Ah! Today's Friday for me for a few days!
Unfortunately I was working the kids' unit today. And one of my co-workers asked me to write a poem about a virus. I declined, as there's no current panic. She then asked me to write one about AIDS. I asked "Why?". She said that I could be crude and make various insults about Africa and homosexuality. I was semi-offended and threatened to report her to the nurse manager. "Are you for real?"
I might very well work that tech in the future and the nurse manager is not known for being able to differentiate between when I'm serious or joking. And the girl just turned nineteen. And I think she was just messing with me. Maybe. So I decided not to report her. I instead printed out a picture of a topless Vladimir Putin fishing and taped it to her locker.
And I did not write a poem/song about a virus. Instead I wrote this:
a condom to you
I don't care
I don't care
on the other side
I don't care
I don't care
Sometimes I'll ask a question, usually by pm, of people on the boards whose opinion I respect. These folks, by and large, are where they need to be in life and canny diy investors. At least that's my impression. And often what they claim. But since this is the internet, we're all anonymous users until proven otherwise. But I have a decent nose for BS. So I try to listen to what they say.
One thing I've been told on more than one occasion over the last few years is to focus on growth as well as income. I've also had folks tell me to stick in my comfort zone.
How to balance? I'm fairly comfortable with analyzing a cef. I'm fairly comfortable with analyzing a preferred stock - in general they're about as simple an investment as you can make. Both of these investment types tend to be income based. I always figured with the power of compounding a fairly high yield into whatever the best opportunity was at the time, I would get the growth of the portfolio.
Mentally, it's easier for me to sit through market pull-backs knowing that I will see new money pop into the account a few times a month. So I'm less inclined to sell at a loss (one rule I have written down on my handwritten spiral notebook titled: "Investing Guidelines and Goals").
I adopted a trend following model for my 401k when I started it. I still do that and have revised the rules for when I rebalance a few times. I rebalance between Vanguard's Total Stock Index and Total Bond Index funds four times a year. At least until recently, guess which portfolio was outperforming the other one? Yes, the 401k.
Except during the recent pull back. The leveraged etns went blooey. The preferreds and muni funds picked up slack. And income and dividends came in.
I know about indexing. I have a decent understanding of trend-following. I know a decent amount about a few types of high-yield investments. I know about diversification.
I am not comfortable with picking or analyzing individual stocks. A preferred stock, yes. But not the common.
Another fellow I correspond with once in a while believes in various forms of leverage. I was leary of the concept, but I suppose I'm more comfortable with it than I originally thought. I've been buying and selling various leveraged cefs for a few years now. I certainly would have and still would said no if asked if I would ever utilize margin, but I've also been buying leveraged etns recently.
Anywho. How to get some growth whilst staying in my comfort zone of income investments? DGI? I am not comfortable with picking out stocks. The concept is great. Increasing dividends compounded each year over a long period of time, hopefully beating inflation and then things are all good. But would a current blue chip in thirty years still be increasing dividends at a good clip? Would something happen along the way to turn them into BP or even a Kodak? Would the mid-cap that's been raising dividends for the last six years become a blue chip in thirty or will have gone belly-up? I don't know, and that's why I shy away from individual companies.
Funds can implode. But if I focus on them, I spread the risk out over fifty plus companies instead of just one. By holding various types of funds, I hope to reduce the risk to a particular type of asset class, say, mreits and financials in 2008. But that may lead to mediocre results and you might as well buy a stock fund and a bond fund and do the 100 minus age allocation thingy in a couple of index funds.
And with funds, I'm going to miss out on an individual stock that rises 50% or more in a year. Then again, I'll miss out on the ones that miss earnings targets for a few quarters in a row.
(NYSEARCA:SPLX) - Another 2x leveraged etn. Based on the S&P 500 index with all dividends assumed to be reinvested. So not really an immediate income investment. But it gives me leverage on a broad based index which is reset monthly. Which makes it more palatable to me for holding over the longer term instead of the daily leverage reset etfs.
I will have to keep an eye on the general stock market and look for signs that things are about to go ugly for stocks in general. And trim profits after decent run ups. And it's not really my first pick for Friday - I'm planning buying in slowly at intervals on market pull backs or just when there's not much else appealing in cef or preferred land.
A big risk is the acceleration risk. This goes for pretty much all the UBS notes. Basically, if the market price drops below $5 it gets called from you at that price. Or if the market price drops below 60% in a month, it gets called from you.
And there's always the risk that UBS goes belly-up. Doubt it, but you never know...
I would not be me if I didn't mention a cef or two. Being uneasy with the general environment, I'm using my usual criteria to screen and am also looking at the biggest recent unii report.
The one that meets my usual criteria and had the biggest unii as of last June is (NYSE:BWG). Which I owned during the spring. I sold it when I needed some cash. Now what's happened since I bought into it is that it's had two distribution increases this year. The eps is now lower than the distribution. But, what I bet is that because the fund had built up such a large amount of unii is that they're trying to give more back to the shareholders. This may very well go on for a while.
So, with that thought in mind, I looked for others that had a good amount of unii by last reporting and haven't really increased the distributions by much.
(NYSE:FPF) - Name involves preferreds. At a 8.7% dist rate and about an 11% discount gets me enthused as I'm not feeling it in individual preferreds right now. What gets me more enthused is that the eps is greater than the distributions by a bit. And that the unii is more than the distribution amount for a monthly payout. And they had a special distribution last Jan. that went above and beyond the regular payout. They had a very slight distribution increase two months ago.
Whilst I have not checked out the website in depth and examined their holdings beyond cefconnect, it looks like preferreds are less than 30% of their holdings and various funds are about 70%. I'm giving some serious thought to this one.
(NYSE:AIF) - I believe I wrote about this last time.
"11% discount and an 8% distribution rate. Notice the NAV has been fairly flat since the fund started. And the last reported eps was greater than the distribution. Something I like in a bond fund. Has over a months' worth of built up UNII. Annnnnd - 58% of the portfolio is listed as senior loans which are supposed to do fairly well in a rising rate environment, which we will have at some point or another."
Again, I'm digging the unii. Had a special distribution last year as well. No other increases in distribution during the last year.
Either of the two listed above would be my first pick on Friday. Most likely AIF. BWG as a potential back up option. SPLX as a perennial back up option for when stocks start to go boo-boo.
As always, an update of what I actually do end up buying into on Friday.