0.00 weight multiplier.
- Percent Allocation - 50% weighting - 8.50 weight multipliers.
This effectively "turned off" the BMW Return Factor, once again, and placed the most emphasis on those companies that I already held that had the best Chowder Dividend Rule [CDR] number, and that I held the least of. HRS had a CDR number of 25.4%, compared to second place BHP Billiton plc (NYSE:BBL) which had a CDR number of 22.9% and a percent allocation of 3.06%; and third place PM, which had a CDR number of "only" 16.3% and the lowest percentage allocation of all of my stocks at 1.94%.
In addition, I had been tracking the change in share price of all of the companies that were below parity in my portfolio since February 21st of this year, and HRS had by far seen the largest decrease, which helped convince me that it would be the best choice for using this month's dividends to buy more shares of an existing position.
A Little Off The Top, Please
I then set my sights on the latter part of April, at which point I will see another decent accumulation of dividends, and thought I was done for the time being. However, as I was pondering the numbers in my portfolio's spreadsheet, I realized that there were a number of positions that I held that had done very well in the recent run up in the market, and were now somewhat above the desired parity level of 3.45%. I don't often sell off shares of stocks that are performing well, but I have been known to do it for the right reasons. In this case, the "right reasons" were to:
- Book some profits before the market took a big downturn, which I thought was likely.
- Reduce the percentage allocation of some positions that had run up to the point where there was starting to be a bit of an imbalance in the distribution of which stocks represented more or less of the total value of my portfolio (in other words, attempt to "restore equilibrium").
- Bring as many other positions that were very close to achieving parity to that level, or closer to it, as possible.
Continuing my analysis of my current situation, I found that there were four stocks that had the following characteristics:
- They were almost at or above a 4.00% allocation of my portfolio's total value.
- They had realized a decent gain of at least 10%.
- I could trim a portion of those profits from their positions and still keep them well above the 3.45% parity level.
These are the stocks in my IRA met that profile:
% Alloc Before
% Alloc After
Johnson & Johnson
The Coca-Cola Company
One thing I had to take into consideration was how much in annual dividends I would be losing by selling off a small number of shares of each of these positions. So I looked at the stocks that were still below 3.45% parity, and found some likely candidates to spend the profits I was expecting to reap on and checked to see which ones, in which combinations of shares to purchase, would produce the highest amount of annual dividends.
The leading candidates were the following positions:
BHP Billiton plc
Lockheed Martin Corporation
National Grid, plc
Philip Morris International
Vodafone Group, plc
With Delta Ratio Readings of "Buy!" and "Holy Cow!" respectively, HRS and BBL looked very promising, while PM was the #1 Ranked candidate, due in large part to its very low percent allocation in my portfolio currently.
Playing around with picking the appropriate number of shares to buy from different combinations of these six stocks, the best I could do was to get two of them above parity, at most, and generate about 80% more in annual dividends than I would be losing by selling the small number of shares from those positions that were well above parity and had shown at least a 10% gain.
However, as I pondered this potential course of action, and watched Mr. Market do his thing, something occurred to me: Unless things took a terrible turn for the worse, I was likely to realize enough profits to potentially initiate a new, albeit small, position, which would increase my number of holdings to 30 and lower the parity number that all of the stocks in my portfolio are measured against down to 3.33%. And if I did that, then even more positions that were below parity would then be above, or at least closer to, the parity line. And, I would be one more stock closer to achieving my goal of having 50 positions in my IRA's portfolio.
It's All About The Income
The last time few times I wrote about MyMM and how I use it to help me manage my IRA, as well as my wife's IRA, I mentioned that Universal Insurance Holdings, Inc. (NYSE:UVE) was on my radar, but that I was reluctant then to pull the trigger and pick some of it up. In the Comments sections of those articles, a number of commenters mentioned that they were very positive on UVE's current situation and its prospects, and suggested that I take a second look at it. So I did, and when I calculated using all of the profits that I was considering generating to initiate a new, 30th position with UVE, I discovered that if I did so, three things would occur:
- Instead of going from 14 positions that were ((now)) above parity to, at most, 16 positions that were above parity by adding to some of my existing positions that were below parity, by adding UVE as the 30th position, I would then have 17 positions that were then above parity. This was significant, as the OCD in me was really driving me to get as many positions as possible to or above parity. (Market movements had lowered the number of positions that were at or above parity since my end of Q1 report.)
- When I added UVE to the list of my existing positions that were below parity and weighted it the same way as I had those stocks, it rocketed to the number 1 Rank in terms of MyMM (helped, no doubt, by the fact that the % Allocation metric was weighted at 50%, and I held none of it at the time, but still a very good sign).
- More importantly to my ultimate goal, if I used all of the funds to start a small position in UVE, I would increase my income from dividends by 131% over what I would be losing in dividends by selling off a few shares of HAS, JNJ, KO and WAG, as compared to a maximum of about 80% using a combination of the 6 existing candidates to add to.
So, armed with that revelation, I decided that that would be my course of action: That I would sell a wee bit of HAS, JNJ, KO and WAG to generate enough cash to initiate a 1.50% allocation in UVE.
Enter Mr. Market
However, that revelation came to me last Friday, April 12th, when things were looking reasonably rosy in the markets. My plan was to see how things stood in the markets on Monday, and then pull the "Sell" triggers if the stars were aligned properly. And then on Monday, April 15th, the Dow Jones Industrial Average tanked over 265 points.
However, I kept my eye on things, and on Tuesday realized that with the slight recovery in the market, and the really small number of shares that I was going to sell and the relatively small difference between their prices on Friday and their prices on Tuesday, that I should go ahead and pull those triggers, which I did. Money was now in my account.
At this point I decided to wait a bit more to see how things would go for UVE before pulling the "Buy" trigger on it. As it turned out, Wednesday, April 17th, the market took another deep dive, which allowed me to buy enough shares of UVE to leave me with 30 positions in my IRA, a new all-time low parity target of 3.33%, and 17 out of those 30 positions at or above that parity target, with another 7 positions within striking distance of hitting parity, some of them just a few hundredths of a percentage point away.
So, once again, I have done something somewhat unexpected in that, while I predicted that I might take some small profits if the market cooperated, I did not anticipate spending all of those profits on buying a single, new position. However, I am very pleased with how things have turned out, and while PM and UVE are still below a 2.00% allocation, all of my other positions are either above, at or very close to the new parity target of 3.33%.
Now that I've hit 30 positions, I think I can calm my OCD down a bit and concentrate on applying the next few months' worth of dividends to those existing positions that will benefit the most from them, and which will contribute the most to my future income stream. Of course, anything can happen between now and then!
Disclosure: I am long BBL, HAS, HRS, JNJ, KO, LMT, NGG, PM, VOD, WAG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: I am not a professional investment advisor or financial analyst; I’m just a guy who likes to crunch numbers and can make an Excel spreadsheet do pretty much whatever I want it to do, and I’m doing my best to manage my own portfolio. This article is in no way an endorsement of any of the stocks discussed in it, and as always, you need to do your own research and due diligence before you decide to trade any securities or other products.