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  • Avoiding The Endowment Effect: Should Mike Sell? [View article]
    Ted (and others):

    Now that I have gotten to the end of the comment stream (as it stands at 11:24 p.m., as I write these words), I'll say my piece. What I will try to refrain from doing is returning here a zillion times to expound on everything. This is Ted's article and that is his job. I'm still responding to comments I'm receiving on my own article and that's enough work - ha!

    First, it's a viable subject for an article. Just because my comment stream has been a very good one (as one of the commenters above pointed out), it doesn't mean this little twist wasn't worth an article of its own. Writing an entire article lets an author really put his take on things, and I think that's a good thing. I have been "guilty" of using a comment as the focal point of articles on at least a couple of occasions.

    Ted told me in advance he was writing the article and told me he'd let me know when it hit the site. He didn't ask me for permission (nor should he have) and he didn't show me an advance copy of it (nor should he have).

    I am not even the slightest bit insulted by a single thing in this article. In its way, it operates similarly to mine: It starts with a question, it gives the alternatives, and it leaves the answer open-ended for the reader to contemplate (and, if he or she chooses, to take part in the comment stream).

    Ted talked about tax implications of selling and he's absolutely right. For me, in this case, there were none. KMI is in my Roth IRA.

    As for me saying in my article that I probably wouldn't buy KMI now, first a teeny bit of background ...

    I first started reading about DGI about 4 years ago. I didn't buy a single stock using the strategy for many, many months. I started wading in in early 2012. By the middle of that year, I considered myself a DGI, but I really didn't know what I was doing. I didn't know how to research or assign value to companies very well, didn't know which SA authors really were worth following, and definitely didn't know how to design and build a portfolio. About a year later, I realized I had far too many second-stringers and not nearly enough stars. I finally made the commitment to quality and value, and I think I've built a pretty nice portfolio that, in general, will stand the test of time. I turn 55 in a few months, and I fully expect the lion's share of the companies I own to still be in my portfolio in 10 and 20 years.

    I first bought KMI (and KMR) well before I made my flight to quality. I bought it based on what I had read in SA articles and I bought it at prices recommended by others. Over time, I tried to learn more about its operations because I'm fairly uncomfortable owning stuff I'm clueless about. It wasn't easy with KMI (and KMR) and to this day I still only have a general knowledge about how it makes money. It's probably enough, though -- probably more than most, even.

    I will fully admit that KMI (and KMR) remained in my portfolio after I made my flight to quality because they, in a way, were "grandfathered in" by their good performance for me. Their share prices were generally going up and their dividend growth was good. So once I made the flight to quality, I had no reason to believe they were low-quality holdings.

    Now, with all that out there, here's what I meant when I said I probably wouldn't buy much if any KMI now:

    If I were a new buyer today, I would conduct my due diligence, as I always do. The 3 Safety score from Value Line, right away, would have given KMI a fairly steep hill to climb to enter my portfolio. Back when I bought KMI, I had never heard of Value Line. Now I use it to help me decide if I want a stock and how much of it I should buy. It's not a be-all and end-all, but each of us must have some ways to trim thousands of portfolio candidates to dozens, and the 3 from Value Line has helped me weed out some pretty bad actors.

    The only 3's I have bought since becoming familiar with Value Line have been BBL and GILD. Both are smaller positions, especially BBL, which I view as speculative at this time given its industry.

    I have been told that most MLPs get 3's from VL ... and that might explain why I don't own any. (KMI is no longer technically an MLP.) I also own only one BDC (the "best" one, MAIN, and only a small piece of it) and no mREITs. I don't need that stuff to meet my goals, so why should I buy them?

    If looking at 3's with a jaundiced eye makes me miss out on a few good companies, that's a risk I'm willing to take.

    If I decided that, despite its 3 Safety score, KMI were worth considering, I would look at all the other metrics most of us do -- P/E, debt, earnings growth (and potential growth), dividend yield and growth, credit rating, etc.

    And given all that, KMI very possibly would be a "pass." And if I was just considering KMI today and wanted to buy some, it would be a small position because I'd consider it speculative in nature.

    Fact is, KMI wasn't a huge position for me a year ago -- not even in my top 25 by dollar value -- but it became a pretty big one when the Kinder consolidation took place and my KMR shares converted to KMI. Dollar-value-wise it's still barely in my top 10 but it has become my largest income producer by a fairly wide margin. And if Kinder follows through on his pledge to raise the dividend 10% each of the next five years, that gap will only widen.

    One reason I wrote my article is that I knew it would help me work through the process in my head. I also had a feeling it would result in a very good comment stream filled with excellent ideas, insight, suggestions, advice, questions, anecdotes, etc. -- and I haven't been disappointed.

    I didn't count, but I'll bet at least two dozen readers said they were going through the same thing with KMI. It's a complex company that went through a major, complex consolidation only last year. I am glad the article and comment stream might have helped some of those fellow KMI fence-sitters.

    I happen to disagree with the notion that one shouldn't hold what one wouldn't necessarily buy today. A portfolio is like a team. Maybe the shortstop who started the season isn't the best in the league, but maybe he just so happens to fit that team; the GM wouldn't trade for that shortstop, but in the end he's happy to have the shortstop on his team. Well, maybe a company, in and of itself, wouldn't be added to a portfolio, but it has "earned" its role in the portfolio. Maybe the dividend growth or sector exposure or some other characteristic helps the overall portfolio.

    Could one sell that company and replace it with something "better," thereby not triggering "opportunity cost," as commenter Paul Wagner so very well described earlier? Perhaps. But perhaps the replacement would end up being a lesser company, and that would lead to endless second-guessing -- not to mention yet another sale in search of something "better."

    I am a reluctant seller and I need a pretty compelling reason to sell. I will acknowledge there is emotion involved: Most of the companies I have sold, especially in my first two years as a DGI, left me with regret that I sold them. Maybe it's only perception, but I think I have made more mistakes as a seller than I have as a buyer or a holder.

    I do believe there are all kinds of reasons to keep even an "overvalued" company in a portfolio. Altria has been "overvalued" for two years now; I guess it hasn't realized that because it keeps going up. Same with SBUX, COST and so many others.

    OK, given all of that, I still haven't answered the question Ted asked in his headline: Should Mike sell KMI?

    And the answer is ...

    I still am deciding.

    Thanks for the thought-provoking article, Ted, and thanks to everybody else for another good comment stream.

    Mike
    Jul 31, 2015. 12:18 AM | 15 Likes Like |Link to Comment
  • Avoiding The Endowment Effect: Should Mike Sell? [View article]
    II:

    First off, I hope I'm not being presumptuous in assuming that I am the "noted DGI investor." I never thought of myself as the noted anything, but that's neither here nor there. I'll take that little reference as a compliment!

    Secondly, I did not view Ted's piece as critical of me one iota. Like my article that preceded it, Ted's article asked a question, talked about both sides of the issue, made some general conclusions but then threw it open to the masses. I will talk more about it when I get through with the entire comment stream, but I wanted to address your labeling of it as "somewhat critical."

    If Ted threw Swedroe's name out there as red meat, well hey, we're all trying to get page views. But I do think it was fitting as a contrast to my article. Again, I am still getting to the bottom of the stream (as it exists at about 11 p.m. Thursday), but so far there hasn't been a "holy war" against Swedroe in this stream. And I'm glad about that. It's almost always a bunch of silliness from both sides.

    Mike
    Jul 30, 2015. 11:22 PM | 3 Likes Like |Link to Comment
  • Avoiding The Endowment Effect: Should Mike Sell? [View article]
    Paul:

    <<I think Buffett himself has cultivated that misunderstanding, perhaps deliberately, by his continual public comments about investors who have a short term horizon or who try to time the market.>>

    Indeed, and in this comment that he has repeated many times and been quoted as saying perhaps a zillion times: "Our favorite holding period is forever."

    There is only one way to define "forever," and it is the way Buy&Hold defines it. Of course, Buffett didn't say, "The one thing we always do is hold forever." He merely said it was his favorite holding period.

    Sometimes, something happens that the best course is to sell, or at least trim, a position. But be sure and do at least as much due diligence -- if not more -- before selling. That's what I take from that Buffett quote: Be a reluctant seller, but sell if you feel you must.

    That is kind of where I am on KMI. I am still deciding how much of it I want to keep. Not that I care if Buffett approves, but I think he would.

    Mike
    Jul 30, 2015. 11:16 PM | 4 Likes Like |Link to Comment
  • Avoiding The Endowment Effect: Should Mike Sell? [View article]
    Yep, Adam, got me to go to my online dictionary!

    As for the article itself, I'll share my thoughts after I get all the way through the comment stream.

    Mike
    Jul 30, 2015. 11:07 PM | Likes Like |Link to Comment
  • Differing Outlooks On The Market [View article]
    Chowdah:

    You're welcome.

    No matter if never see each other again, well, as Rick told Ilsa: "We'll always have AMGN."

    Mike
    Jul 30, 2015. 10:58 PM | 3 Likes Like |Link to Comment
  • Market Timing Is Not Appropriate For Retired Investors [View article]
    ray:

    <<There's a lot of being willfully blind to risks -- like the one commenter who said that an unrealized loss is not a real loss, that as long as you don't sell you don't have a loss.>>

    I'm not gonna go round-and-round with you -- and I wasn't the commenter who said that. But ...

    On Friday, I bought GILD at 113. On Monday, it got down to 108 and ended around 111. On Tuesday, it was around 111-113 all day. It announced earnings after close Tuesday and people liked it. Went up nicely. On Wednesday, it got up to 119 before closing around 116. Today, it got up to 118 and closed near there.

    So, on Monday and Tuesday did I "lose" money on my GILD purchase? I had no intention of selling and it did rebound nicely and now I'm "up." But again, I have no intention of selling so if it goes back to 114 tomorrow, was I really "make money" when it was 118?

    I know that net worth means something sometimes, like maybe when one is going for a mortgage or a grant for their college student. But did I really "lose" or "make" money this week on GILD?

    I bought MMM in June 2008 at 74. It got down into the 40s I believe. I never sold a share and, in fact, kept dripping all the way down and back up, buying more at great bargain prices. Today it is over 150. Did I "lose" money in 2009?

    Maybe you believe I really did lose money, and that's OK ... but it's just an opinion. The IRS doesn't believe I lost money. They weren't giving me any kind of tax break and only would have done so had I sold it at a loss.

    I want this to stay civil. I really am curious as to what your take is on both of the above scenarios.

    Mike
    Jul 30, 2015. 04:31 PM | 5 Likes Like |Link to Comment
  • Market Timing Is Not Appropriate For Retired Investors [View article]
    TMD:

    <<Personally, I don't even find them entertaining, much less useful.>>

    What, you weren't entertained when Cramer told the world to BUY BUY BUY Bear Stearns about 18 seconds before the meltdown?

    Jon Stewart's take-down of Cramer not long after that was must-see TV. Cramer absolutely deserved all the crap Stewart gave him, and he tried to smile his way through it, but it almost made me feel sorry for Cramer.

    Almost.

    Mike
    Jul 30, 2015. 04:21 PM | 2 Likes Like |Link to Comment
  • My Second Quarter 2015 Portfolio Review - Building Quality, Income And Dividend Growth [View article]
    maybenot, emac:

    FWIW -- probably not much -- I sold my BAX today. I wish good luck to all those who have decided to hold it (and BXLT).

    I mean, who really knows ... BXLT might prove to be the best biopharm of the bunch.

    Mike
    Jul 30, 2015. 04:07 PM | 2 Likes Like |Link to Comment
  • Is Baxter Guidance Portending A Dividend Cut? [View article]
    DH:

    I admit to doing precious little due diligence to determine a price on BAX. Once I decided I wanted to sell it, I just tried to figure out how much I needed to sell it for to make X profit on the BAX/BXLT position. Placed the limit order for that amount and said, "Hasta la vista, baby!"

    I seriously hope BAX (and BXLT) does well for those holding. Each of us must make decisions for our own purposes.

    Mike
    Jul 30, 2015. 04:01 PM | 3 Likes Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]
    as:

    As I said a little earlier when Chowdah made a similar comment: Now THERE is a company I'd be losing sleep over if I owned it!!!

    Mike
    Jul 30, 2015. 03:56 PM | Likes Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]
    Nice Chowdah.

    LINE/LNCO was a trainwreck waiting to happen ever since the big investigation. I thank my lucky stars I got out of that without losing real money.

    Now THERE is a stock that I'd be losing sleep over if I owned it!!!!!!!

    Mike
    Jul 30, 2015. 03:55 PM | 1 Like Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]
    Bob:

    Well, yeah. But I already admitted that - ha!

    Mike
    Jul 30, 2015. 03:53 PM | Likes Like |Link to Comment
  • How Much Kinder Morgan Is Too Much For A Dividend Growth Investor? [View article]
    Greg:

    I like that explanation of midstreams so much I might have to steal it! Imitation is, indeed, the sincerest form of flattery. Thanks for the great contribution, and good fortune with your KMI (and everything else).

    Mike
    Jul 30, 2015. 03:52 PM | Likes Like |Link to Comment
  • Is Baxter Guidance Portending A Dividend Cut? [View article]
    Eric:

    FYI, my BAX is gone.

    I actually got more selling BXLT and BAX separately (32.73 + 39.39 = 72.12) than I would have if I had sold the integrated BAX when I contemplated doing so a couple weeks after this article came out (about 68). So from that standpoint I'm glad I waited. And I made a very nice profit and now have more money to put into companies I'd rather own.

    But I sure wasted a lot of brainpower thinking about it since then!!!

    Again, great job.

    Mike
    Jul 30, 2015. 12:37 PM | 2 Likes Like |Link to Comment
  • My Second Quarter 2015 Portfolio Review - Building Quality, Income And Dividend Growth [View article]
    BAX might be gone from my portfolio by the end of the day, not only because of that but it certainly factors into it.

    I already sold BXLT, and the price I got for that plus the price I am hoping to get for BAX will exceed the price I could have sold the combined company for when I considered doing so. But this has been a hassle and thinking about it has given me a headache. Woulda been much easier to have just sold it when I should have. Eric Landis absolutely nailed what would happen to BAX's divvy in an article a couple months back -- shoulda listened!!

    Mike
    Jul 30, 2015. 12:25 PM | 1 Like Like |Link to Comment
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