The Brown Bag Portfolio April Review

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About: Iron Mountain Incorporated (IRM), T, Includes: APLE, EPR
by: Michael Hesse
Summary

A History of the Brown Bag Portfolio.

Areas of current concern with the portfolio.

Where does the BBP now stand and where is it going?

Although April was a little frothy, the Brown Bag Portfolio continued to perform well throughout the month.

For those readers who may be new to my series of articles on my personal portfolio let me give you a brief history. For those of you who may have been following for some time, feel free to skip down a couple of paragraphs.

The Brown Bag Portfolio was created in July of 2016 with an initial $150.00 investment. I came to accepted the fact that I, like so many others, had no retirement savings to speak of, just a small 401k and a house. Many years earlier I had drained my original 401k to cover the medical expenses for my future ex-wife. Later a medical emergency of my own drained all remaining savings and more, then a nasty divorce and five years of legal wrangling left me practically destitute. Somewhat to my surprise I later met the lovely lady I’m now married to and began to rebuild.

Although I contribute 8% to my 401k (my company matches half of the first 3%) I realized on that July afternoon when I opened my brokerage account and started the Brown Bag Portfolio that I needed to do more, much more if I wanted to have any sort of decent retirement someday. As much as I enjoy working, I don’t want to work forever. If I did nothing, that was going to be my reality.

That July I set about taking control of my financial future. I cut back on my expenses and began sending every cent I could scrape together into my brokerage account. People have asked why I didn’t just dump the extra money into my 401k since what I can save each year is still less than the maximum contribution (plus the catch-up contribution) I’m allowed. The reason is quite simple. Human nature. I find it much easier to make the sacrifices in my discretionary spending, stop eating lunches out (thus the genesis of my portfolio’s name), and learn the habits of frugality, when I have control. I find it much more difficult to go without when I’m letting some expert, some manager that I’ve never met, invest my money where they think best.

Besides, the more time I spent actively investing, researching companies, LEARNING, the more interesting I found the entire process. I discovered that I enjoyed the process of saving and investing, and that wasn’t something I enjoyed when the money was automatically siphoned from my paychecks and invested for me. I let the experts do their thing with my 8% contribution, I direct which funds I want my money to go into, but it’s not the same and therefore I don’t have the drive to save/invest to the same degree as I do with the discretionary money that I personally control in the BBP.

I made a number of mistakes at first, chased stocks up and sold them in a panic. I did that for about six months before I discovered dividend investing. Every holding I have pays a dividend, every holding is DRIP’d (I utilize my brokerage’s dividend reinvestment program), and this gave me some peace of mind when share prices inevitably fell. Don’t get me wrong, I hate seeing red on my spreadsheet, but if I believe in the company the dividends provide me a reason to keep holding a company and wait. Does this mean that I’m a buy and hold forever type of investor? No, I have sold and will sell holdings when I’ve lost faith in the company, but in general I try and keep a long-term view towards my investments.

I started writing this series of articles on the Brown Bag Portfolio’s first anniversary. At that time, I only had four holdings, but it was a start. Now if you hadn’t already guessed, I’m not a financial expert. I’m a computer technician. I don’t pretend to be a financial expert and the purpose of this series of articles isn’t to provide financial recommendations. It’s to document the construction of my personal portfolio, my mistakes and successes, and perhaps to help someone else who is also starting his or her own investment journey. When I discuss rules for investing, these are my personal rules, developed for my unique reasons. I recommend that you do the same and feel free to change them as circumstances change, I do.

One of the rules I use is to limit my purchases to a minimum of $1500.00 at a time. This is a change. I started at $500, then last year changed to $1000. I do this to limit my commission charges and to force me to wait before I purchase. There is no other reason. I’m aware of zero commission alternatives (like Robin Hood and M1) and may utilize them in the future when I have fleshed out my core portfolio, but at this time I’m sticking with what I know and am comfortable using.

By waiting to purchase I know I’ve missed out on some opportunities, but I’m also certain that I’ve avoided some mistakes. Impulse purchases are rarely a smart move in the stock market. I don’t let missed opportunities bother me (who hasn’t said I was going to buy XYZ company just before it doubled), I chock it up as validation that my thinking/research/etc. was correct and move on.

Areas of Current Concern

The Brown Bag Portfolio is small. I only have eight holdings as of the end of April. I expect to add two more in 2019 and an additional two holdings in 2020. At this time, I believe I will keep the portfolio to no more than fifteen holdings (as fifteen is about the maximum I can reasonably expect to read the quarterly reports and digest all the homework necessary). It is also unreasonably or unsafely concentrated in only a few sectors (nearly 40% of the BBP is in REITS and another 24% in Energy). I’m aware of these issues and will be diversifying the portfolio over the coming years (although to be honest I may add a little more to the Energy sector first). Health Care and Consumer Staples are the most likely sectors to be added initially, followed by Industrial and Technology.

AT&T (T) has been a concern of mine for at least six months, maybe longer. Their debt level is enormous and the company itself struggles with the execution of its plans. DirectTv has turned out to have been a poor investment for the company and the Time Warner acquisition has yet to prove itself. My current cost-basis for this holding is $34.30 which sets it firmly in the negative column, but I’ve continued to hold. AT&T has been paying down the debt and the dividend is still safe, both of which are requirements (for me) to keep holding, but I’ve been antsy to say the least. For the time being I’ll continue to hold while I wait for the company to complete its integration of Time Warner and see if they continue to follow through on their pledge to reduce the debt load.

If I’m to be completely honest it’s AT&T’s yield that keeps me in this particular holding, for now. I’m not afraid to take the loss, sometimes it’s better to accept a mistake and move on, but I haven’t found a better place to move the money I currently have invested in AT&T. If I decide that there is a better, safer place with a brighter future I will suck up the loss, note it in an article and move on. However, that day is not now. I’m going to continue to practice patience with this holding and see how that plays out. I am not going to invest more money in AT&T (other than the DRIP) until I’m reasonably certain that AT&T is the place that has a brighter future.

The Current State of the Brown Bag Portfolio

I made no buys or sells this month, concentrating instead on DRIPing dividends and building up cash (as well as a needed vacation at the end of the month). As you can see in the chart below the Brown Bag Portfolio continued to prosper, although Iron Mountain (IRM) slipped into the loss column (hopefully temporary). The biggest losses are with AT&T as mentioned previously, as well as Apple Hospitality (APLE), however you’ll see in the Out of Pocket chart that Apple Hospitality is actually in the black due to dividends received and reinvested (at least as far as what was originally paid out is concerned). Other than what has been already discussed I’m pleased with the portfolio’s performance and gratified to see that I’m just a whisker shy of 75% of my dividend goal for 2019. With eight months to go, things still appear to be on the right track.

Brown Bag Portfolio

April 2019

Company Name

Ticker

Shares

Value

%Return

Div/Shr

Annual Div

Dominion Energy

D

41.42

$3,224.99

18.07%

$3.67

$152.01

Iron Mountain

IRM

86.43

$2,807.25

-3.53%

$2.44

$210.89

Apple Hospitality

APLE

226.15

$3,720.13

-6.64%

$1.20

$271.38

Enterprise Partners

EPD

239.42

$6,854.59

6.83%

$1.74

$416.59

AT&T

T

107.08

$3,315.59

-9.86%

$2.04

$218.44

EPR Properties

EPR

62.88

$4,958.87

21.04%

$4.50

$282.96

Main Street Capital

MAIN

74.91

$2,956.66

3.49%

$2.40

$179.78

Oxford Lane Capital

OXLC

97.33

$1,058.95

7.19%

$1.62

$157.67

Total

$28,897.03

4.46%

$1,889.73

Div Goal

% Goal

BBP Yield %

$16,800.00

11.25%

6.83%

Div Goal 2019

% Goal

$2,520.00

74.99%

As is always the case, the Out of Pocket chart shows the real benefit of compounding interest due to the dividend reinvestment program. One of the first things you’ll notice is the vast majority of gains comes from the dividends themselves and not the share price. Part of this is due to the fact that I’m not invested in industries where I expect a lot of share price movement, although there are exceptions (notably EPR Properties (EPR) ). Honestly, this isn’t a concern for me. In fact, I prefer it currently as I’d like to own more of most of my holdings, but I’d greatly prefer not to increase my cost basis.

As noted earlier I am looking to expand the portfolio this year and as part of that expansion will be seriously looking into sectors that should balance out my risk profile with Health Care and Consumer Staples getting the deepest looks. But I will have to balance out my desires with the ever-fluctuating realities of the market. Opportunities are not always where you want them to be.

Out of Pocket

Out of Pocket

as of April 30 2019

Symbol

OOP Shares

$ OOP

Shrs frm Div

Div Rcvd

Current Value

Total Rtrn

D

40

$2,626.60

1.415

$104.73

$3,224.99

22.78%

IRM

85

$2,860.85

1.43

$49.33

$2,807.25

-1.87%

APLE

205

$3,618.28

21.148

$365.33

$3,720.13

2.82%

EPD

215

$5,766.99

24.42

$644.09

$6,854.59

18.86%

T

100

$3,453.42

7.082

$225.34

$3,315.26

-4.00%

EPR

59

$3,839.26

3.882

$261.51

$4,958.87

29.16%

MAIN

70

$2,672.20

4.909

$183.76

$2,956.66

10.65%

OXLC

80

$810.40

17.33

$177.51

$1,058.95

30.67%

Total

$25,648.00 $2,011.60 $28,896.70

12.67%

In conclusion I’d like to note that my current strategy appears to be working well, with only two of my holdings (from an out of pocket consideration) currently sitting in the red. AT&T I’ve already mentioned and I expect, sadly, that it will sit in the red for much of this year. Iron Mountain (IRM) has lately drifted in that direction and although I’m tempted to add more in order to bring down my cost-basis, I won’t. Not now. I don’t really want to increase my REIT holdings at this time, preferring instead to collect the dividends and see how they perform.

Well, that’s all for this month. Happy investing!

Disclosure: I am/we are long D, IRM, APLE, EPD, T, EPR, MAIN, OXLC. 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.