Welcome to my July update for my Green Dot Portfolio, a self-managed retirement portfolio created in a Roth IRA trading account. My goal is to yield a total realized return of at least 8% annually in cash income using high-yield dividend investments and swing trading. I have made continuing changes - more than others might want to manage - but I am well on the way to reaching my annual goal, with total cash returns for the past 9 months now at +9.68%. I continuously re-invest my cash returns for additional growth.
As readers of my monthly portfolio updates and weekly blogs know, I use the SPDR S&P 500 ETF (SPY) - the traders index - to visualize the underlying stock market pattern. This is important because it influences my decisions on when to buy and sell positions in my portfolio and to make swing trades, as many equities move to a degree with the overall market. As investors are aware, the market rocketed to a new high through the latter part of 2017, peaking on January 26 this year at SPY 286.63. In a few volatile weeks, the SPY then dropped about 11.5% to a low of SPY 252.92 on February 9. The chart below shows the daily price action of the SPY for the past 9 months.
(Source: Chart created by author from TD Ameritrade 'thinkorswim' platform).
I have used the Fibonacci retracement concept to gauge the rebound from the early 2018 sell-off. While these retracement levels are artificial constructs, they often influence traders' actions (self-fulling prophesy idea). It's now been a half year and the SPY has yet to re-capture the high from January. Several times the SPY has advanced, only to reverse direction, especially at the .786 level. Just over a week ago, the SPY made a successful pierce above SPY 280, the highest level since the downturn began, but it has yet to sustain the advance.
In addition to the Fib retracement, there is a secondary construct, a price channel (parallel gold lines on the chart), whose high also converges at the level from January.
Based on research and traders I follow, I have considered this decline an intermediate level pullback, meaning that if and when the market recovers to the former high, it should make a new high and at some point again correct that move but with a larger and longer pullback than in early 2018. It could be months before the new pullback. Another possibility and one that was more prominent earlier, is that the SPY would first re-test the February 9 low before ascending to a new high. That outcome appears to be less probable but is still in play if the SPY loses support successively at the moving averages (blue, green, and red lines on the chart). One factor that might help bring the SPY in more is volume. Overall, trading volumes have been lighter than average, with the highest volume typically on down days than on advances. So far, except for Apple, quarterly earnings have not encouraged investors to be buyers, and any news not well-received has tended to cause relatively heavier selling.
In July, I continued to use swing trading of option premiums to generate some profits for further investing. I wrote about that in an article here, and it is paying off nicely so far, with 4 additional consecutive winning option swing trades in July. Overall, I've continued to trade, consolidate, and add to positions, all intended to serve my overall annual portfolio growth goal of at least 8%.
My active management style means that I make a lot of trades, but the action is adding to my total returns far faster than from collecting dividends alone.
Highlights of changes to my portfolio in July are as follows:
I originally described my Green Dot portfolio by types of investment vehicles, such as preferred stocks, common stock, REITs, and Closed End Funds. Now that I've been consolidating the portfolio, adding more CEFs, and using individual stocks more and more as swing trades, I thought that characterizing the portfolio according to what the investments are buying would be more descriptive. I used my TD Ameritrade portfolio tools as a start but had to make a number of manual adjustments as some holdings were not included in their classification.
Overall, the portfolio now consists of about 31% Domestic Equity positions (mostly stocks and REITs), just over 8% "Other" (these are 2 preferred stock ETFs, 1 preferred CEF, and 1 CEF that is both equity and fixed income), about 15% Specialty (mostly real estate and infrastructure CEFs), and nearly 46% Domestic and international Fixed Income, which are bond funds, preferred funds, and other financial CEFs. The Domestic Equity category is comprised of about 27% large-cap, 19% mid-cap, and 55% small-cap stocks and REITs. This all seems fairly diversified.
The pie chart below summarizes the composition of the portfolio as of July.
(Source: Chart created by author from portfolio data as of July 31.)
In July, I continued to use swing trades to add $753 in cash profits for my portfolio, including for stocks and option premiums. Details about these trades including charts and my trade logs can be found in my weekly blogs.
1. Closed Stock Swing Trades
In July, I closed 2 stock swing trades, for Credit Suisse AG - VelocityShares 3x Inverse Silver ETN (DSLV) and for ProShares UltraShort Bloomberg Crude Oil (SCO). These were small trades, as usual, continuing to "hit singles" fairly consistently. This was the 2nd time that I traded DSLV and the 3rd time I traded SCO for profits. I have increased the average dollar amount per trade in 2018 ($1,146) compared to 2017 ($848), and profits after costs have increased as well, from an average of +$65 for trades closed in 2017 to +$78 for trades closed in 2018 to date. As my cash allows going forward, I will continue to add weight to my trades. Overall, I've put >$38,800 on the line for non-option swing trades so far and, importantly, I've added >$2,800 in cash to my portfolio without losses for a total return of +7.32% (+45.9% annualized).
The table below summarizes the closed non-option swing trades for July.
|Symb||Qty||Buy Date||Sell Date||$ Buy Price||$ Sell Price||$ Div||Net $ G/L||% G/L||Days in Trade||Annualized % G/L|
(Source: Created by author from portfolio data as of July 31.)
2. New Stock Swing Trades Opened
3. Option Premium Swing Trades Closed
In July, I closed 4 option premium swing trades for Starbucks (SBUX), Celgene (CELG), AT&T (T), and the SPDR Select Sector ETF for Technology (XLK), for $583 in cash profits. These trades were also small (average cost for these was $471), and I hope to increase trade sizes going forward as my funds allow. Overall, for the 16 option premium trades closed to date, I have put >$6,300 on the line and, fortunately, have added nearly $2,500 in cash to my portfolio without losses (+39.3%).
Details for these trades are provided in my weekly blogs. The table below summarizes data for these including the entry and sell dates, contract prices, and percentage gains.
|Symb||Option||Qty||Buy Date||Sell Date||$ Buy Price||$ Sell Price||% G/L||Days in Trade|
|CELG||Sep 21 2018 100 Call||10||6/21, 7/3||7/9||0.395 avg||0.49||17.39||12|
|SBUX||Sep 21 2018 55 Call||20||6/28, 7/3||7/10||0.32 avg.||0.42||25.14||8|
|T||Oct 19 2018 32 Call||8||7/25||7/27||0.46||0.62||29.39||3|
|XLK||Oct 19 2018 69 Put||4||7/24||7/30||1.08||1.70||53.90||5|
(Source: Created by author from portfolio data as of July 31).
Looking ahead for August options expiration, I will have 2 option premium swings expire worthless at this time, those for AMD and CSX. This will mean less cash added to my portfolio. While I have had good success to date, some losing trades over time are inevitable.
4. New Option Premium Swing Trades Opened
In July I opened a new option premium swing for CSX Corporation (CSX). Despite that the stock has continued to rise recently - negating my August option - I still think that the stock will reverse.
|Symb||Option||Qty||Buy Date||$ Buy Price|
|CSX||Nov 16 2018 55.0 Put||14||7/19, 7/26||0.413 avg.|
Since August 2017 when I started buying for the portfolio, I have been most fortunate to close 56 consecutive winning swing trades, including 40 equity swings and 16 option premium swings for a total net profit of >$5,300 after commissions/fees. The table below presents the cumulative % gains, average days in trade, average trade cost, and % gains annualized.
|Trade Type||# Trades||% Gains||Avg. Days||Avg. Cost||% Gains Annualized|
(Source: Portfolio data as of July 31).
The chart below shows the percentage gains for my 40 closed equity swing trades since August 2017.
(Source: Charts created by author using portfolio data as of July 31.)
The chart below shows the percentage gains for the 16 closed option premium swings to date.
I realize that these have mostly been small trades in dollar terms, based on my available cash and risk tolerance. I have been increasing my average trade sizes this year and will likely continue to do so. I am trying to grow my portfolio steadily with minimal losses so that I can continue to put cash profits to work through new income investments (mostly CEFs and REITs) and through new swing trades.
Some readers might consider that this portfolio takes too much work and produces low results. This is my approach and others can certainly work. But I'm not just buying and holding a few stocks and expecting/hoping that they will appreciate greatly in price. I am collecting cash from my trading and investing, not just tracking paper gains. If a stock doesn't pay dividends, and if an investor doesn't take profits occasionally as the stock price appreciates, then there are no assurances that the investor will get any returns, especially if the stock sells off.
This past week, Facebook (FB) provided a good example of the risk of buy-and-hold investing. FB doesn't pay a dividend, and the pullback after earnings has brought the price down to the same level as first reached in July of 2017. A year of time was wiped out in a few hours. Of course, FB was even lower in late March this year, at the same price as late April in 2017. The weekly chart below shows that Facebook was greatly extended above the moving averages and is now likely to go lower. Of course, time can change many things and the degree to which this is a problem depends on each investor's time horizon for needing realized returns from his/her investments. My approach is incremental - I like taking frequent, measured cash profits and putting them to work for more of the same.
In July I continued to make adjustments to my portfolio. In recent months I have moved out of weaker performing individual preferred stocks, REITs, and CEFs, thereby reducing the overall number of holdings and increasing the size of higher-yielding positions. I also occasionally take profits on positions that have appreciated a good bit in price. I have not counted these changes as swing trades.
I moved out of 1 position in July that I really want in my portfolio.
I like this REIT and considered it a longer-term holding in my portfolio even though I had a fairly small position. It pays a $1/year (quarterly basis) dividend, which currently is at about 7% yield-on-cost. I decided to sell because I was up essentially a year's worth of dividends and the price was at a triple top, suggesting that this might come in at some point. If I can buy it back at or below my sell (or especially below my average unit cost of $13.025) I will be ahead compared to holding. Comparing the profit to the value of the dividends, I will come out the same even if it takes a year for the price to come in. Based on the historical price action, I expect that MPW will come back into a good enough buying range far more quickly than a year. If this works, I got 10.6% on a 7% REIT in less than a year and will get it back again. This tactic of taking profits on winners at higher-probability chart pattern events is one way that I might get extra returns out of my positions. MPW will be on my watch list for a pullback.
In July I also completed the months-long process of moving out of my individual preferred stocks. As I have commented, even though preferreds pay a higher dividend than regular shares of their stocks, dividend yields are mostly even higher for preferred ETF and CEFs, and I can get greater diversification with the fund approach. With preferred ETFs and CEFs, I don't have to be concerned about call dates. I also found that the individual preferreds were very thinly traded and exhibited far greater price fluctuations than I expected. I sold my small positions in 4 preferreds: Citigroup (C, Series J), Morgan Stanley (MS, Series E), Maiden Holdings (MHLA), and Simon Property Group (SPG, Series J).
I used the proceeds from these adjustments as well as swing trade profits to buy new holdings and add to existing positions. In lieu of individual preferred stocks, I am using preferred stock ETFs and CEFs. The major preferred ETFs in my portfolio at this time are PFXF and PGX, and the major preferred CEFs are JPS, DFP, FLC, HPS, and LDP.
I added 1 new Closed End Fund position and 1 new equity to my portfolio in July:
I bought this highly-regarded global "junk bond" CEF after doing some research. According to CEFConnect, the objective of the fund is: "The Fund seeks current income through investment in below investment grade fixed income securities." As of 7/27, this CEF pays a stable, monthly income-only distribution of $0.072/share (+8.21%) and is trading at a -11.75% discount to NAV.
I bought this large-cap consumer financial stock after doing some research. Synchrony pays only a 1.7% dividend but has made 5%+ share buybacks in recent years and has grown dividend payouts by 15%. If this stock continues to increase dividend payouts, reduce outstanding shares, and appreciate in price in the future, I will consider taking profits at some point.
Added to Positions in July
I added to 4 existing Closed End Fund positions in July. These are generally higher-yield, well-performing holdings in my portfolio, and I have been adding shares as the prices become more attractive. Data below on distribution rate and discount to NAV are from CEFConnect at the end of the week they were purchased.
I continue to consider that most of my CEFs provide great returns, and most are still trading at good discounts to their Net Asset Values, or the value of their portfolio holdings. I try to focus on adding CEFs that pay stable dividends and for which most of their distributions are consistently from income (i.e. no destructive return of capital).
Total income from dividends increased for July to a new monthly high, at $707. I have collected >$4,900 in dividends since I started purchasing portfolio positions in August 2017. Average monthly dividend income (blue line below) continues to increase slowly and is now $520 since November, and averages $568 for 2018. Dividend income allows me to continue adding to existing positions and to add new holdings to my portfolio.
(Source: Chart created by author from portfolio data as of July 31.)
Because I have been concentrating my portfolio more in CEFs and REITs, these comprise the majority of my dividends. For July, CEFs accounted for 63.3% of total dividend income and REITs accounted for 28.8%, with preferred holdings and stocks comprising the remaining 7.9%. Given my preference for high-yielding monthly income, I will continue to add to CEFs in particular, and the share of income from them will therefore continue to increase.
With future distributions from my 457 funds, I also plan to increase holdings for individual stocks with accelerating dividends, such as my recent purchase of Synchrony Financial (SYF). So that will begin to change the composition again.
The table below summarizes the cumulative value of dividends received since August 2017 by asset class and the percentage of total dividend income by asset class. CEFs have provided 53% of all dividends to date.
|$ 524||$ 1,363||$ 2,614||$ 429||$ 4,931|
(Source: Table created by author from portfolio data as of July 31.)
All dividends have been added to my cash account. In lieu of automatic dividend reinvestment, I target purchases for holdings that are trading at lower share prices.
My Green Dot portfolio generates cash income each month through dividends and profits from swing trades. These are realized gains, or cash that is available for additional investment. My portfolio goal is an 8%+ annualized gain. I continue to use November as the tracking origin, which excludes the 5 swing trades ($394 in profits plus $11 in dividends) in September-October when the portfolio was actively under accumulation.
The table below shows the total investment and investment return in my portfolio each month, including total profits from swing trades (ex-dividends), dividends on swings, and other dividends collected. Dividends are reported for the month received in my account.
|Month||$ Cost||$ Swing Profits||$ Divs on Swings||$ Other Dividends||$ Total Income||% on Investment|
As presented in the table, total portfolio return in July was lower than the previous 2 months as I closed fewer option premium trades. Overall, however, swing trading has added significantly to my total cash income.
The 9 month total return is now +9.68%, exceeding my annual goal. The chart below shows total monthly percentage return on portfolio cost at the end of each month. The heavy blue line below is the average monthly percentage return, which is now 1.08%.
I continue to expect that dividend income will remain high as I have added significantly to existing CEF positions. I also expect to continue to make at least a modest income from swing trades, especially if I continue to successfully make option premium swings.
The chart below depicts the monthly source of realized portfolio profits. The increase in swing trade activity starting in May is the result of adding option premium trading.
In July, the total unrealized market value (minus dividends and options) of my portfolio was about the same as for June (-7.5%) when including the options trades still open, but is -6.29% excluding the options positions. Three holdings - Colony Capital (CLNY) - formerly Colony Northstar Inc. (CLNS), Macquarie Infrastructure (MIC), and General Electric (GE) - continue to account for an out-sized percentage of unrealized loss, at 57% of total losses, all due to dividend cuts in previous months. While I have been able to wait for some recovery of these stocks, at some point in the near future I will probably reduce these positions and use the remaining funds for more profitable positions. That said, I think that MIC can recover within a year.
On the brighter side, the rest of the portfolio is doing better; 14 positions are profitable and another 13 are down <4%, with a net total gain for those 27 positions of $48. I'm working to manage the portfolio to reduce losses, and I am aware that these are paper losses at this time.
Below is a summary table of the 43 non-option holdings in my Green Dot Portfolio as of July 31. Full names of holdings as of mid-November were included in my Part 2 article introducing the portfolio, and new additions have been described in my weekly position update blogs.
As I have commented before, the portfolio remains fairly diversified and comprised of multiple asset classes. These classes and a moderate number of holdings were chosen to help reduce risk. I think that this is still a good strategy. That said, I will likely continue to consolidate some holdings and increase position size. I'm raising my maximum position size for any individual holding from 7% to 8.5%.
|Symbol||Qty||$ Unit Cost||$ Cls 7/31||% Div Yield||% of Portfolio|
(Source: Created by author from portfolio data as of July 31.)
Despite the SPY has yet to re-capture the January 26 high, and regardless of what unfolds over the coming months, I remain comfortable with my overall strategy to collect growing cash income through swing trades (including for option premiums) and high dividend CEFs and REITs, as well as to capture the potential for price appreciation for longer-term holdings.
Author's note: If you found this article of interest and want to read more about my Green Dot Portfolio and my incremental, multi-asset approach to investing, please click the "follow" button at the opt of this page. Please share this with others who you think would be interested.
I have appreciated the comments from readers in the Seeking Alpha community, and I look forward to continuing to share my investing experience and to learn from others.
Best to your investing/trading!
=Green Dot Investor=
This article was written by
Disclosure: I am/we are long AWF, BGX, BRX, BXMT, CLNY, D, DFP, DOC, DSL, EMD, EPR, FAX, FEO, FLC, FRA, GE, GOV, HASI, HPS, HYT, JPS, KHC, KIO, LDP, LTC, MIC, MRCC, MSD, NHI, NVG, PFXF, PG, PGX, RA, RQI, SYF, SKT, UGLD, USLV, UTF, UTG, VTR, WELL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I also have open call or put option premium positions for CSX and SDS.