Getting Off The Mountain: The Brown Bag Portfolio August Review

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Includes: ABBV, APLE, BP, ECC, EPD, GSK, IRM, OXLC, T
by: Michael Hesse
Summary

Why I sold my Iron Mountain shares.

Sometimes you've got to break your own rules.

How the Brown Bag Portfolio performed in August.

Life’s funny. You publish an article stating that you’ll likely hold an equity for at least the next six months and then the next month you sell it. Yes, that’s what I did, specifically about Iron Mountain (IRM). Last month I stated that I was likely to hold, but I sold it in August. This was due to several reasons: 1) I became increasingly concerned with the debt load that Iron Mountain carries, 2) I had an unexpected need for a large chunk of cash due to a daughter’s upcoming wedding along with some expenses that occurred due to the preparation we needed for Hurricane Dorian. Yes, we live in the zone that was expected to be hit (luckily, we dodged that bullet). I didn’t need much more than the cash that I had sitting in my brokerage account, but I did need a bit more. Rather than drain the liquid cash that I’d saved and run up my credit card, I took the hit in an investment that I’d grown increasingly skittish about.

Iron Mountain was a ready source of that cash, so I took a small loss (approximately $200.00) and sold the shares. This allowed me to pay off the debt that I’d been struggling with and left me with cash available for what I hoped would be (long term) a better investment. Long time readers of my articles will notice that I moved some of the cash that I had left into what would initially appear to be even riskier investments than Iron Mountain. What sort of sense does this make?

Well, let me tell you. I doubled my initial investment in Oxford Lane Capital (OXLC) and made a small investment in Eagle Point Credit (ECC). Each of these are closed end funds, CEF’s, of Collateralized Loan Obligations, CLO’s. For those readers unfamiliar with CLOs, please, please, please, read a couple of @Steven Bavaria’s articles on his Income Factory approach to investing. I’d also highly recommend @Rida Morwa and @Stanford Chemist, all three can explain CLO’s much better than I.

Mr. Bavaria has, I believe, a uniquely contrarian theory on investing. One that I’ve been intrigued by since I discovered his articles shortly after joining Seeking Alpha. Eighteen months ago, I was impressed enough by his reasoning, that I decided to experiment and purchased 80 shares of OXLC for $10.13 a share. By using dividend reinvesting that original 80 shares grew to just over 102 shares in 18 or so months. During that time, however, the value of those shares fluctuated wildly, from as low as $7.35 a share to as high as $11.73, but each and every month they continued to pay out a dividend of $0.135 a share or an average of a 15% yield. Now, let’s be honest, could that dividend be cut? Certainly. But even if it were cut in half, I’d be earning a 7.5% yield on my money, which I decided was worth the risk. So far this has panned out for me and has been worth the risk. I was, after all, only risking my initial investment which was less than $900.

After 18 months I was willing to double my initial investment so I bought another 80 shares at the end of the month when prices tumbled. Due to my success with Oxford Lane over the past 18 months I also decided to take another gamble on a similar company with a purchase of 50 shares of Eagle Point Credit at $16.02 a share. ECC pays $0.20 a share monthly for a total dividend of $2.40 a year.

I am fully aware that these two equities are risky, riskier than any of my other holdings. Oxford Lane now constitutes 5.6% of my portfolio and Eagle Point Credit is 2.6%. I am willing to allow these holdings to grow to a combined 10%, but no more than that. I may add to my Eagle Point Credit holdings this year, but I expect to hold for at least six months before I make that decision. At the moment Oxford Lane is above my 5% target, so that one will wait, most likely for at least a year before I make any further investment. Both of these companies are marked in red on my personal spreadsheets to give me a constant visual reminder that these are risky investments, even if Oxford Lane has done well for me in the past. The risk is also the reason why I violated my $1500.00 buy rule, as well. I’m just not as comfortable with making as large an investment at any given time as I am with what I consider to be safer choices.

Part of the reason that I’m willing to risk as much as 10% of my portfolio in these companies is due to my time frame. I began investing much later in life than I should. I only have fifteen years or so before I retire (hopefully), so I need to accept more risk than I would if I’d been investing for the previous twenty years. We’ll see how this approach works out in the long run, but I’m adamant about keeping the risk manageable. This may not be the right decision for everyone or even anyone, but at the moment it appears acceptable for me.

As for the future, I expect to double my holdings in British Petroleum (BP) in September or October, before returning to building cash for the next several months. I would note, however, that I’m only willing to add to BP if I can get an additional 40 shares for approximately $37 a share. At the time of this writing it’s currently above that mark, so I may have missed my opportunity, but I suspect that I’ll still have a chance in the next 60 days. If not, I’ll wait. I’d love to add more Enterprise Partners (EPD), but I’m trying hard not to violate my cost-basis, so I will probably have to be patient on that one.

I’m also watching Abbvie (ABBV) and GlaxoSmithKline (GSK) as potential adds in the Health Care space. I haven’t made any decisions and I don’t have the money saved yet anyways, so I watch and think.

The Brown Bag Portfolio in August

Overall, the BBP improved in August. Some positions went up, some down, but the overall trend was upwards. Holding AT&T (T) for as long as I have has turned out well, so far, but the debt levels are still a concern. It’s possible that I will convince myself to take the gains, but I believe that I will continue to hold and see if management continues to pay down debt. If I believe that they are going to stop making the debt issue a priority, then I’ll sell out and move my money elsewhere.

Brown Bag Portfolio

Aug 2019

Company Name

Ticker

Shares

Value

%Return

Div/Shr

Annual Div

Dominion Energy

D

41.91

$3,113.27

17.48%

$3.67

$153.80

Eagle Point Credit

ECC

50.00

$780.00

-3.70%

$2.40

$120.00

Apple Hospitality

APLE

231.84

$3,619.47

-9.39%

$1.20

$278.21

Enterprise Partners

EPD

246.90

$7,322.08

6.22%

$1.75

$432.07

AT&T

T

110.48

$3,706.58

2.83%

$2.04

$225.39

EPR Properties

EPR

64.11

$4,748.41

19.56%

$4.50

$288.51

Main Street Capital

MAIN

76.82

$3,264.80

15.35%

$2.46

$188.98

Oxford Lane Capital

OXLC

182.79

$1,073.06

-4.36%

$1.62

$296.11

British Petroleum

BP

40.60

$1,613.29

-12.32%

$2.46

$99.87

Total

$30,290.32

5.48%

$2,082.93

Div Goal

% Goal

BBP Yield %

$16,800.00

12.40%

7.25%

Div Goal 2019

% Goal

$2,520.00

82.66%

As always, I include my out of pocket chart. Most months this particular chart stays my hand on selling anything as it usually shows me the benefit of holding. Even when a holding appears to be in the red, once I look at what I actually paid and what it is valued now, I’m pleased. It’s due to this chart that I’ve kept myself invested in Apple Hospitality (APLE) although I’m usually recording a paper loss in the above chart. Like my CLO’s, it’s been a steady payer, no matter what happens to its share price. That fact coupled with the low debt that the company carries keeps in invested.

Out of Pocket

as of Aug 31, 2019

Symbol

OOP Shares

$ OOP

Shrs frm Div

Div Rcvd

Current Value

Total Rtrn

D

40

$2,626.60

1.907

$142.73

$3,253.24

23.86%

ECC

50

$801.00

0

$0.00

$780.00

-2.62%

APLE

205

$3,618.28

26.84

$456.62

$3,693.21

2.07%

EPD

215

$5,766.99

31.895

$855.80

$7,038.98

22.06%

T

100

$3,453.42

10.483

$335.47

$3,895.63

12.81%

EPR

59

$3,839.26

5.114

$356.51

$5,016.92

30.67%

MAIN

70

$2,672.20

6.823

$263.89

$3,388.66

26.81%

OXLC

160

$1,572.00

22.785

$231.15

$1,723.66

9.65%

BP

40

$1,686.00

0.596

$24.60

$1,500.02

-11.03%

Total

$26,035.75

$2,666.77

$30,290.33

16.34%

Well I think that wraps things up for August. Obviously, I’ve made a few changes and those changes may be riskier than would be wise, but time will tell. As I’ve promised my readers since the beginning, I’m not writing about what people should do, only what I’m actually doing and why, honestly and openly. Hopefully, this information will be useful to others when making their own decisions.

Thank you.

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