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I'm writing an instablog - I know of a few people who have read some, but the main reason for writing it is to clarify my thinking (and likely confuse you) before I invest in something every month or so. And also to act as a journal I can review every so often. I work as a mental health nurse.... More
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  • Will The Market Please Correct? 5/24 Paycheck Possible Buys 0 comments
    May 19, 2013 3:50 PM | about stocks: CII, GST, GRH, BPOP, BOE, JGT, EXG, ETW, ETV, EOI, EOS, RSO

    A ramp up market when your strategy is based around compounding current high yield and you're basically starting over with not much is irritating.

    But I still have rules that I designed last fall and I must stick with them if I want to meet my initial goals on the way to financial independence.

    Since I write these for my own benefit to clarify my thinking and may very well be the only one to read these at any point in the future, I will give a brief status update:

    Woman finally got herself a good job with wonderful benefits. My salary is much higher, but over a couple of decades she will end up better off.

    I have managed to get three raises since switching to a 7 day on and 7 day off work schedule and jumping through some hoops to buy my own health insurance instead of through my hospital. 12% raise for forgoing health insurance, 2% competition raise (my hospital doesn't pay as well as some others, and a 2.5% merit raise. I don't like my work but making the median income in this country only working 26 weeks out of the year isn't bad.

    Woman was not impressed with the calculated returns my 10%-of-her-paycheck-into-Ibonds-idea. So I am now contributing 15% of my before tax money and 10% of her paycheck into my taxable account until we hit the value of a year's worth of living expenses. The idea being if there's a 50% market correction and I lose my job simultaneous we can still pay the bills and rent for six months.

    I just made the last payment on her car - we have two cars paid off that hopefully will last a couple of more years. More money for saving/investing and simultaneously paying down debt.

    This is the best financial position I've been in since the turn of the century (nevermind her - this is her first real job).

    My strategy revolves around Monty Spivak's series about getting high yield with moderate risk. For me that means lots of positions for diversification and a current high yield that seems to be safe to be paid out. I also classify myself as a value investor - I like sales!

    My basic rules:

    1. Minimum portfolio yield must be 8%.

    2. Buy preferred stocks under par/market yield > 7.99%/company must be making money (+pe) or demonstrably turning things around yoy. A preferred that pays dividends on the common stock is a plus since the preferred legally must be paid before the common stock.

    3. CEF screen:

    a - market yield > 7.99%

    b - discount > 8% (used to be > 10% but that was last November)

    c - yield on NAV < 10% (for safety from distribution cuts)

    d - the NAV must be able to increase over different time periods otherwise the fund may be subject to a distribution cut

    e - all the other Mickey Mouse stuff that would take too long to write but the previous points are the most important

    4. All dividends/distributions must compound - either dripped in under-valued stuff or into new investments.

    5. Never sell for a loss - I pick a bum then I'm stuck with that bum.

    6. I am buying assets that pay me income - I must not sell for a paltry gain like an idiot day trader (me for the last few years!) - I must only sell if there is a far better opportunity to buy for income and I can make a profit equal to several years worth of compounded income (or if it's a cef that's had a decent gain and the distribution may be in jeopardy).

    Which brings me back to my original point - good value income stocks/funds are in short supply right now. I would welcome a correction so I would have many more options to buy into.

    Possible preferred buys:

    GST-A - already owned and sold it this year for a nice profit. Made some money but might be of interest to a reader.

    GRH-C - speculative and already own as much as I'm willing to in what may turn out to be a smoke/mirrors company or a wonderful growth opportunity in a company that provides a useful service to the fracking industry.

    BPOPP - already owned and sold it this year. Made some money accidentally by having a limit order in for the par price - wish I would have not had the order in and collected the dividends along the way - about to be callable and may buy down the road if the call date passes and it stays below par. Similar deal with BPOPO - wishing/hoping it will drop back to an 8% market yield and pick it up again. (Note to self - no more idiot day trading!)

    RSO-B - nice div yield. Company has a positive PE ratio and pays a nice yield on the common stock. That means the preferred dividend is safe (I bought this one my last paycheck on impulse after I noticed it was selling below par. If it stays below par, I would strongly consider picking up more. If the common stock's dividend starts approaching 0% it's time to get out of the preferred)

    Possible CEF buys:

    ETY - picked it up last November - sold for a profit to buy into other Eaton Vance CEFs - do not regret and would not buy now. Maybe if there was a correction and the discount hit 10% again...

    JGT - own it. Not sure how much I like it. Bought it before I figured out how I like to evaluate NAV returns over time.

    CII - giving some thought to this one. Had two distribution cuts over the last two years and is currently at a 9.31% discount and a current 8.9% market yield. Investors hate it because of the distribution cuts. I am looking at a chart of the NAV and it's starting to spike (but what isn't?). 60-70% option coverage according to Blackrock's page so has some defense for the NAV in a market crash and some upside in a loooong running bull market. Top holdings differ enough from the Eaton Vance funds I'm overweighted in enough to add some further diversification. Question is if the current distribution is sustainable and by looking at the NAV over the last twelve months I think it might be. Might be my number one pick this Friday as long as it continues to meet my criteria to buy.

    EOS and EOI - owned them in the past blah blah blah. Some others I sold off to concentrate in ETV/ETW/EXG that at the time had higher discounts and yields and were changing to monthly payouts. I would be interested in either-or at this point except Eaton's option fund holdings are all very similar and I think all have the same management team. And the fact that about 30% of my savings are in ETV/ETW/EXG (hey, sometimes sales on good things last a long time and you have to take advantage).

    BOE - ex-div date passed earlier this month. I didn't buy it at the time because RSO-B was below par and has a similar div yield and a call date four years out. NAV juuuust looks like it may be turning the corner after the Blackrock 2x2 distribution cuts. > 10% discount is nice though the next payout won't be until the end of August.

    Annnnd, CefConnect just died on me before I finished. That's okay. And anyone who reads this or is thinking about buying into a CEF should use this site. But it tends to have explosive bouts of Internet Colitis. And anyone who uses CefConnect should cross reference the information with another source.

    An example would be PMM. I was thinking it might be time to look back into muni-bond cefs and this one met my current criteria of relatively low leverage and a distribution of > 6%. Compared the CefConnect stats vs Marketwatch or Barcharts and they are out of date. The distribution of CefConnect was higher last month (a special dividend I think) than that of the more current listing on Marketwatch and other sources.

    In general, the plan for this Friday:

    More RSO-B as long as it's under par value.

    Second bet is CII as long as it meets my buying criteria.

    Third bet is to look for other opportunities on CefConnect that can be verified with another unrelated website when CefConnect doesn't have it's thong tangled. Or keep an eye on dividendyieldhunter.com for sudden opportunities in preferreds.

    Fourth option is to move the designated amount of cash to my brokerage and sit if there's nothing worth buying on Friday.

    Edit for 5/23: Huh. I trimmed EXG and ETW in my Roth and picked up WSR and WEC in it. Then the market cratered a bit this am and currently BPOPO is down 3% and the yield is back to 7%. If it stays down tomorrow, I may add this to the top of the list. Monthly pay is always nice.

    Edit for 5/24: RSO.PB it was - barely under par.

    Disclosure: I am long EXG, ETV, ETW, JGT.

    Additional disclosure: Why does it always rain on my week off whilst being nice and sunny when I'm at work?

    Stocks: CII, GST, GRH, BPOP, BOE, JGT, EXG, ETW, ETV, EOI, EOS, RSO
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