Investing 102

[Vegas69]

It's already been three years since I started investing EVERY month. It's turned into a nice sum with a reasonable gain at this point. I like the green days, but I've learned to be patient and let time be on my side. I'm still looking at 25-30 years before I plan to touch these investments. (Unless a position looks weak)

It's been fun for me to analyze and make my own moves. The natural side effect has been getting more involved with our other investments.

On the personal side, we've learned to live well below our means. That gives us the flexibility to save aggressively. In turn, that allows for more discretionary time to enjoy our lives.

In addition to saving, I think it's very important to have solid long term goals and vision. That's really what keeps you saving aggressively. It's amazing once we have a target, how often we are drawn subconsciously. I can't tell you how many times I've written down a goal and achieved it and went, wow, this really works. Many times I've nearly forgot about it, but it was ground way down in my mind. The key is to write it down, scheme and plot, and then start down the path.

[GregWeld]

Originally Posted by Vegas69

It's already been three years since I started investing EVERY month. It's turned into a nice sum with a reasonable gain at this point. I like the green days, but I've learned to be patient and let time be on my side. I'm still looking at 25-30 years before I plan to touch these investments. (Unless a position looks weak)

It's been fun for me to analyze and make my own moves. The natural side effect has been getting more involved with our other investments.

On the personal side, we've learned to live well below our means. That gives us the flexibility to save aggressively. In turn, that allows for more discretionary time to enjoy our lives.

In addition to saving, I think it's very important to have solid long term goals and vision. That's really what keeps you saving aggressively. It's amazing once we have a target, how often we are drawn subconsciously. I can't tell you how many times I've written down a goal and achieved it and went, wow, this really works. Many times I've nearly forgot about it, but it was ground way down in my mind. The key is to write it down, scheme and plot, and then start down the path.

Success breeds success! It's amazing how the SNOWBALL that is patient investing -- starts to grow - and the more it grows the MORE you feel like saving and investing!! Funny how that works.

When you don't have squat -- you feel like you can never get ahead so why bother..... but once you have a small pile - you start to see how it works and the excitement takes over. If you buy one rental and it works okay -- you automatically start plotting how to get #2 and so on.

That is NOT TO SAY that every investment works out - and some go to zero - and some just do "okay" and maybe one does great. But hopefully people don't give up when they just do "okay".

[GregWeld]

#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.

[captainofiron]

Thanks for the post as always Greg,

one thing you brought up got me curious

Master Limited Partnership (don't buy these inside a IRA/401)

I never knew that and I am glad you brought it up because I read up on it and learned something new

[SSLance]

I understand your moves completely Greg, that's good planning on you and your team's part. Only question is...what are you going to do with your MO money now?

[GregWeld]

Originally Posted by SSLance

I understand your moves completely Greg, that's good planning on you and your team's part. Only question is...what are you going to do with your MO money now?

Well I WILL buy MO again -- but will (as I always do) watch it and see if some air comes out of it near year end and that will all depend on whether the FED raises rates etc before year end.

I always keep pretty large cash balances. I don't need to make a return on every nickel we have - and I like to be "fleet footed". My positions are pretty sizable - and if I get into a situation where I need to move the needle on a holding -- it takes a bit of umpf to make a difference (such as averaging down etc).

I've been adding some Glaxo Smith Kline - GSK..... and nibbling at that. I've also added some risky stuff but at very small positions -- such as Navios Marine (NAP) -- pays a huge dividend but is risky as hell. BUT ---- THERE'S ALWAYS A BUTT in the room when doing this..... so let me explain something.


If I have half a million in a position that's paying 4.77%....... and I want to boost that % just a smidgen.... I can buy a hundred grand of something like NAP that pays 15.4% and move the needle - and if I buy 150K or 200K.... well then that's a really small holding but really pays nicely. WAY TOO RISKY FOR NORMAL INVESTORS TO DO THIS KIND OF CRAP --- PLEASE DON'T TRY TO COPY --- BUT PLEASE DO USE THIS FOR *********** A WAY OF THINKING.



Just super quickie math for ya ----- 500K @ 4.77% is earning 23,850. And another 100K @ 15.4% is earning 15,400..... which makes an average on 600K @ 6.55%

[toy71camaro]

Great insight Greg.

Appreciate it!

[ErikLS2]

Originally Posted by Vegas69

In addition to saving, I think it's very important to have solid long term goals and vision. That's really what keeps you saving aggressively. It's amazing once we have a target, how often we are drawn subconsciously. I can't tell you how many times I've written down a goal and achieved it and went, wow, this really works. Many times I've nearly forgot about it, but it was ground way down in my mind. The key is to write it down, scheme and plot, and then start down the path.

Funny thing about setting goals I've read a couple different places recently. Apparently, in studies they found that people that told other people what their goals were achieved them much less frequently than those that kept them to themselves. I love psychology, even though I am nowhere near a psychologist, but somehow telling other people causes you to lose a lot of your drive to achieve the goal. I can't explain why but when I thought about it I realized that is definitely true for me.

[Vegas69]

Let me guess, you found it on the internet? Seriously, I've never read that, but I'm sure for some it's true. I could see that happening in a forced accountability situation like a job and an amiable personality. That seems like the logical place they came up with those results, in the workplace.

Motive is also a key component. As the great, late, Jim Rohn once said, "When the why gets strong, the how gets easy".

I really don't think it makes much difference for me. If I want something bad enough, I don't need someone to spur me along. I think accountability would benefit me more with goals of lower value.

[GregWeld]

I'm still out here "on the road" from the GoodGuys Hall of Fame Tour.... and haven't paid ANY attention to the market - despite actually placing a couple orders while Rudy was driving down the road at mach 2...

Today I was looking at Altria (MO) as I sold mine to offset a huge loss position I'd written about earlier here.

Here's what I want to have you think about because it is good food for thought.


MO paid a .41 cent dividend in 2012 -- just four scant years ago..... today's dividend is .61 cents per share - per quarter... AND since then (2012) it's share price has appreciated 132%

Now then..... let's fast forward your hypothetic retirement date..... out 15 years? 20? 25? What do you suppose they'll be paying "then"? And what percentage return will that look like when they're paying $1.20 per share per quarter and your cost basis in 2012 @ $27 bucks a share. And all the while back in 2012 when the share price was outrageously high P/E and the market was soaring and you were just certain you were paying the all time peak high price......


Yep - that's how ya get 'er done.