A New Years Resolution

After listing out the various accounts that my wife and I have with our stock holdings last night it became very apparent that we are too concentrated-in particular in the various Gladstone term preferreds.

The problem we have is we make these investments through 4 different accounts (2 with Fido and 2 with eTrade) and I have not taken the time to coordinate the holdings.  We might have a full position of a particular issue in 2 or 3 different accounts–I know that is pretty silly and actually pretty careless.  It has worked fine for years, but I would be quite angry with myself if this concentration of risk cost me $1,000’s.  Some might think that an easy answer would be to just roll the accounts together into maybe 2 accounts, but we don’t do that because a) I like having 1 acct at Fido and 1 at eTrade and b) being self employed we have not ever had joint finances because we try to isolate assets.  Even though I carry a lot of insurance in case I am sued you just never know.

It goes to show I need to pay attention to risk management investing instead of doing other things that are not of great importance.

So my only New Years resolution will be to get this risk spread out more during the course of January and February.  This will mean I will probably be ‘forced’ to own some stuff I am not excited about–like the Eagle Point Credit baby bonds or term preferreds.

25 thoughts on “A New Years Resolution”

  1. Tim,
    I’m not a fan of cluttering my monitors with sticky notes but I make two exceptions: One is my favorite devotional and the second is a list of position limits ($ amounts representing roughly 3%) by account. Easy, quick, at-a-glance reference. I recalculate and put up a new sticky every year.
    Many thanks for all you do. Happy, healthy and prosperous 2019 to you and all the members of this wonderful site.

  2. There’s a secondary benefit to the umbrella policy. Besides paying claims, a large policy ensures the insurance company will fight for you in a court battle. It puts their skin in the game.

  3. I would bang that drum, too. Simply, if you have meaningful assets, which I think is most folks here, you need an umbrella policy. Too many insure the little things in life and leave themselves open to being wiped out by a low chance (but big $) liability judgement.

    Stop buying extended coverage on the washing machine and get some liability coverage!

  4. “Even though I carry a lot of insurance in case I am sued you just never know.”
    Tim, very wise and prudent. Most folks who arrive at this site have assets – some a lot and others even more. We have all spent a lifetime building them up. We are mindful of the daily risks of losing a few bucks in the market. Yet this is nothing compared to the potential catastrophe that lurks beneath a lawsuit – legitimate or not. That (a lawsuit) has the potential to wipe one out and throw you into bankruptcy.

    One of the least expensive forms of protection is an umbrella policy (sometimes called excess liability). As you no doubt are aware, one can purchase coverage in increments from $1 million to $10 million ( a couple companies go higher). A simple car accident can expose you to liability well beyond your normal policy limits. Enter the umbrella. I know many very successful people who have accumulated a great deal, yet have never heard of an umbrella policy. Generally, for around $2k or less a year, one can get coverage of $10M.

    Every time I click the mouse to pay my annual premium, I know I have just made the best investment I will make all year for my portfolio — and for all my assets.

    1. Hi BMW–yes I have carried a umbrella policy for years now (about 5 years)–the cost is minimal – I think we pay under $200/year for a $1 million policy–my hope is to never use it.

      1. Tim, after talks with my estate planning attorney a couple of years ago, I added to my policy and went with $2M. The extra cost is minimal and just about another $100 per year. They will ask a number of questions – such as do you have a boat or a swimming pool, but overall the cost of the additional $1M is worth the cost.

        1. Many should also consider an E&O policy. Worth every penny. Regarding umbrella, I agree with you kaptain lou re $2M. We do the same. Also important to ensure underlying auto liability coverage “reaches” the umbrella policy. Insuring with as few carriers as possible avoids confusion over which of them is responsible for defense and liability coverage. As an additional layer, we’ve structured our service business as a C Corp and some of real estate holdings under an LLC. Never had a claim or allegation…knock on wood.

  5. Tim, I have been caught several times with the same issue/problem.
    I have multiple portfolios, all at Schwab. For several years I added the same company preferred, and/or a selection A/B/C…. into multiple accounts if I believed the issues were attractive. Even averaged down on $PPS drops. Sometimes this has worked well, have been able to sell portions on upswings/recoveries.
    However, other times for firms that have slid, especially shippers, have been caught with meaningful capital losses. This has been even more painful when spread across multiple accounts.
    So, while I set position-proportion limits on individual portfolios, I have also set total ownership proportion rules across all portfolios.
    Which means that I will also begin trimming certain holdings, even if deemed ‘safe/good’, so the portfolios are more fairly aligned.
    Though may miss out on some attractive %Yields, have found that adhering to rules also keeps the Risk/Return levels acceptable.

    Happy New Year, and ….
    Good Trading in 2019

    1. Tim, a very nice come back for CHS Inc., CHSCL, CHSCM, CHSCN all restored to the level where we bought. Nice call, Tim. Thanks. I always believe and trust these gentlemen Farmers, who do have some oil drilling on their own. QDI dividends should be safe regardless of market valuation IMHO.

    2. Hi SteveG–yes I have to have across portfolio limits and keep my spreadsheet up to date. As Daniel mentioned to answer is easy and I have a spreadsheet that I have used before-but not kept up-have to do better at housekeeping.

  6. Preferreds are recovering spectacularly. So glad I didn’t sell the lows this time and actually added. Fingers crossed.

    1. Great Day for all the LNG preferreds, actually for all the preferreds, non term limited plus oil/gas MLP’s. The pundits in CNBC could be correct that the Feds may be careful not to raise the rate anytime soon. The market is also assuming there could be some progress in negotiation of trades with China. Of course, the Bogeyman still could be hiding. My worst performing account is FIDO IRA, where I did lots of trades, suffering from buying too many IPO’s and later turned in the bargain basement. Best deal (at least for now) should be BC-B. A few days, it was trading with CY in excess of 7% for a double rated SWAN. Sold remaining shares of CIM-B and replaced with CIM-A following SA article by Colorado Wealth Mgm. CIM-B has been consistently trading higher because it has longer CALL protection. In a rate increasing environment, it is assumed that CIM could be in a position not able to call either preferreds three years yonder. BC-B gapped up, my order of $24.25 was rejected by Vanguard brokerage. Should have bid higher yesterday. Oh well. Did manage to get some shares on BC notes and bought a good number of shares of NISOP. Nice green shoots on AHM preferreds, especially the D. Ditto for AFSI preferreds. CBL-D also went up following Colorado Wealth + Rida et. al. Should be good for at least another quarter. Holding tight.

    2. I’ll second that! Added to some issues when they were lined up against the wall for the firing squad. Looking pretty smart now but one never knows. GLOP-C is still my biggest loser but averaging down has helped. Ditto for CHSCL. Now positive on that one.

      My best performing new positions that were purchased during the sell off have been the IG perpetuals with low coupons trading in the low $20’s:


      Didn’t see that coming but not panicking and selling paid off. I’m not a trader. My goal is income generation.

      1. I added GPJA at $21.20 per share. I am an investor also. Pays 5.89% at that price. However f it does hit $24 per share (52 wk high is $25.82, I will take my 2+ years of “early dividends and go elsewhere.

  7. Heads up on the old GOVNI. Sr Bonds but managed by the notorious RMR thugs. I bot a month ago and watched them run. Now, with no notice the symbol changed to OPINI after a merger of two of their REITs, a merger of unequals. No notice from anywhere just a thing to notice on my screen. Luckily, it WAS up 10% during DEC! Today with no information and after a minor information dig out, I chose to just dump-sell. Looks like it had come down over 5%. If you own, PAY ATTENTION. My Dad used to warn me about who I hung out with! This is a time of serious diligence. Nobody get too antsy here! Happy Work and New Year.

  8. Tim – I’ve had the same problem as you, as I have accounts at Vanguard, TD and Schwab. I like the features of all three brokerages but sometimes when reviewing my accounts I’ve also discovered that my holdings were too concentrated but did not see this because of the three different brokerage accounts.

    While some of the term preferreds are fine holdings, I get a little skeptical of Eagle Point Credit as well and don’t hold any shares – because if asked to explain what they own, it would be difficult for me to describe.

    There are still some values out there with individual bonds, as long as investor remains diversified. This afternoon I picked up a few more Trinity Industries bonds, CUSIP 896522AH2. They recently spun off some of the company, but overall I like their railcar manufacturing and leasing. The coupon rate is 4.55%, matures in Oct. 2024 and currently has a YTM of about 7.7%. Not bad for bond rated Ba2/BBB-. They are on credit watch negative now due to their continued stock repurchase plan which will eat up some of their liquidity. Overall, I generally do not like stock repurchases because most of the companies generally get the timing wrong.

    1. I hate stock repurchases because what I see quite often is that those repurchased share just get recycled for more managment incentives. Would rather just have the dividend payout.

    2. Coordinating holdings from various accounts:

      “Some might think that an easy answer would be to just roll the accounts together ”

      An even easier answer, which you certainly know, but somehow one does not find the time to do so, would be to spend 30 minutes with excel,
      each row representing the underlying company (with each of its preferreds) , then having one column for each account and then simply add the various columns to obtain the total holdings. Then in the final column compute the % and sort. Obvious, isn’t it? ( It should take less time than e.g. reading all the comments of an average day in this blog….) To safe some time you may be able to download your holdings from the account with the most entries. Unless you hold hundreds of tickers per account, this should take < few minutes per account! That's what I do to coordinate my 7 accounts.

    3. Gutsy move. If it is downgraded it goes to sub IG, which may have a lot to do with the swan dive in price. This is where the individual has an advantage over the institution. Nice YTM.

  9. While bank loans have had the focus for the last three months or so, CLO’s are the dark horse that nobody quite understands with regards to future performance. Listen to the guys at Flat Rock and it all sounds great. Big black box. Also, somewhat illiquid.

    1. Hi Marc–yes the ‘black boxes’ are what I worry about-I can slice and dice a balance sheet with the best of them, but the CLO structure looks a bit ‘hocus pocus’ to me and so I am more cautious.

  10. You don’t like Eagle Point Credit any more? You used to have it in your Yield Hunter portfolios.

    1. Hi Andrew–very lukewarm. It is ok now and it remains in those portfolios but with a potential soft economy ahead I am leery of holding companies that invest in CLOs (collateralized loan obligations). Odds are it will be ok and I will be buying some.

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