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The YMBI&OC INCOME Portfolio: MORL, WMC, CEFL, BDCL, SLVO, LNCO

Darren McCammon of

YMBC - A Very High Yield, Leveraged Portfolio - One Year Review

fame suggested that I call my INCOME portfolio the "YMBI&OC" or

"You Must Be Insane & On Crack" Portfolio. (OK I added that last bit)

He might be right, but it's just 50% of my personal "hedge fund" and I'm old enough - 62 - so that I prefer some CURRENT INCOME* over the very deferred gratification or piddling actually spendable current income returns of "DGI". (Don't get me started on that one)

The 6 stocks I selected for CURRENT INCOME* for my PASSIVE INCOME* portfolio are MORL, WMC, CEFL, BDCL, LNCO and SLVO.

ALL of those stocks were selected for their high CURRENT YIELD*, with the potential for a gain in share price as valued by the PTSD driven mood swings of Mr. MARKET a secondary consideration, and because they are not that well correlated with each other.

*Did I mention this selection is for CURRENT INCOME?

mREITS: MORL, WMC

CEF's: CEFL

BDC's: BDCL

Commodities: LNCO, SLVO

The correlation calculator I used only accepted 5 symbols but you get the idea. The time frame starts in 2013 as that is how long all of the "stocks" have been available. (some have been on the market longer) In that time period, the Fed has been putting out their "we are just about the raise rates" BS over and over, oil and silver prices have collapsed, the dollar has gone to the moon - all sorts of excitement. The dividends just keep coming.

Here's the correlation matrix:

Even though these stocks are not that well correlated, (a good thing) they have tended to move in the same direction in market price, (see composite price chart below the div charts) which has enabled me to add to my positions at favorable prices over time, except for CEFL where I got in at a mid point in the price cycle and not at a low, so I might just have to buy more. If I buy more I will have to buy more of the others too so we will revisit that as more funds become available on or before mid June 2015.

The Dividends:

MORL:

WMC:

CEFL:

BDCL:

SLVO:

LNCO:

Price trends:

This is not exactly the status of the portfolio as of today, but it is approximately where it will be by mid June 2015 assuming my options positions are put to me (LNCO & WMC) and trading gains between now and then are reinvested in various amounts of shares to keep the allocations to each sector at about 25%:

The fun part is the 44+% yearly ROI on actual invested capital. The less than fun part would be a 50% market meltdown. I'm betting on black for the next 2 years or until the coronation of Queen Hilary is accomplished, by then I could be off margin, or be raking in $1M+, so maybe I would not care.... time will tell.

The idea is that the "Diversification" spread is maintained at the 25% each level with the CEFL position of 30,000 shares being the anchor that the rest of them revolve around. I'm not really in love with CEFL, but I do not want to sell any of it as my average cost is higher than the current market price, and I don't need to do any "tax loss harvesting" at this time.

I don't really like the single stock risk that WMC & LNCO offer, but WMC is not in MORL, and the 30% margin requirement makes the effective yield of over 60% very attractive, and most of that projected position will be from long dated puts I sold that will drop my average cost to under $13, further increasing the effective yield.

The availability of long dated call options has enabled me to take 90% of the $ I originally invested in LNCO out already, (see here) and use that $ to buy more of the other income producing shares etc.

To explain the yields in the spreadsheet, the "yield on cost" is adjusted for the actual dollars invested which is the actual stock price I paid adjusted for the required margin percentage - that's the "On Crack" part of the portfolio. Of course that's what makes it more fun than watching the grass grow.

The numbers for "Yearly Div", "$ per share" etc will obviously vary as positions are added too by rebalancing etc. and those will affect the estimated yearly income and net yield on cost.

My margin interest is a very reasonable $17K/year or so, and the pretax income of ~$711,000.00 works for me as I don't need that much. So what I can do with the excess is either buy more stock or pay the margin off to a more comfortable %.

so.... we'll see.

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Slight update 3/19/2015:

I added a few 1,000 shares of OXLC to the mix to help even out the distributions as it pays the month prior to MORL/CEFL/BDCL/WMC - thanks to whomever mentioned that as an idea in a discussion thread. As soon as I have a meaningful amount of it and the % allocations change significantly the rest of the spreads will be updated.

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Disclosure:

This is just a snapshot of the goal portfolio that I will not have fully assembled until June 2015, and I will only update it as I remember to do so, or the positions change materially so don't bet your whole financial life on it. I borrowed and modified some of this fine print from another site as I found it amusing:

"The sites that SA automatically links to in the article via hyperlinks are not under my control. Those sites are responsible for the content of those sites and some may have no content. The sun, the moon and the rotation of the Earth are not under my control either. I'm working on it, but don't hold your breath, and don't try to make me responsible for the other sites, other forum members posts or bad math, global warming or any random malady that befalls you. If you try, I may have to send my crack in-house security team to visit you. His name is Fido.

The world and the markets are an ever-changing place, which means that content can become outdated quickly. While I hope to avoid having outdated material in this stocktalk, I can't guarantee that everything is or will be updated in realtime 24/7/365, so don't rely on the timeliness or accuracy of the information in the stocktalk to guide your investing decisions. One assumes that you are able to make your own decisions, and while I don't want to come across like other talking heads here or elsewhere, I don't want to have to update the stocktalk every night either. I recommend consulting a physician before investing in these stocks if you are pregnant, elderly, have pre-existing portfolio abnormalities or psychiatric disorders, cannot think outside your current box, suffer from a heart condition or other serious medical condition that may be influenced by market swings."

YRMV depending on what you do or don't do and when you do or don't do it.

Disclosure: The author is long MORL, WMC, CEFL, BDCL, SLVO, LNCO.

Additional disclosure: The Author - ie me - is long all the stocks listed, and has sold ITM 2017 dated covered calls against LNCO to buy more of the other stocks so that he makes money on the money he already made. Besides that, he is levered to the max, which is something I do not recommend to anyone unless you have a way to cover "the call" you might get if Mr. Market gets sick.