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Start Of The Month Portfolio Adjustments

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What a perfect way to wind up the week. Markets are finally selling off again and as it happens, I just got the news that one of my companies is subject to a tender offer. FBL Financial (FFG) has been a sturdy yield-producing microcap stock in my portfolio for years. As so often happens with profitable small-cap insurers, if the stock price slumps long enough, someone comes along and buys up the whole company. Shares spiked 33% on the news and since I am convinced shareholders will vote to accept the offer, I sold my shares at a nice profit. 

Simultaneously, shares of some of the technology stalwarts have simply crashed this week (which is perfectly reasonable given the extreme overvaluation for shares in companies like Apple (AAPL), Google (GOOG) or Tesla (TSLA)). But the timing really couldn't be better.  I took the opportunity today to use some proceeds from (FFG) to to buy some shares of (FB). Aflac (AFL) is another stock I had on my radar, so I bought shares today. Schwab (SCHW) is downright cheap, so I took the chance to buy more of that. Utilities have also done very poorly this year and trade at reasonable levels, so more shares of (WTRG), (WM), (SO), (ED) and (AWR) were a welcome addition to my buying spree. I also bought some Raytheon (RTX) and last but not least, I added a new position: Intuit (INTU) which, like all tech stocks, fell hard this week. It's still expensive (almost all big name tech companies are), but what I have now is a starter position. Enough to motivate me to watch carefully for any opportunity to add in more shares if prices continue to crash to a level where the stock becomes a reasonable value. 

This month I expect a slew of dividend payments - although not as much as I expected yesterday. Back in the good old days (as in, earlier this week) I could say that (FFG) offers a terrific yield (especially when you factor in the annual excess dividends the company has been paying over the past few years). The stocks I bought today to replace my (FFG) position pay far, far lower yields. Combined with my ongoing efforts to slowly cycle out of all preferred stocks (PFF) and to limit my REIT holdings, my portfolio income is now at a level where I can meet my spending needs and still carry on my love of reinvesting dividends, but not high enough to produce an unreasonable tax bill. I once wrote an article titled You Are Going To Have Too Much Money, where I wrote about the income tax cost of having an income-growth portfolio as opposed to a more growth-oriented portfolio. I wasn't kidding. 

Where do I plan to reinvest dividends at the end of this month? Depending on share prices, I will look at American States Water (AWR), Intuit (INTU), Skyworks (SWKS), American Express (AXP) and Bank of America (BAC). Unless anymore of my companies get bought out, I don't expect that I will have one single to do between now and the end of the month.

My portfolio composition is as follows:

My portfolio is now 84.4% concentrated in companies with credit ratings of A or above according to Moody's, Fitch or S&P (I had to estimate the credit rating for DEA and WDFC and assign all debt-free companies a AAA rating). 95% of my portfolio is concentrated in companies with at least a BBB+ rating or above, which puts the overall likelihood of any one company I own going bankrupt at .53% compared to 1.53% overall for the S&P 500 constituents. To my thinking, that means my portfolio has 1/3rd the bankruptcy risk of the overall market. There's one reason why I prefer to create my own index fund as opposed to buying shares of an S&P 500 fund. Another reason to build my own portfolio? Unlike stocks in the S&P 500 generally, I believe each company I own has exceptional potential to pay rising and steady dividends over time. And last of all? This week we saw what happens once indexes become heavily concentrated in just a small handful of stocks (as I've mentioned before, the Nasdaq is extremely concentrated, the Dow Jones is/was highly concentrated and the S&P 500 is very concentrated). By managing my own index fund, I can do a better job making sure that my portfolio doesn't become overly concentrated in any one company or sector.  I can never say whether my portfolio will or will not outperform the broader market, but I can say whether the portfolio is built to be lower risk.

Analyst's Disclosure: I am/we are long aapl.

I am long every position in the attached chart, and have no other financial positions besides those. I am not an investment advisor and nothing in this blog is investment advice. Moreover, nothing in this blog can be relied upon for any reason other than entertainment value.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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