I think it is well worthwhile to set up a (free) account at seekingalpha.com. They have in-depth articles about sectors and securities that are deeper and more inclusive than most other sites. Within my favorite play, seeking dividends, there is a category I have discussed in previous posts, the mREITSs (Mortgage Real Estate Investment Trusts). While I also like some normal REITs, the mREITSs are a different animal, to put it mildly. With more risk and more reward, they are somewhat like regular REITs on steroids. As the "Investment Notes" primer I referred to previously mentions, I don't like anything that is a recent IPO. But mREITSs have so many additional risks already that having been a recent IPO is just one more thing and a negative I can overlook while carefully monitoring share price retention and enjoying the outsized dividend. In this vein, today I started reading a few positive briefs about EARN.
One I have watched and invested in much longer is WMC. Since I wanted the big special dividend they announced, I found it interesting that the announcements all said they would send a form to allow you to opt for your payment in cash or more shares. Having never received such a form, I was concerned, but these fears were alleviated when I read the comments section of a seekingalpha.com article found via a google search about it where some investors were saying, help, where is my letter, and the response by other users was that WMC will go with whatever you selected for your dividend reinvestment preference on your trading platform. This begged the (probably forever unanswered question) of why WMC bothered to say they would send a form for you to select how you wanted your dividend if they were just going to go by what you put down for your preferences in your regular trading platform.
The day after the "pay date" for the WMC special dividend, it came through to all three of my accounts where I had tried to get it; my Traditional IRA, Roth IRA, and standard Sharebuilder account. Having requested it to be paid in all cash but knowing that they had said in their announcements on the special dividend that they would pay all cash to those who requested this form up to the extent they could, and in the (very likely, in my estimation) event that more people wanted all cash than they could afford, then at least 34% would be cash and the rest paid in more shares. As it turns out, 41% was paid in cash and the rest was received in additional WMC shares.
Also I have seen numerous accounts now that when a security pays a dividend, the exchanges "reach in" and lower the share price by the amount of the dividend. This is very disconcerting, seems improper, and a violation of free market principles. Even more arbitrary, I've seen it written that in some cases they do not make this manipulation and instead just leave the dividend-paying stock alone. I certainly agree with David Van Knapp, who is apparently one of the more acclaimed and followed authors at seekingalpha.com, that this practice (artificial manipulation of share prices by the exchanges) is unnecessary, wrong, and should stop. But since it probably won't stop, we dividend seekers will just suffer through it.
Wednesday, January 29, 2014
Wednesday, January 22, 2014
To be a Stock Picker or sit back and buy a Broad-Market Index ETF - That is the Question.
Bloomberg.com had a brief about how 2013 exemplified the conventional advice to retail investors (or even all investors) that it is incredibly unlikely to beat the market consistently (if at all) so the best thing to do is "buy the market." Buying all the stocks with one trade or a few trades may sound impossible but it is actually very easy to buy essentially all the stocks in the market with an investment as small as about $100 (or as large as you want to invest). The way one can "buy the market" is by purchasing an ETF (exchange traded fund) that tracks the market. The most popular of these broader market ETFs are:
1. To buy the S&P 500, the symbol is SPY
2. To buy the Nasdaq's largest 100 firms, the symbol is QQQ
3. To buy the New York Stock Exchange, the symbol is NYC
4. To buy the Dow Jones, the symbol is DIA
Since the broad market as a whole was up 30% in 2013, it is very hard to beat that. So all of the concepts I offer are remiss if I don't mention the simple option, to buy some or all of the four ETFs ("Index Funds") listed above, maybe add in some broad-market ETFs representing Europe (such as the IEV) and the developing world, and call it a day. But why do I share Jim Cramer's anti-conventional wisdom view that the retail investor should do their own research and try to beat the broader market? There is not really a simple answer to that unless I want to say foolish optimism so I will give it short-shrift and reply: stock picking is more fun and more interesting than buying index funds.
For what it's worth, since I'm ignoring the safer, easier index fund route, here is that blurb from Bloomberg:
http://www.bloomberg.com/news/2013-12-31/levine-on-wall-street-buy-an-index-fund-and-play-golf.html
'The Wall Street Journal has an amusing article about how the best investing strategies in 2013 were of the form 'buy all the stocks, wait,' rather than, like, time the market or pick the best stocks or mess around with gold. (Though here's another thing from the Journal about 2013's five best-performing stocks, all up more than 100 percent and all, um, stock-picker's stocks. Tesla, Netflix, Best Buy, Twitter, Herbalife.) Here is a man who is paid to invest other people's money:
'All of the sales we made this year have been mistakes,' said David Rolfe, chief investment officer of St. Louis's Wedgewood Partners, which has $7 billion of assets under management. 'If you could've just invested in one of the major indexes, and worked on your golf game the rest of the year, you would've hit a home run.'
You could have! That is totally an opportunity that is available now, for investors anyway. 'We throw your money in an index fund and play golf' is not a great ad for an asset management firm though."
So, yeah. And can I claim I was up more than 30% this year? No I cannot. All things considered, meaning change in asset values I continue to hold, dividends received or reinvested, and capital gains minus capital losses on sold securities, would total, I'm fairly sure, under 30%. I have not done the math yet and I don't know of a system that tracks all this for you in one simple number for the year. One thing I did learn is that with the ultra-high yielders (namely, mREITs) if you are willing to see a bunch of red-ink capital loss in your portfolio, the dividends will roll in. These may be the type of investment where stop-limit orders are useful to cap losses at 10% or 12%. Otherwise I got the worst of both worlds which was a roughly 20% capital loss on several of these types of securities, which I locked in by selling (aghast at the red ink bleeding out of them) thereby also foregoing their juicy dividends after a short period of receiving it.
Partly because I found that in the Merrill Lynch beneficiary IRA I did not in fact qualify for the 30 free trades per month I had been promised, I used a more loosely defined investment amount for each security than described in my last blog post. I still referred to the A, B, C, D, and E designations but the actual investment amount was more instinctual and did not adhere so closely to the categories that each stock in, say, the B category had to have the same invested amount. I also added an additional column to the spreadsheet I described in the last post, which is for the ex-dividend date. This can be found at dividend.com and tells you the day after the date you would have to buy (at the latest) to receive the next dividend. If you miss the ex-div date it's fine, but if you want that dividend you have to make sure to be in on the security by the day before the ex-div date. Some of my columns on the roughly 40 stocks and ETFs were left blank. For example, some securities which I felt more comfortable with only had the ticker symbol and dividend yield filled out. When I buy, I always use limit orders for the order type (same thing when I sell, never using market orders). Because I stated a low-ball price, not all of the 34 orders have gone through. At last check, 14 buys had gone through and since I selected "GTC" Good til cancelled on all my orders, they are still open for 6 months and will go through (execute) if the stock falls to my stated price. In fact when you do the first order (or any subsequent order) MerrillEdge lets you pre-fill out the order form so certain options are already prepared for you when you then go to place another order.
How did I arrive at this low-ball price? Simple: I placed my limit buy orders at a price that was equal to the lowest of the following three prices for each given security:
1. It's lowest price that past day (publicly available on all trading sites including MerrillEdge.com and Sharebuilder.com)
2. The bid price (viewable when you go to place the order and enter the ticker symbol)
3. An after hours trading price (seen by entering the ticker symbol at CNBC.com)
A few more strategies I have used are to search now and then for firms with big insider buying. If the company's own insiders (mainly executives) are buying the stock, and it pays a pretty big dividend, then that is a stock for me. Also, near the last few months of the year especially, I do some searches for firms announcing special dividends and if it is a really hefty percentage, I like to get in before the ex-dividend date on one or two of those selections if it makes sense, meaning I don't want to buy a dog but I will overlook some shortcomings to get a fat year-end special dividend. Finally, a strategy that may be harder than it sounds but can work and has been successful in the past with MSFT and CTXS was to locate a repeating trading range and gamble that it will continue for a while, and simply buy at the historical low price when it falls to the low end of the repeating range and sell at the high end when the stock reaches near the top of the price range.
Well that's it for now players. I know, it's not easy. When you learn one thing, it opens up ten more questions, and when you get those answered, it leads to a hundred more areas of research. That's how it is with most worthwhile disciplines. That's why people who have been at it for four decades show up to work at four in the morning and stay at their computer screens for fifteen hours a day. But did I mention that it's more fun and interesting than investing in an index fund?
1. To buy the S&P 500, the symbol is SPY
2. To buy the Nasdaq's largest 100 firms, the symbol is QQQ
3. To buy the New York Stock Exchange, the symbol is NYC
4. To buy the Dow Jones, the symbol is DIA
Since the broad market as a whole was up 30% in 2013, it is very hard to beat that. So all of the concepts I offer are remiss if I don't mention the simple option, to buy some or all of the four ETFs ("Index Funds") listed above, maybe add in some broad-market ETFs representing Europe (such as the IEV) and the developing world, and call it a day. But why do I share Jim Cramer's anti-conventional wisdom view that the retail investor should do their own research and try to beat the broader market? There is not really a simple answer to that unless I want to say foolish optimism so I will give it short-shrift and reply: stock picking is more fun and more interesting than buying index funds.
For what it's worth, since I'm ignoring the safer, easier index fund route, here is that blurb from Bloomberg:
http://www.bloomberg.com/news/2013-12-31/levine-on-wall-street-buy-an-index-fund-and-play-golf.html
'The Wall Street Journal has an amusing article about how the best investing strategies in 2013 were of the form 'buy all the stocks, wait,' rather than, like, time the market or pick the best stocks or mess around with gold. (Though here's another thing from the Journal about 2013's five best-performing stocks, all up more than 100 percent and all, um, stock-picker's stocks. Tesla, Netflix, Best Buy, Twitter, Herbalife.) Here is a man who is paid to invest other people's money:
'All of the sales we made this year have been mistakes,' said David Rolfe, chief investment officer of St. Louis's Wedgewood Partners, which has $7 billion of assets under management. 'If you could've just invested in one of the major indexes, and worked on your golf game the rest of the year, you would've hit a home run.'
You could have! That is totally an opportunity that is available now, for investors anyway. 'We throw your money in an index fund and play golf' is not a great ad for an asset management firm though."
So, yeah. And can I claim I was up more than 30% this year? No I cannot. All things considered, meaning change in asset values I continue to hold, dividends received or reinvested, and capital gains minus capital losses on sold securities, would total, I'm fairly sure, under 30%. I have not done the math yet and I don't know of a system that tracks all this for you in one simple number for the year. One thing I did learn is that with the ultra-high yielders (namely, mREITs) if you are willing to see a bunch of red-ink capital loss in your portfolio, the dividends will roll in. These may be the type of investment where stop-limit orders are useful to cap losses at 10% or 12%. Otherwise I got the worst of both worlds which was a roughly 20% capital loss on several of these types of securities, which I locked in by selling (aghast at the red ink bleeding out of them) thereby also foregoing their juicy dividends after a short period of receiving it.
Partly because I found that in the Merrill Lynch beneficiary IRA I did not in fact qualify for the 30 free trades per month I had been promised, I used a more loosely defined investment amount for each security than described in my last blog post. I still referred to the A, B, C, D, and E designations but the actual investment amount was more instinctual and did not adhere so closely to the categories that each stock in, say, the B category had to have the same invested amount. I also added an additional column to the spreadsheet I described in the last post, which is for the ex-dividend date. This can be found at dividend.com and tells you the day after the date you would have to buy (at the latest) to receive the next dividend. If you miss the ex-div date it's fine, but if you want that dividend you have to make sure to be in on the security by the day before the ex-div date. Some of my columns on the roughly 40 stocks and ETFs were left blank. For example, some securities which I felt more comfortable with only had the ticker symbol and dividend yield filled out. When I buy, I always use limit orders for the order type (same thing when I sell, never using market orders). Because I stated a low-ball price, not all of the 34 orders have gone through. At last check, 14 buys had gone through and since I selected "GTC" Good til cancelled on all my orders, they are still open for 6 months and will go through (execute) if the stock falls to my stated price. In fact when you do the first order (or any subsequent order) MerrillEdge lets you pre-fill out the order form so certain options are already prepared for you when you then go to place another order.
How did I arrive at this low-ball price? Simple: I placed my limit buy orders at a price that was equal to the lowest of the following three prices for each given security:
1. It's lowest price that past day (publicly available on all trading sites including MerrillEdge.com and Sharebuilder.com)
2. The bid price (viewable when you go to place the order and enter the ticker symbol)
3. An after hours trading price (seen by entering the ticker symbol at CNBC.com)
A few more strategies I have used are to search now and then for firms with big insider buying. If the company's own insiders (mainly executives) are buying the stock, and it pays a pretty big dividend, then that is a stock for me. Also, near the last few months of the year especially, I do some searches for firms announcing special dividends and if it is a really hefty percentage, I like to get in before the ex-dividend date on one or two of those selections if it makes sense, meaning I don't want to buy a dog but I will overlook some shortcomings to get a fat year-end special dividend. Finally, a strategy that may be harder than it sounds but can work and has been successful in the past with MSFT and CTXS was to locate a repeating trading range and gamble that it will continue for a while, and simply buy at the historical low price when it falls to the low end of the repeating range and sell at the high end when the stock reaches near the top of the price range.
Well that's it for now players. I know, it's not easy. When you learn one thing, it opens up ten more questions, and when you get those answered, it leads to a hundred more areas of research. That's how it is with most worthwhile disciplines. That's why people who have been at it for four decades show up to work at four in the morning and stay at their computer screens for fifteen hours a day. But did I mention that it's more fun and interesting than investing in an index fund?
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