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Finding Your Right BDC Weighting

I am really not an arrogant S.O.B. - but there are times when I sound like one - and one of those times is about to happen. And I am really not so "holier than thou" when it comes to due diligence. But dang! - so many of you have set that threshold so low - that you can't do adequate due diligence and not have a good deal of distance from the median. Before you get put on the defensive, listen to the logic in this upcoming rule - and pretend I am throwing popcorn and not rocks.

There should be some correlation between your quality of due diligence in a given sector and your portfolio allocation to that sector.

For example: If you can not tell if the dividend is higher than the net investment income, then you should not own any BDCs. If you can not gather four quarter's worth of NAV stats and tell if the NAV is rising or falling, then you should have under a 2% weighting in BDCs. If you are lost and confused by the conference calls, then you should have under a 3% weighting. And if you can not do a simple NII projection, then you should have under a 5% weighting.

Does that sound reasonable? And if that rule overly limits your ownership of BDCs, then the small amount of BDCs that you do own probably needs to be in the safer and dividend growing BDCs.