#1 --- I want you guys to THINK ABOUT the amounts in dollars or volume that I am trading! I'm not trying to "save" $50..... I'm not trying to be "cute" by timing the market.... and the dollar amounts are LARGE. So the following discussion needs to be put into context. AND THESE ARE TAXABLE ACCOUNTS I deal with NOT IRA/401's Tax deferred accounts!
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I've been working with my Wells Fargo team to find some dividend investments that can be played without making the wrong "pick". One of these areas is oil... I have some big ass losses in oil and as we come up to year end -- and with my health issues.... I need to balance a couple investments and get them lined up for this years taxes and re-deployment etc....
So in that light --- I took a HUGE LOSS on Kinder Morgan Inc (KMI) and then BOUGHT Alerian MLP (AMLP).
Here's why this was done - to help you guys THINK about it.
With near 1 million dollars invested in KMI -- which used to pay a great dividend and had great growth -- but got KILLED with the sudden collapse in the oil patch - and cut the dividend to where it was paying about 2.2%
I had a loss in this name of about $300K AND I'm not earning a return on it.
Now -- I BELIEVE that this name will respond just fine as oil climbs -- but it will stay depressed right alongside oil prices. How long is that going to be? 1 more year? 3 more years? Can they go back down from here? Blah blah blah
Now --------- I invest for INCOME and growth..... remember always that we want a combo of these!! To accept 2.2% dividend - then I'd have to have strong capital growth. I assume I'm going to get neither of these - and I'm held down by other outside influences. Okay -- deal with it.
So we have the INCOME loss if I sell..... and I have a huge tax loss (2016).... and we're nearing the end of the year.
If I sell KMI -- I can not buy it back for 31 days. If I do - I invoke the "WASH SALE" rule. Which says I can't sell a stock for a loss and then buy it right back -- I must WAIT for 30 business days plus one day. In the meantime I'd lose the income and any move the market might make. WHAT TO DO??
I turned right around and BOUGHT ALERIAN MLP (AMLP) -- this is an oil patch Master Limited Partnership (don't buy these inside a IRA/401).... that holds a bunch of names in the industry... AND IT PAYS 8.79%
What this will do is to give me the income that I "lost" ----- and keeps me in the patch to capture any possible upside in that space.
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Why do all this??
Because in a RISING RATE market -- owning shares that are going to pay a small dividend -- that is NOT GOING TO ATTRACT MORE INVESTORS!! In other words --- the share price only goes up when more people want to own the shares than want to sell. You have to ask yourself -- are people going to put money into something that pays 2%.... and has a considerable risk???
Do I still LOVE KMI??? YES!! But I must MANAGE MY EMPLOYEES == and I had one million of them not doing much work!!
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I also sold all of my ALTRIA (MO) ---- why??? A HUGE GAIN!! AND A DECLINING % RETURN going forward.
The gain will offset the LOSS on taxes. Perfect timing. A net gain of ZERO.... but going forward a large net gain in income while still keeping my ability to make money on the investment SHOULD THE OIL PATCH RECOVER. I don't want to abandon this area of investment --- and in the end my plan is to MAKE BACK ALL THE MONEY I LOST on KMI --- in ALMP If and when oil prices rise.
WHY SELL MO??? Offset gains for taxes --- and I think the CURRENT high price which makes the dividend begin to pale in a rising rate market --- it starts to become a "CROWDED TRADE" --- lots of people with large gains -- and the returns for NEW BUYERS (remember we NEED THEM!) are getting pretty slim in a rising rate market. Why not trim a huge gain --- for tax purposes --- and buy it or something else and get out of the way of year end selling.
Remember --- this is HUGE MONEY TRADES --- THESE ARE MILLION DOLLAR POSITIONS...... We're not talking about guys holding 100 shares in an IRA with no tax implications (you can't offset losses with gains etc until years down the road). I'm just giving you a glimpse into the thinking that you hear on TV and read in the news about "year end tax loss harvesting" etc. THIS is what they're talking about.
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