Alphas Have A Place In Every Portfolio

Feb. 07, 2013 11:13 AM ETCBD
Richard Berger profile picture
Richard Berger's Blog
10.84K Followers
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Dividend Investing, covered calls, Value, Special Situations

Contributor Since 2013

Mr. Berger is the creator and developer of the YDP screening tool, a chart system and its analysis for screening and monitoring dividend income equity investments. The recipient of Seeking Alpha's Outstanding Performance Award, he also has been Seeking Alpha's #3 ranked Author for Income Investing Strategy & #4 for Utilities.


20 years of sitting in the board room gives me unique insights into Oil & Gas investments and corporate deal making in general. Additionally, he offers a Premium Research subscription service for boosting income while reducing market risk using covered option writing on a dividend income equity portfolio.

Residing in Brazil gives me a local's inside view on the pulse of its economy, politics, investment climate and breaking news. A view of my front yard is available here.

A former Chief Operating Officer, Director, Vice President and General Manger of Oil and Gas for Southern Pacific's Oil and Gas Operations, Business owner, geologist, and cribbage player, I've been an investor for over 48 years (started young at 13) and learned my lessons the way that makes them stick, by hard knocks and both big and little mistakes. Hopefully I can share some of those lessons with others.

I am an American expatriate that decided to retire at age 57 in 2009 and now live in Brazil. As an early retiree I invest for income and manage portfolio risk by screening for strong and reliable historic data along with favorable fundamental and technical current trends.

I spend 6 months/year living at home in Brazil and 6 months/year traveling the world. I have structured my financial positions so that I live virtually tax free with much of my income exempt from US tax since I live ex patriot and a lot of my US derived income over the annual ex-patriate exemptions is held in my tax free ROTH and tax deferred IRA/SIMPLE plans. This enables my tax savings to pay for my 6 months of annual traveling :) .

My investing is for income and appreciation with a balance of low to moderate short term risk and low long term risk. To accomplish this I use quality dividend payors with a long track record of steady or increasing dividends along with slowly appreciating equity prices. I target a 8 to 15 % yield and almost exclusively require a minimum history of 5 years of steady/increasing dividends and no decreases in dividend ever or at least past 10 years. I diversify through sector, country and currency unit the stocks are traded in, and security type (equity, royalty trust, REIT, etf, and ADRs).

I use covered call writing to enhance my portfolio yield with no added risk. In fact, it lowers the risk substantially. Once I identify a stock I want to own and an entry price for it, I write cash covered puts at or below that entry price (with a minimum of 1%/month time premium. Thus i obtain at least a 12% annualized yield before compounding just from the option premium.

Likewise, I use the sale of cash covered puts to generate income and and generally get an entry point at 5 to 10% below my acceptable entry level price if/when the put stock does get presented. Thus my strategy provides a 12% pre compound yield on cash and entry into stock purchases at a 5 to 10% discount from "retail".

Because I only select stocks that I am willing to hold long term for their reliable dividend yields, I am not concerned much with market volatility or short/midterm risk. Indeed, market volatility is my friend since it increases the premiums paid on the options I sell. I also selectively sell covered calls on positions I hold long so as to add to my yield that way while not taking on any additional risk.

This strategy has kept me happily living off my portfolio income and traveling 1/2 the year while my portfolio has been slowly increasing in value even after my harvesting income for living expenses.

As of December 2020, I am no longer writing for Seeking Alpha. If you would like to contact me with questions about my work or subscription service, please leave me a message on this site or email me at boater805@gmail.com

Just a quick note for those of you that are followers of my blog but have not yet opted to follow me as an author and get email notices of my latest articles (please do so). SA has just published my latest article:

Looking For The Poster-Boy Of Alpha Companies? CBD Could Be It

In this one, I examine a Brazilian retailer that shows excellent growth and returns with a stock price performance history to match it.

I will be searching out and focusing on several of those in various regions of the globe over the next few weeks. Even those of us in our early and mid retirement years should have part of our portfolio in high quality growth equities. 15% of your total portfolio that you won't be needing to touch for at least the next 15 years doesn't take much of a dent out of your current income and does provide for solid future growth of your portfolio for higher income in those later years when you may want or need it. If you are like me and focus on a 7% dividend yield for your income, then 15% of your portfolio set aside for long term growth only impacts your current dividend yield by .15 x .07 = 0.0105 = 1.05%. I think we can all afford to defer 1.05% of current portfolio dividend yield for solid future growth and added diversity for safety.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CBD over the next 72 hours.

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