Friday, November 06, 2015

When it rains, it pours !

Unlike the other financial bloggers who active talk about their investments, I do not usually share my portfolio positions on this blog.

The reason is that if I do so, I was concerned that some readers might latch onto the idea of dividends investing so fanatically that they might suffer serious losses or miss out on something more tried and tested being offered by, in my view, better informed financial bloggers out there like Investment Moats or the mighty AK71.

But I think sharing my investment bloopers is quite fine because it is educational and demonstrates to readers that high yield investors do experience the occasional failures. 8% dividends is great while the money goes into your pockets but moments like this would give the neurotics some cause for concern before they jump into this investment style.

So this week has been a really bad week for me :

a) Rickmers Maritime has suspended their dividends.

A detailed technical discussion on Rickmer's fundamentals are already highlighted in Investment Moats here. I shall not go into the details here but the shipping trust has suspended their dividends although it remains profitable.

Rickmers is a classic yield trap which I have a tendency to fall into in spite of all my experience. It was very seductive as it offered 15% a year in yields. I knew that owning this counter would burn me one day but I could not predict when that day would be, so I kept my exposure to about 2% of my portfolio and intended to bail out when dividend starts running out.

Lo and behold, I had to get out really quickly yesterday and managed to escape at a price of 17.4cts. It is currently trading about 15+cts.

As I was an investor in Macarthurcook properties securities fund, First Shipping Trust and Babcock and Brown, I knew that in such a situation, the best thing to do is to just run. As exposure is small, I normally could get out with small scratch wounds.

b) Neratel's nasty Q3 results.

I did not see this one coming at all so I was blind-sided by these results, the details can be found in AK71's blog here.

Neratel is an important part of my portfolio because I wanted REIT-like yields but I also wanted equity holdings to give me ample diversification away from real estate. Finding consistent yielding stocks above 8% is very hard and my strategy is to buy many such counters and hope that in any year I can get about 6.5% from companies which do well in that particular year.  Neratel also has nice NETS terminals being installed in many retail outlets. I always thought that this was a stock with very steady earnings which made many investors rich in the past.

Neratel had a nasty 6.25% fall today but I am hesitant to let it go. I am still in the process of hunting for a portfolio of high-yielding equity stocks, so I am still not willing to let go of a counter which still pays out a dividend this year.

How long Neratel would be in a funk is something none of us can answer although AK71's analysis seems quite comforting. I am reeling from quite an amount of pain as Neratel is about 5% of my portfolio.

Generally speaking equities need to be held with more patience than business trusts. Equities generate high returns because they are subject to the vagaries of economic cycles but their behaviour is very different from REITs ! The best way to cope with volatility is to buy many such stocks and keep your exposure low.

c) Things might get worse from here.

I think China's GDP growth is dipping below 7%  and the Fed will raise interest rates soon.

This will not be great for the markets but we did have quite a long era of growth in the stock markets.

I don't see myself dipping into my capital soon but the odds of emerging from Law School with a lower portfolio size from market movements is now a realistic possibility because after all, I paid $70k in school fees. If that happens, I have to suspend my retirement and really buckle down to get some real work done.

In the meantime, I will be farming my excess dividends back into the markets to increase my income moving forward.

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