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My primary objective is income replacement! ... The objective is to start earning an income stream now, to replace the income that will be earned throughout the working years. I want that income to be reliable, predictable and increasing. The income stream will need to continue to grow to stay... More
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  • How I Manage Market Adversity 43 comments
    Jul 7, 2013 6:10 PM

    I have received several messages from people in the last few days asking for my thoughts with regard to recent market volatility. Some wanted to know about QE ending, others about rising interest rates, but most wanted to know about what my thoughts are regarding LINE/LNCO. People have asked me what would I do?

    I think it all starts with your stock selection process and what it is you are trying to accomplish. It seems that it is much easier to pick a company to buy than it is to manage it under adverse market conditions.

    In my opinion, the key to being successful in the market over the long term doesn't have as much to do with the price you pay for entry, but how well you manage that position once you are in it. I refer to it as the Psychology of the Market.

    In talking about the Psychology of the Market, I find it interesting how strict the criteria is at times for most people when they purchase shares in a company, yet once they own it, and the position moves opposite of their expectations, the initial criteria is no longer adhered to. A lot of people automatically go into defensivly backing the company mode. They often times aren't ready or prepared to sell a position under unexpected adverse conditions. Learning to handle these adverse conditions quickly, with a plan in place, can make a huge difference in your long term results.

    Nobody likes to take losses, especially me, but there are times when you should consider sucking it up, take your loss, and move on.

    So let's start from the beginning.

    Benjamin Graham, in his final (1973) edition of The Intelligent Investor had this to say ... >>> The risk of paying too high a price for good-quality stocks - while a real one - is not the chief hazard confronting the average buyer of securities. Observations over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions ... these securities do not offer an adequate margin of safety in any admissible sense of the term. <<<

    The best margin of safety, for our purposes, is not a cheap stock price. It's the combination of a secure competitive position, a strong balance sheet, a manageable payout ratio given the cyclicality of earnings, and a management team that is devoted to maintaining and growing the dividend through thick and thin. In other words, high fundamental quality is our most effective margin of safety.

    There you have it. Lower quality, not price, is what hurts over the long term.

    So let's start with establishing a guideline for buying companies and I will follow up later with a guideline for handling companies under adverse market conditions.

    Lowell Miller, author of The Single Best Investment, has a formula I have adopted as my own.

    High Quality + High Current Yield + High Growth of Yield = High Total Return.

    High Quality:

    The components that define high quality is a superior financial strength rating. If using Value Line I go with companies that rate a 1 or 2 for safety. If you use Morningstar Credit Ratings, I'm looking for companies with a credit rating of BBB+ or better. I'm looking for investment grade companies.

    I want to see reasonable debt, I want to see increasing cash flows, I look for earnings per share to have risen at least 7 out of the last 10 years and I want to see where the dividend has increased every year over that time frame. (There are exceptions, but they are few. I made and exception with KRFT as they don't have that track record yet under the new symbol.)

    High Current Yield:

    This is easy. I look for companies where the yield is 50% higher than the yield for the S&P 500. I use SPY to gauge the yield of the S&P 500. If the yield for SPY is 2%, then a 50% rate above that means I look for a minimum yield of 3%. (Again, very few exceptions, but there are some as long as the dividend growth rate is double digits.)

    High Growth of Yield:

    In managing my positions, I expect my dividend growth to fall in the 5% or better range for equities, 4% for utilities. I place REIT's, MLP's and Telecom under the utility umbrella.

    Since I consider myself a dividend growth investor, those dividend increases are the oil that greases the dividend growth machine.

    With the formula in place, let's apply a few examples of companies under adverse conditions and determine how best to manage them.

    SO has a long and distinguished performance record and is considered one of the best utility companies in the country. I look for my utility companies to increase their dividends at a 4% clip or better. SO only raised the dividend 3.6% this year. This required a look-see on my part.

    I noticed that SO is building a couple of nuclear plants and they are costly. They needed a little more cash to offset cost overruns. I noticed that whenever SO upgrades the grid, dividend growth takes a small hit. With their long history of share owner friendliness, and a friendly environment with regulators, I decided to stick with SO. The increase is close enough to 4% to provide them a pass.

    (Final Analysis: Still a high quality company, still a high current yield, has acceptable growth of yield. -- A keeper.)

    PEP is a company that was raising the dividend in the high single digit range when I purchased them. Last year they raised the dividend 4.4%. Since it was under 5% a flag was raised. I researched PEP and found that they were trying to expand their product line with more health-conscious snacks. Since they were trying to expand their product line and earnings were expected to rise this year and next, I placed PEP on probation for one year. This year they followed through and raised the dividend by 5.6%. They were taken off probation.

    (Final Analysis: Still High quality, still high current yield and still high growth of yield. A keeper and potential for adding more.)

    GIS has been paying a dividend for 114 years. In that time they have never lowered the dividend. Not once! They have frozen it from time to time, but they have never lowered it. Since GIS has a long history of showing that a frozen dividend is not a prelude to a dividend cut, I would not sell GIS if they freeze the dividend again.

    (Final analysis: Currently meets all criteria of the formula. I would allow GIS to be a fixed income component of my portfolio in the event of a dividend freeze. Looking to add more shares later this year.)

    When I purchased CTL, I didn't purchase them just for their high yield. Their long history of raising the dividend had an impact on my decision. After having raised the dividend for 37 consecutive years, CTL froze it and didn't provide any information as to why. I didn't even think twice. I sold it immediately. This company didn't care about that historical dividend record. If they did, they could have raised the dividend 0.2% and kept the string alive. The fact that they didn't, led me to believe the dividend was no longer safe. A look at the company financials told me the business was declining and earnings took a huge hit. The dividend cut eventually followed. It was telegraphed at least a year in advance.

    (Final Analysis: No longer high quality, yield is fine, no longer showing dividend growth. -- No longer interested in CTL and glad that I got to keep most of my capital gains.)

    JNJ was frustrating to own a couple of years ago. They had a series of recalls that never seemed to end. When I heard the word recall, it demanded immediate attention. If the recall were drug related where people became deathly ill due to side effects from a drug, it's an immediate sell. Whether I sell half of the position or the entire position would be determined by what is revealed at the time.

    I was relieved to find out the recall had to do with factory conditions and labeling. I assume earnings would take a hit short term, but to me this was nothing more than a housekeeping condition. It just took them longer to clean the house than most people wanted. Since the formula was still intact, I added to my position during that time frame and it has paid off.

    (Final Analysis: The financial safety rating was never in jeopardy, the yield was high, and the dividend growth continued. -- If one can be patient, this is the type of weakness you buy, not sell.)

    EXC at one time was a high quality utility with an excellent yield and decent dividend growth. Following a merger, they froze the dividend. This alone should be a sell signal, but let's take it a step further. Since the yield was above 5% and you decided to make it a fixed income vehicle, like I will do with GIS, you then must look at the company fundamentals. The merger couldn't have come at the worst time. Power prices took a huge hit and EXC had to roll over hedges at much lower prices. That meant lower earnings.

    The CEO came out and stated that they were going to reassess the dividend in six months time and if power prices didn't rise, they would have to do something. ... I sold it right there! No questions asked! The CEO just telegraphed in a Cramer type voice, that the dividend cut was coming. And it did, right on schedule.

    (Final Analysis: When companies go through mergers, the financial strength ratings sometimes take a short to intermediate term hit. Yield may be okay, but dividend growth stalls for a time. This alone qualifies for a sell if one wants to follow the formula above.)

    That brings us to LINE/LNCO.

    About a month ago, Barron's came out with a scathing article questioning Linn's accounting. Price took a huge drop in pre-market. If Barron's is correct, the financial credit rating goes out the window. It doesn't matter if Barron's is correct or not, price is heading lower and you know it. For future reference, when an accounting discrepancy shows up in financial news paper, sell half of the position immediately, no questions asked. Protect your downside first and then re-evaluate. You can always get back in and you know it will be at lower prices because the problem needs to get solved.

    It doesn't matter what the company says. Price is going lower and one needs to wait for it to settle down before deciding what to do with the other half of the position.

    Now know this, if you ever have the words ... SEC investigation ... attached to any company you own, sell it all ... immediately! Price is going even lower.

    I don't care that it may be an informal inquiry. They all start that way. Something triggered the investigation and it doesn't matter what the motivation behind it was. Who cares if it's the shorts, a hedge fund, or a man from Mars, price isn't going to take off to the upside until that investigation is over. You can get back in once the dust settles, but don't put your portfolio at risk about something to really don't know about. Your hunch, guess and intuition may prove correct, but this isn't about being correct, this is about protecting capital in adverse market conditions.

    If LINE/LNCO are cleared after this informal inquiry, jump back in if you want to own this company, price should head higher.

    (Final Analysis: Linn was never a buy for me. It never qualified under the financial safety ratings by Value Line. It's why I never purchased them.)

    There you have it. A few examples of how I manage companies facing adversity. Whether you use my rules and guidelines or not isn't important. What is important is that you have your own rules and guidelines established in advance so you don't suffer from indecision when the pressure is on.

    You shouldn't need to think in the time of crisis. The thinking should have been done well in advance. ... Sun Tzu, The Art of Warfare ... The battle is won before it is fought.

    In the face of crisis, action is all that is required and you should know in advance whether certain conditions require you to buy, sell or hold.

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Comments (43)
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  • Ordos
    , contributor
    Comments (30) | Send Message
     
    Nice to see another quality chowder article. Keep it up! (and also your project3million blog).

     

    As an aside, what methods of valuation do you employ when selecting equity, other than the metrics detailed in SBI? Any DCF/DDM and the like?
    7 Jul 2013, 06:39 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » Thanks Ordos.

     

    I use three sources to come up with a valuation, Value Line, Morningstar and F.A.S.T. Graphs. Between the three of them I usually get an acceptable valuation number.
    7 Jul 2013, 06:48 PM Reply Like
  • SkipK
    , contributor
    Comments (950) | Send Message
     
    Thank you. you're one of the SA authors and "leaders" who has greatly influenced my investment approach. I plan to retire next year and hopefully live off dividends off DGI stocks as social security is at least 7 years away. I'll also use cash secured puts.
    7 Jul 2013, 07:53 PM Reply Like
  • gfmn2000
    , contributor
    Comments (771) | Send Message
     
    Chowder,

     

    Excellent article. I appreciate the way you are consistent in your comments and articles here. You emphasize high quality as most important and I agree with that.

     

    In my profile I label myself as a value and dividend growth investor. The "value" part sometimes gets me in trouble as I mistake low quality and cheap for value. I am seeing more clearly now that the better approach for me is to identify the highest-quality investments and then find the best value within that group. Maybe I will change it to say "High Quality Dividend Growth Investor with an emphasis on Value".
    7 Jul 2013, 09:52 PM Reply Like
  • SkipK
    , contributor
    Comments (950) | Send Message
     
    GFMN2000, that's a very important point you're making. I keep having to remember it. Thank you.
    9 Jul 2013, 07:05 PM Reply Like
  • Garthilk
    , contributor
    Comments (588) | Send Message
     
    Great post as usual. Thanks.
    8 Jul 2013, 01:03 AM Reply Like
  • markone
    , contributor
    Comments (89) | Send Message
     
    Excellent insight into your process. Thank you for sharing.
    8 Jul 2013, 08:34 AM Reply Like
  • scubastevo80
    , contributor
    Comments (203) | Send Message
     
    Thanks for the insights Chowder - its always good to hear how others address the tough situation of potentially taking a loss and moving on. I have been using a combination of sources for valuations as well - including FAST graphs, but alternatively using S&P credit rating and quality rankings, as well as my company research (as a distant third).

     

    You've also inspired me to start a blog to help me track my own performance/goals in adherance with my business plan, something I hadn't been religiously sticking to pre-2013. If you have any advice/comments, they'd be greatly appreciated. http://bit.ly/1aSzhwf
    8 Jul 2013, 11:06 AM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » stevo, I think you will find that updating that portfolio monthly will force you to stay focused. That's the most important part of the exercise.

     

    If one isn't writing it down every month, and the portfolio isn't meeting the predetermined goals, then it's easy to ignore what is going on within the portfolio.

     

    Keeping the portfolio up to date on a blog, even if it's a private one, allows you to make adjustments as you go. You see where the weakness is and it helps to force you to think of ways of turning it around.

     

    Who do you have your brokerage account with? Although TGH doesn't have a dividend reinvestment plan, my brokerage firm still reinvests the dividends. I use TD Ameritrade.

     

    I have a few closed end funds (CEF's) and they don't have dividend reinvestment plans, but TDA reinvests the dividends for me as though the CEF's did provide one.
    8 Jul 2013, 04:17 PM Reply Like
  • nbaderGIS
    , contributor
    Comments (13) | Send Message
     
    I really like that 50% yield rule. Will definitely be looking into the possibility of incorporating it into my own plan. Thanks!
    8 Jul 2013, 03:29 PM Reply Like
  • Sir Duke
    , contributor
    Comments (115) | Send Message
     
    Thank you for sharing your process. I liked the quote from Sun Tzu and posted it next to my computer.

     

    What do you think of the quality of MO? I noticed that you own it. It is listed as BBB credit by S&P but all the US based tobacco companies seem to carry higher debt levels.
    8 Jul 2013, 05:31 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » Someone else asked me about MO via private message. Value Line has them rated 2 for safety with a Financial Strength Rating a notch above BBB.

     

    I think they are splitting hairs and it is close enough for me to side with Value Line.

     

    BBB is still investment grade, it's that I'd like to have a notch above the low end of investment grade.

     

    I'm not expecting to add to my position in MO anytime soon, but the BBB rating is not enough for me to sell it. In fact, Morningstar still recommends companies rated BBB with them and they have MO in their portfolio.
    8 Jul 2013, 05:43 PM Reply Like
  • MonkeyDo
    , contributor
    Comments (19) | Send Message
     
    Thank you for laying out your strategy as it's extremely useful to see how a seasoned vet makes those decisions.

     

    By not adding to your position I'm assuming not adding any more money but continuing with your dividend reinvestment, is that correct?

     

    I've been back and forth myself whether to pool dividends and invest in the best value at that time or reinvest in the original company, and have decided to reinvest for now as I'm just getting started and read your argument for that method as laid out in your instablog.
    8 Jul 2013, 11:35 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » Monkey, yes I do continue to reinvest the dividends and plan on sticking with that strategy until I start drawing the dividends to live on.
    9 Jul 2013, 07:34 AM Reply Like
  • jrpah
    , contributor
    Comments (210) | Send Message
     
    Chowder - Very valuable information. Thank you. I'm about to check the Morningstar ratings for my holdings (I suspect TGH is the only weak spot but I will see). Between you , Chuck C, and a few others I have learned a lot and I believe avoided some very costly mistakes.
    9 Jul 2013, 03:24 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » You won't get a credit rating on TGH with M* or Value Line. That alone causes me to avoid them.

     

    If you were buying the business you wouldn't dream of doing so without having CPA's check the books. Yet people will buy ownership in companies all the time without having an understanding of the financials behind the company. They do so because they are chasing yield or simply love a good story. ... Can you say greed? ... Ha!

     

    Tell the story right and people will buy anything! I won't listen to the story until I know their credit score. Simple as that.
    9 Jul 2013, 06:19 PM Reply Like
  • emac99
    , contributor
    Comments (314) | Send Message
     
    "You shouldn't need to think in the time of crisis. The thinking should have been done well in advance."

     

    Brilliant.

     

    emac
    9 Jul 2013, 06:36 PM Reply Like
  • greenbow
    , contributor
    Comments (61) | Send Message
     
    I was travelling this afternoon from 5 PM central time to 6 PM. I was listening to CNBC and Cramer was on. Cramer must have read your blog because the first 20 minutes of his show dealt with this very same topic. You share some of the same opinions of stock picking during turbulent times. Is Cramer really Chowder? or vice versa?
    9 Jul 2013, 08:37 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » greenbow, as far as I'm concerned, all I'm doing is using what I think is common sense. I think people try to make things too difficult. They try to be too smart. They unintentionally out-think themselves. I simply do what sounds like common sense.
    9 Jul 2013, 08:58 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3182) | Send Message
     
    Chowder,
    Thank you for good post. Just couple questions:
    SO/PEP/etc... - "...still a high current yield,...." - why do you carry about the current yield (I presume you don't re-invest)? I know that we chew YoC probably too much in SA but for me it more important than current yield (I do not DRIP anything).
    LINE - it didn't pass my screen also but question below is rather general. You wrote "sell it all ... immediately! Price is going even lower.' You're probably right but if investor lost money (s)he cannot buy it back in 30 days because of wash sale rule. Do HF traders violate this rule?
    SDS
    9 Jul 2013, 10:23 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » SDS I reinvest everything. If I owned you I'd reinvest you too. ... Ha!

     

    The High Current Yield is important when buying a new position as well as adding to positions.

     

    I had positions in VFC and MKC that when the yield dropped below 2%, I took my profits and bought something else with a higher yield and comparable dividend growth.

     

    Onward and upward babee.

     

    I don't pay attention to YoC.

     

    I also don't care about the wash rule. I don't let taxable events dictate that I don't do the right thing because it's the right thing to do.

     

    Let's take it a step further though. This investigation is going to take more than a month anyway. So the sooner one gets out of a company undergoing an SEC investigation, the more capital they save and the sooner the wash rule disappears.
    9 Jul 2013, 10:39 PM Reply Like
  • bitly
    , contributor
    Comments (3) | Send Message
     
    Chowder,
    Thanks for your articles and sharing your investment approach with all of us. I am approaching the state of owning quite a few companies, so I am asking myself the question of how to manage them. Since I didn't own them for too long, there wasn't really the need to manage them too closely, especially in the recent market condition.
    One question I wanted to ask you though, was how do you exactly keep track of dividend raises and increases? Is there a source online, without having to search each company for itself?

     

    Please let me know, I believe that fact alone would help many people a lot to manage their portfolios. Thanks.

     

    Cheers.
    9 Jul 2013, 10:26 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » bitly, most people track everything in a spread sheet. I list all of my companies in a spiral notebook and when the increase comes out, I write down the date and percentage of growth the dividend was raised.

     

    I use the Wall Street Journal free site on dividends to keep up with everything. The link is updated everyday around 6 PM. I'll provide the link but for the first time in a long time I don't see any dividend increases. They usually head the list.

     

    http://on.wsj.com/yGCzL2
    9 Jul 2013, 10:33 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (12743) | Send Message
     
    Chowder, that's a terrific link!

     

    Notice the "Find Historical Data" button near the top of the page, in the center. You can go back to see dividend increases or decreases on any given date.
    10 Jul 2013, 06:50 AM Reply Like
  • Ong Kang Wei
    , contributor
    Comments (595) | Send Message
     
    Fabulous article Chowder!
    10 Jul 2013, 09:33 AM Reply Like
  • 6grizzly
    , contributor
    Comments (10) | Send Message
     
    Thank you very much for sharing!
    I've already been doing monthly summary of my assets/liabilities for 3 yrs.
    But I see the need to keep track of the individual stocks in my portfolios now.
    10 Jul 2013, 01:55 PM Reply Like
  • misscbd
    , contributor
    Comments (634) | Send Message
     
    Thank you Chowder for directing me to this article (from SA comments). I just added some great notes to save for use in directing my portfolio. After slowly reading and taking copious notes, I feel like I just attended the Graduate school of Investing taught by "Chowder"....I can't thank you enough for all your help. I read SBI (original version from library) via your suggestion and will now purchase the newest edition -- what happened to "summer fun reading" ???? :)))
    11 Jul 2013, 01:34 PM Reply Like
  • Ordos
    , contributor
    Comments (30) | Send Message
     
    Be sure to check if the version you're buying isn't the same as the library edition. The latest (second edition) is from April 1, 2006. Of course, owning a copy is a good investment regardless!
    11 Jul 2013, 01:44 PM Reply Like
  • misscbd
    , contributor
    Comments (634) | Send Message
     
    thx Ordos...
    12 Jul 2013, 07:55 PM Reply Like
  • Ordos
    , contributor
    Comments (30) | Send Message
     
    Oh, forgot to mention: You can download SBI free of charge from Lowell's website: http://bit.ly/15yVpYK under Publications.
    11 Jul 2013, 01:59 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » I own both copies of The Single Best Investment. The latest version is an autographed copy given to me as gift by Lowell Miller.

     

    I prefer my own copy because I re-read them 3-4 times per year and I highlight important information and take notes in the margins. It makes my reviews go by so much more productively.

     

    Too many people read books like these as though they were a novel. I take them a chapter at a time, think about it, review it, go back and take notes, and then move on to the next chapter.

     

    I have read the original copy so many times the binding is falling off.
    11 Jul 2013, 03:29 PM Reply Like
  • kolpin
    , contributor
    Comments (1001) | Send Message
     
    re. LINE/LNCO, is there a reason why you think it's headed lower, as opposed to staying fairly range-bound until a big piece of news causes the stock price move in either direction? my read of the situation was that most of the weaker hands got flushed out in panic selling, and the stock price will continue to limp along or perhaps trend with the general direction of the market. I have a very small position in LNCO which I'm not adding to, but selling immediately and emotionally in the aftermath of the SEC fallout didn't feel right to me either.
    11 Jul 2013, 08:53 PM Reply Like
  • PendragonY
    , contributor
    Comments (5451) | Send Message
     
    kolpin,

     

    From my perspective, being long on LNCO, is that the price drop was mostly driven by fear and misunderstanding that longtime shorts used to their advantage. For the most part I think the stock will slowly recover unless the Berry deal falls thru or in the unlikely event that the SEC inquiry progresses to a more substantial stage. The time to sell has passed, but its not yet time to buy aggressively either.
    12 Jul 2013, 07:07 AM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » kolpin, my thoughts are that when you hear the words SEC investigation, you sell immediately on the first day. You know price is headed lower. You might as well preserve as much capital as you can.

     

    Once the dust settles, one can always get back in, and do it with more shares this time due to the saved capital, provided the investigation doesn't reveal anything else.

     

    Since you really don't know what the end results of the inquiry are going to be, you must minimize the risk.

     

    That's with any company.

     

    The problem now from what I can understand is that the Berry merger is in danger. LINE needs this merger in order to increase production and cover the distribution.

     

    What do you think will happen if the merger doesn't go through?

     

    The shorts made some easy money and a lot of the bounce was short covering and margin calls coming due. With the money being as easy to earn as it was, don't be surprised in the shorts decide to take another bite of the apple in the next day or two unless some positive news comes out from LINE.
    12 Jul 2013, 07:39 AM Reply Like
  • Eric Landis
    , contributor
    Comments (712) | Send Message
     
    I sold out on Wednesday after reading yours and Tim's comments on the stock. There is too much risk on the table and there are plenty of other good alternatives out there with less heartache.

     

    LNCO has had a nice slow rise since the bottom last Friday, but it has been on very low volume. I wouldn't be surprised at all to see another short attack hit next week on more "news" put out by Barrons.
    12 Jul 2013, 09:42 AM Reply Like
  • giorgiolb
    , contributor
    Comments (5382) | Send Message
     
    Eric,

     

    You needn't wait for Barrons...

     

    http://seekingalpha.co...
    12 Jul 2013, 04:56 PM Reply Like
  • Eric Landis
    , contributor
    Comments (712) | Send Message
     
    Yeah, he's had a few negative articles on LINE as well.
    12 Jul 2013, 04:58 PM Reply Like
  • User 7965571
    , contributor
    Comments (13) | Send Message
     
    hi, Chowder:
    I notice there are some of your stocks listed don't live up to your credit rating criteria..e.g. SDRL is rated "B", NNN, TPZ, MHR, no rating..etc. what is the exception, if you don't mind me asking?
    thanks for the great article!
    20 Jul 2013, 10:52 AM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » MHR was a speculation play left over from my trading days. My cost basis is around 64 cents and I thought I would hang on to it and see what it could do.

     

    A buddy of mine contacted me and asked if I saw what some company called PRC had done one day. That was MHR's old symbol. I saw that the price was up 100% on the day. Jumped from 28 cents to 56 cents.

     

    I read that night that the owners of the business were the ones driving price up in the open market so I decided to start buying it. By the time all of my orders had been filled, I was in at 64 cents per share. My buddy said he was going to wait for a pullback, which never came. He told me to never mention MHR to him again. It was his idea, but my gain. ... Ha!

     

    TPZ was a fixed income selection. I liked how it consisted of MLP's and utility bonds. I didn't expect it to show dividend growth, but I did expect it to maintain a high yield. My yield at purchase was above 6.5% and I thought it was a nice way to add MLP's to the Ira without worrying about UBTI.

     

    I noticed that a lot of the holdings in TPZ have high quality ratings though and if I can get a 6.5% fixed income with something similar (holds a lot of high quality companies), then I wouldn't mind adding another position or two.

     

    SDRL was what I call a Special Situation play. I purchased it following the spill in the Gulf. I knew that companies were going to have to be careful about the types of rigs they were using in deep water and SDRL had the latest and safest technology in deep water drilling. I don't know how long I will hold on to it .

     

    NNN is a REIT and REITs have to be looked at in a special light. Since NNN is a property REIT, they often have to go to the credit markets in order to expand their property portfolio. When they add on a lot of debt to expand, their credit rating may drop a notch. I noticed the same thing with O.

     

    I was already familiar with O and regardless of how their credit rating fluctuated, their dividend was always safe.

     

    When I looked into NNN, I saw they were similar to O and I thought their properties would compliment O's properties and at the time offer some property diversity. When I saw how well they escaped the real estate crash, I added to the position.

     

    None of the companies above are considered "core" positions by me.
    20 Jul 2013, 01:56 PM Reply Like
  • georgebeddoe
    , contributor
    Comments (876) | Send Message
     
    Chowder, This is maybe my all-time favorite article of yours. I'm keeping it, and referring to it frequently.

     

    Thanks,
    George
    2 Sep 2013, 12:46 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » Thanks for the kind words George.

     

    If one has a plan in place ahead of time, then one doesn't freeze up when adversity attacks any of their holdings.

     

    All I did was take the lessons I learned in the Marine Corps and applied them to investing. You trained to face adversity and knew immediately what to do in the face of it.

     

    So, I organized my thoughts with regard to the mistakes I have made over the years and came up with a plan to take them on again in the event they occur again.

     

    In our sales meetings, we used to practice rebuttal arguments. We anticipated the excuses people might throw at us and we practiced giving immediate logical responses. We did a lot of role playing in those meetings, but we were prepared to take on those excuses. Knowing what to say, and how to say it, gave us a tremendous advantage in the field.

     

    Knowing what to do, in advance, when things go against you with your investments can help save a lot of built up capital gains or prevent larger losses.
    2 Sep 2013, 04:35 PM Reply Like
  • bucs_2205
    , contributor
    Comments (35) | Send Message
     
    Great stuff, Chowder!

     

    I've been keeping an eye on CMLP and their merger with Inergy. Any thoughts on CMLP at all?
    19 Sep 2013, 06:21 PM Reply Like
  • chowder
    , contributor
    Comments (7299) | Send Message
     
    Author’s reply » Sorry bucs, I haven't got a clue. I don't follow them.
    19 Sep 2013, 07:59 PM Reply Like
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