Five Plus Investor's Instablog

Life Happens...as Well As Other Stuff...

Wed, 26 Dec 2012 10:37:47 -0500

Hello friends and detractors:

For those of you who have PM'd me with your support in putting out future articles, THANK YOU. For those of you who have PM'd me with a message of falacious good cheer because you view my lack of SA activity as some sort of concession speech on the defeat of my personal strategy...this Instablog is a lump of coal in your Christmas stocking.

Any of you who have followed me know that I am not a professional money manager. I am, first and foremost, a mother and wife. Then, business owner. Finally, I am an investor and SA contributor. The rest of my life comes before SA.

The last few months have been extremely trying, and my husband and I have grappled with what to do with our oldest son. I do not feel the liberty to share all, only to say that it is a special kind of heartbreak to have a young adult child with internal struggles. We are trying help him deal with a special kind of failure, and are assisting him in finding the right path for his young adult life.

For those of you who shared in the heartbreak of the rebellion of my youngest, I have good news. She is now on the right path, and am finally seeing the payoff of all the "tough love" we had to deal with over the summer.

I have also dealt with the death of a beloved aunt to leukemia, and helping my disabled mother deal with this heartbreak has weighed heavily on my spirit, and on my time.

All this to say...I promise there will be more articles to come...when life settles down (which I sincerely hope it will).

As for my detractors, who believe my absence is my declaration that I have succumbed to the defeat of my own strategy, let's see if my strategy has failed me.

The market is down from the highs in October about 7%. I am down in my largest portfolio - the one I consider my nest egg - about 4%. As I am concerned about total return, I do care about YOY growth. I average between 5 and 10% growth per year, and from Dec. 2011 - Dec 2012, I am inline at 6.9% total return. If the market ends on an upturn, this figure will improve.

I am also on track to have modest income growth, in line with the current rate of inflation (about 2%). I will admit - this figure could be better. However, having been severely burned in 2008, I vowed never to be caught holding too much during a downturn. As such, right after the election I was in 25% cash, which has recently been fully deployed back into undervalued dividend stocks. Several of these underperformers have taken off, and just in a few months I have seen better than 10% growth on these selections. My goal is to have my portfolio yield between 6 - 7% every year. Even with a partial selloff in November, I have already reached this goal (6.7% yield), and not all of my December dividends have hit my account.

The strategy of tracking the market may be at odds with some of my co-horts. However, as I've long tried to explain to the detractors of dividend investing, we are not a homogenous group. We all have our own definition of success, and our own unique ways of getting there. The minute you criticize a certain strategy, there are a host of others that can say...no, I don't do it that way. Therefore there is no way to justify any sort of delight in your perceived failure of a strategy, when there is, in fact, no de facto implementation of a strategy to begin with.

So, my friends and detractors...thank you for your patience. On top of the challenged of my life, I have started a Masters degree program, so my time is limited. But I will be back. Be on the lookout in January for a continuation of the "Off the Grid" series, of which I have been continuing to research, although I have not yet had time to write.

Happy Investing to you all,

Denise

Five Plus Investor

Your 10 X 10 X CCC Shopping List For 2Q 2012

Sun, 15 Apr 2012 18:39:03 -0400

For those of you not familiar with my 10 x 10 x CCC series, please see David Van Knapp's article. It talks about creating a portfolio that in yielding 10% or more yield-on-cost (YOC). Based on this concept, every quarter I publish a "10 x 10 x CCC Shopping List."

The one list has grown to two. List #1 uses the most recent data available, which is the 1-year growth rate. List #2 will use the most conservative dividend growth rate among all published dividend growth rates (1-, 3-, 5- and 10-year).

PLEASE NOTE: for the lists below, I am not accounting for inflation when considering yield-on-cost. I am using a simple "plug in" on rounded-down numbers.

NEW ON THE LIST:

BHP Billiton Ltd (BHP)
Vanguard Natural Resources (VNR)
El Paso Pipeline Partners (EPB)
Lorillard, Inc. (LO)
Arch Coal, Inc. (ACI)
Western Gas Partners, LP (WES)

To view the 10 x 10 x CCC shopping lists, as well receive additional information, please click the link below to continue on:

YoYoMama Stock Leads and Market Musings

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Where I Stand On Contributing

Tue, 10 Apr 2012 15:02:57 -0400

Dear Readers:

It's been almost two months since I've submitted an article to Seeking Alpha. It's been several weeks since I've even commented on anyone else's article. Some of you may be wondering if I've had a heart attack...or fallen off a cliff...or gotten mad and gone away.

The answer is - none of the above.

Simply put, LIFE has happened, in both good and trying ways.

First, the good. The business I run with my husband has really taken off. Financially, this is great news, but success comes with a price. That price tag is - I am *working* - A LOT.

Second, the trying. I am the mother of three teenagers. Right now, all three of them, in their own way, are testing who they want to be. They are asking themselves - do I want to adhere to my parents' morals...religion...educational goals...work ethic...and have been acting out accordingly.

Any of you who have parented teenagers understand the tremendous toll, emotionally and physically, this testing period has on you. There is worry, anxiety, plenty of discipline, and being hated and railed against by the very children you give your life to. Frankly, there are some days where it takes all my emotional strength just to get through the day with just dealing with my kids, never mind the workload I carry.

In other words, I am no different than any other reader out there who is not a professional broker, analyst or financial advisor. I'm a real person, with a *really* demanding life.

All this means is: I just haven't had time to contribute.

My problem is: I spend LOTS of time composing articles. Each article takes me 10 to 20 hours of research and word-smithing before I submit. That's time I just don't have right now, and may not have again for quite a while.

Still, I enjoy being part of the Seeking Alpha contributor community. So what do I do???

Well, I do have a tentative plan, and here it is: I will continue to contribute, but the in-depth articles will likely not happen more than 1x or 2x a month. These will get posted to Seeking Alpha as premium articles {hopefully I stay in the good graces of the editors here :) }.

I will continue series updates (Cancorps, 10x10xCC) but I really don't need to create huge articles for those. These will go on my blog: www.yoyomamastocks.blogspot.com. I will post an Instablog notifying you of these articles. I will also blog on other topics of interest. Any blog entry I make, you will be notified.

I can't ask you to do so on direct links, but if you ever visit my blog, please be so kind as to click a Google link if it interests you. This will make it monetarily worth my while to continue the blogging journey.

My mind brims with greater ideas than time allows me to communicate. But with your patience and support, I'll try to get back in the swing of contributing again sometime soon.

Thanks and Happy Investing,

Denise
Five Plus Investor

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Growing Bubble of Health Insurance Premiums

Tue, 25 Oct 2011 01:01:13 -0400

It happens every year.

I get a notice that it’s time to start the process all over again. I drag out the year’s receipts and scrutinize where I can find any scrap of cost savings. I research available options for potential reductions. I curse that every year the bill gets higher and higher, all the while I get less and less. I wonder why Congress can’t get their act together enough to enact real change, yet rue to the high heavens the changes they have already made.

Sounds like tax time, doesn’t it. It’s not. It’s health insurance renewal time. For my family, that time is now.

Merry-Go-Round? Or a Bubble About to Burst?

Health insurance renewal goes round-and-round, the same old way, year after year. We barely run any expenses through our insurance, yet every year our insurance premium is raised an average of 12%. The choice then becomes: pay the higher premium, or lower our coverage to maintain the rate. We can’t stand paying more and getting less, so we usually opt for paying the same, and getting less…

What is the reward at next year’s renewal for us taking on more of our own health care costs, and the insurance company taking on less? The insurance company slaps us with yet again another premium increase of 12% or more.

The only way off the merry-go-round with your current company is to change insurance carriers every few years. But it really accomplished nothing long-term. The next insurance company will raise your rates just like the last one.

Switching carriers year after year is like jumping off one merry-go-round and hopping on to another. You’re on the same ride, but you never really get anywhere.

I was commiserating about the process with an insurance agent who does not sell health insurance. He was in complete agreement. He then said something about the health insurance industry that, as an active investor, stopped me in my tracks:

“Health insurance is a bubble that is about to burst.”

When you use an investment term to describe a potential future event, you have my attention.

Is Health Insurance a Growing Bubble?

There is no dispute that health insurance premiums are in inflation mode. A study released by the Kaiser Family Foundation shows that premiums for families on employer (group) health insurance was 9% higher in 2011 than in 2010. Insurance rates have doubled since 2001. These rate increases are minor compared to the rapid rate of increase of personal health insurance policies. Regence BlueCross BlueShield, which operates in Oregon, is asking for a 22% raise in premiums for policies sold to individuals. Policies sold to individuals (personal health insurance) are strikingly different than group policies in accounting for pre-existing conditions, and on raising policies after a health event. Unlike group health insurance, they can screen out on and not cover individuals with pre-existing conditions. After a health event, the insurance company may raise your premiums substantially, as there exist loopholes which allow insurance to raise rates without review by the state.

What is interesting, and infuriating, is these rates do not correlate with the inflation rate of health care costs. One study places the year rate of increase of health costs at 7%, with health care costs doubling 48% in the last 10 years. This, while insurance premium rates doubled, and according to insurance companies themselves, the usage of insurance by the policy holders has decreased.

Insurance company proponents maintain that profit margins are low, opponents say profit margins don’t matter, look at insurance companies return on equity, which is currently averaging 16.1%.

Regardless of how you look at it, we cannot escape the following facts:

· The cost of health care is rising;

· Insurance premiums rise in tandem, or above, the rate of health care inflation; and,

· Insurance premiums are rising higher than wages

Health Insurance Is It’s Own Economic Bubble

An economic “bubble” can be defined as “a trade in products or assets with inflated values”, or “a rise over that fundamental value, which must eventually return to that fundamental value”. In investment terms, it is where the value of the trade is grossly overinflated over the asset’s the instrinsic value. The “bubble bursting” is the painful process wherein the trading value of the asset deflates down to a more true intrinsic value of the asset.

When addressing health insurance we can apply the following correlations:

The “trade value” is the price of the insurance premium
The “intrinsic value” is, to the policy holder, the ability of the insurer to cover incurred health expenses.
The “trade value” of premiums is inflating 9% or more per year
The “intrinsic value” of insurance, for the policy holder, is decreasing, as policy holders as asked to take on more “risk” (higher premiums and/or lower coverage)
The ability of policy holders to pay on the “trade value” of insurance is decreasing, as wages have not increased in step with policy increases, and health insurance inflation exceeds economic inflation.

Does all this fit neatly into the “bubble” model, with its inherent “boom” and “bust” cycle? You decide based on the definition of a bubble, and the description of the boom and bust:

Product or asset that trades with an inflated value
May ultimately be caused by price coordination
Prices are inflated and fragile
Bubbles tend to cause misallocation of resources into non-optimal uses
Bubbles appear even when market participants are well-capable of pricing assets correctly
Bubbles appear even when speculation is not possible or when over-confidence is absent.
The causes of inflation are also the causes of bubbles
Assets are irrationally valued based solely upon their returns in the recent past

A final definition: “The one true constant with all bubbles is that they create excess demand and production. Once the bubble deflates, which it always does, a contraction or consolidation has to occur to alleviate the excess”.

Health insurance does not neatly fit into the academic definition of a “bubble” like a well-worn puzzle piece. For one, the pricing aspect of insurance is based directly on the rising costs of health care. This article does attempt to address rising health care costs, which in and of itself is akin to a huge 1000-piece puzzle. Health insurance pricing, does, however, fit every anecdotal and real-life definition of a bubble:

The price of the asset keeps rising, while our ability to
pay the market price for the asset is shrinking.

At some point in the future, whether in years or generations, the lines will converge. The market price of the insurance will exceed the market’s ability to pay the market price, and the bubble-burst will begin. It may be a slow leak, or it may be a catastrophic blow-up. Either way, the bottom line is this: policy holders cannot keep paying out, ad infinitum, at the rate in increase expected by health insurers.

I for one will not be waiting with sweated brow and wringing hands for this inevitability. This year, at renewal time, I have made some decisions to get off the insurance merry-go-round. I believe these discoveries and decisions will help my readers. Therefore, a second installment will address some practical ways you can reduce your premiums (which include investment and retirement options) and for some, get off the merry-go-round of health insurance altogether.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Evelyn, this article may be just as appropriate in other sections of SA, so please feel free to share with other editors as you think best.