Portfolio Management 101

Growth at reasonable price, reits, portfolio strategy, dividend investing
Portfolio Management 101
Growth at reasonable price, REITs, portfolio strategy, dividend investing
Contributor since: 2012
Company: Portfolio Management 101
Hi RLLH, I like the Anworth preferred shares 6.25%.
Good approach Cory. Let's hope we DONT have another recession...yet.
Welcome to my world Bradley.
Sorry spec, I don't care what it does on a day to day. Calendar a follow up in a year or so. We'll check back in then.
Sorry, above reply was to Speculative (Spec)
Hi Spic, not sure what your comment is implying. The article you referenced was titled with a question that went unanswered. My point of that article is that if you're going to invest in Annaly, you have to trust management. In fact, I made a comment on that article that that rule applies to ALL companies. We can sit here and analyze til we're blue in the face but the bottom line is unless you're going to take a big enough position to influence management decisions, you have to trust management. I think your comment may have been deleted before because it doesn't make sense and is incoherent. The truth and nothing but the truth? I have no idea what you're talking about. I highlighted that NLY's swaps work and the stock declines - what does that have to do with this article. This one is based on my opinion that ARR is too leveraged. If you invest in ARR therefore, my principle from the NLY article is still valid - you have to trust management to be able to manage the high leverage levels. Good luck to you and thank you for commenting.
Are these articles due by midnight on the 30th? Just asking because it is the Monday after the Thanksgiving weekend and if it needs to be in on Sunday the 29th, that would be good to know. Thanks.
Millennials have lived in their parent's basements because there weren't any jobs available and when they were, they didn't pay much. We are starting to see that change and new household creations is being driven partly by millennials, and partly by baby boomers. But storage plays right into that trend with millennials, because they have certainly been more frugal than the previous generation and have opted for more efficient cars and smaller apartments, for example. But with smaller apartments, they need a place to store their stuff. You are right however, I read the same contradicting research...time will tell. In the meantime, you could invest using sound judgment and a well thought out rationale. This is my rationale. If it doesn't play out, so be it, it wouldn't be the first time. But there is some thought process behind it. As an investor, that's all you can really do.
Whoa, can everyone please play nice?
Investors can walk, run, jump, slide, or shimmy. A trader will run faster than an investor just like Usain Bolt probably runs faster than you and me. In fact, if you want to get into the definition of 'investor' - look it up..here is one example - An investor is someone who provides (or invests) money or resources for an enterprise, such as a corporation, with the expectation of financial or other gain. A trader is gambling on a stock's rise or fall - An investor is looking for 'financial' gain - whether they jump into an investment or ease into it is irrelevant. I could JUMP into an investment that I want to hold for 20 years or I can build my position over time. And if you know anything about behavioral finance, you'd know that most 'investors' give in to emotion at some point and do JUMP in and JUMP out of stocks. I chose to use the word JUMP - it has nothing to do with traders, but thank you so much for commenting. Good luck.
Thanks JimBobToo, that's all I was trying to do here...provide some food for thought.
hi Goldenbear, great questions. The 'best in the business' comment is MY opinion and my opinion only, based on how the company has performed relative to peers and how management has navigated certain environments and adjusted its strategy.
Yes to your second question too. When I perform an analysis on a company, I am essentially evaluating how management has been able to implement it's strategy over time. Based on my conclusion that NLY is one of the most well run mREITs, at the end of the day I have to trust management, not some an abstract concept. The same goes for AGNC, TWO, or any other company for that matter. I'm not investing in Apple, per se, I'm investing in management's ability to leverage its assets to continue to put out new products that consumers thirst for. Otherwise, what am I investing in?
I'm not saying we or you should trust all management, but look at management's performance as a way to determine if you SHOULD trust them. Too many articles on SA and other medium, including articles I've written, sound like they are written by people that think they can run some of these companies better than current management. Perhaps in a few cases, that may be so, but certainly not the majority.
My theory on why Annaly gets punished when swaps work is based on the reason why swaps are entered into to begin with: I believe investor assumptions are that if the interest rate swaps had gains, the underlying business dynamics have deteriorated. (i.e. short term rates rose or yield curve flattened). As some of the data shows, that is not the case. So I don't think people that dump the stock when interest rate swaps work understand what's going on in the underlying business. Of course, I have no idea of knowing why you or any other investor buys/sells any stock nor the timing of those transactions.
But apparently the article created some interest and debate, which by the way, is my only objective here. I hope that most readers don't act on articles they read or even analyst reports without challenging some of the assumptions presented in such publications.
Thanks for reading and commenting, and happy investing.
I think all REITs may be at risk of a pullback because investors tend to dump their dividend paying stocks when rates rise. However, interest rate increases are typically associated with economic growth, which is good for real estate, and eventually, these stocks perform very well. Some might argue that the prices have already come down because of the number of occasions that the Fed was expected to increase rates - going back to 2013. In any case, UBP/UBA is driven by consumers and the consumer seems to be doing pretty well.
Hi Cory, thanks for the compliment. I tried to get this published as a regular article but it seems SA doesn't like simple when it comes to Apple. Frankly, I read some of the Apple articles and when I get to the end, I'm really not sure what I just read or whether I can actually use any of it for making a decision. Glad you liked it. I try to publish shorter, more pointed articles so if you like this one, follow me and you will be alerted whenever I post a new article. Cheers.
steyoun, I'll check my data for errors. And yes, it's hard to do this type of analysis going back and gathering all the data if you haven't followed the company all along. I've done some Apple analysis before but its been more recent. I'll see what I could find.
Hi Jolly, the formula for calculating cost of equity is dividend/share price + dividend growth rate. The one piece missing was the estimated FFO and the payout ratio. If EFFO is $2.92 (consensus) and the payout ratio is approximately 81.5%, the dividend would be $2.38. $2.38/49.46=4.8%. Add the expected dividend growth rate, which is estimated to be 4% annually, you get to a cost of equity of 8.8%. Thanks for asking. It seemed clear to me at first but now that I go back and re-read it, I can see the confusion. In your example, if the dividend is expected to grow 100% per year, then yes, that would be the cost of equity using this formula. Of course, that wouldn't be realistic. In this case, you may want to calculate the future dividend as the numerator and use a more conservative, long-term growth rate for the dividend growth piece. The other alternative is to use the CAPM formula, which is: risk-free rate + Beta*(Expected return on market - risk free rate) - this formula is driven by the beta on the stock and the equity risk premium, which is contained in the parentheses. The challenge with CAPM sometimes is what beta do you use? Beta is a relative risk metric usually based on the S&P500. Would that be the relevant risk metric? Hope that helps.
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Absolutely. The tax treatment won't change. The reason it is being separated out of the financial sector is because REITs are fundamentally different than banks, insurance companies, etc. BTW, I believe mREITs are staying in financials.
Agreed
Ok. Thanks for sharing.
I felt the same way about the earnings call. More focus on historical achievements than usual and less guidance. I didn't watch Cramer last night but interesting you felt the same way.
Hi Robert, its simple Math. If I receive $0.20 in divvies and the stock declines by $0.25 during the same period, I lost $0.05 per share. I get your apples and bananas concept. If I add 2 apples and 3 bananas, I have 5 pieces of fruit, and total number of fruit should be my objective.
Forward dividend yield
Hi Warren, yes, revenues were disappointing but earnings beat estimates. I haven't dug into the details but obviously there was some cost reductions somewhere. That's great that it was able to do that but as you mention, revenue growth is key.
trelforp, totally agree, but that is backward looking. The article is really intended to question, what next? We have this conversation with clients all the time when history is taken as a given for future performance.
hI Chuck, I understand your approach, but if you receive $0.20/share in dividends and the stock declines by $0.25/share, yes, you received some income, but your total return is negative. I really hope you consider being open to income and some growth when looking at stocks. income with no growth is a bond. Good luck. I wish you the best with your portfolio. And if you ever need to bounce an idea, please feel free to reach out.
James you are correct. I was looking at the all-time low for closes and missed that August 2013 low. Nevertheless, just because a stock is at a 52-week low, doesn't make it a buy. Thank you very much for pointing out my oversight.
Hi speculative, to your question, "Are the better ones the ones you own or the ones being pumped here?" Not sure I understand the question or the implication. Please elaborate and I will be glad to reply.
Hitting a 52-week low? Its at an ALL-TIME low!!!Had you bought at the previous 52-week low in July you would have lost another 3%. Why try to catch a falling knife when the fundamentals aren't there yet?
CYS is not hedged enough for the underlying portfolio they hold. Other mREITs are diversifying away from fixed rate agency MBS and into commercial RE loans, for example. They have higher yields, lower duration, etc.
I agree that none of the mREITs are perfect, nor is any other company for that matter. What these guys are doing is an art not a science and what might work for one may not work for another. There is a reason the stock price of CYS and ARR has fallen more than that of NLY and TWO, to name a few. Apparently the market is telling us something...I'm just trying to interpret the signs.
Not sure what you meant by the 'level playing field' comment. The financial markets are certainly NOT a level playing field. I think the quant funds and the like have an advantage over us retail investors.
Thanks for commenting and I hope we get to continue to discuss this and other investment opportunities.
Hi Bruce, I would have also ignored any advice that suggests buying at the opening bell, let alone an mREIT.
Hi everyone, the financial leverage data was obtained from Morningstar and was the trailing twelve month average as defined by "Financial leverage is defined as total assets divided by total shareholders' equity. The higher the ratio, the more debt a company uses in its capital structure."
I agree with Arthur. Directv gives AT&T a nice complement to their existing business and they certainly have the infrastructure in place to deliver on it.
hang in there retired33955. Its quite the frustrating market.