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Financial Transparency as of 31AUG2018

Each month, I break down my finances and financial progress.  This serves primarily to keep me accountable.  I hope it also helps others see the power of an income centric approach to early retirement investing.  Today’s report covers the month of July 2018 with year to date updates.

music selection:  “Freeway Of Love” — Aretha Franklin

ASSETS:

Wells Fargo (taxable): This finished the month at 30,343, up from 30,333 at last month end.  That is a 0.03% monthly gain.  Year to date, this account is down 338 or 1.10%.

Interactive Brokers (taxable): Here I finished the month at 306,024 up from 303,464 last month.  That is a monthly gain of 0.84% and a year to date result of minus 5.50%.  The annualized loss is my first one in several years and is driven by the unexpected change in leverage at UVXY from 2x to 1.5x.  I was unprepared for the announcement.

Interactive Brokers (tIRA): This account is also up to 173,213, from 171,648 last month.  The monthly gain is 0.91% and my year to date result is a 6.24% gain.

HSA: This account is up 292 on the period to 4,089.  That is a 7.69% move in the right direction.  For the year, I am up 639 or 18.51%.

Checking: Cash is down substantially due to a on off purchase of an additional Stansberry product to 9,821 from 11,880.  That is a  17.33% decline from last month.  Year to date cash has changed by minus 18.25%

Total investable assets come to 523,490 up 0.45% from 521,122 last month.  That is a 0.45% monthly gain.  The year to date mark is minus 1.15%

Don’t forget to see the long term trend at Lizard King’s Transparency Page.

LIABILITIES:

Home: paid

Car: paid

Income tax: I have a 12,945 tax asset on deposit with the service.  Because of the mishap with UVXY, I expect to have a trivial tax liability this year and should even qualify for the maximum ACA subsidy.  Net tax rate could be negative for 2018.

WITHDRAWAL RATE:

I have automatic withdrawals from my taxable investing accounts set to provide a cash income of 25,000 a year.  Against a liquid net worth of 523,490, that is a withdrawal rate of 4.78%.  I earned 2,029 in options premium income during the month of August and am on pace to earn 38,88 in options for the year or 1.56 times budget.  Additionally, my income centric approach to investing includes 26,811 in expected distributions, dividends, and interest for the year or an additional 107.25% of budget.  In the event of a downtown, I should be immune to the need to “sell at the bottom”.  At the same time, I can expect steady and robust growth to keep ahead of inflation.  Together, my budget is covered 2.63 times over by portfolio earnings.

SPENDING:

Spending was 4,734 for the month, which is way over the 2,000 target. I had an extraordinary item in August of 3,500 to purchase a premium four year subscription to a Stanberry Research product.  I expected to be done with purchasing investment guidance but had a follow up opportunity to spend 1,500 more and convert my subscription from 4 years to lifetime as well as secure 4 additional lifestime product subscriptions.  I should be done purchasing Stansberry products basically forever now.  Year to date, I have spent 17,774 and am pacing 26,616 for the year.  That is 1,616 over budget.

OTHER INCOME:

I earned 150 this month or 138.52 after payroll taxes for my efforts at the Memorial Hills UD municipal water board.  It is a small amount but over a year’s time it adds up to another full social security credit.  This should improve my eventual payout when I reach qualifying age.  Next month should see a payout from Google AdSense of just over 100 dollars.  That represents about 11 months of earnings for the blog (you cheap bastards never click my ads!)  I won’t convert those earnings into an hourly rate because it is unseemly when giant lizards cry.

Devour your prey raptors!

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Bro, do you even lift?

Early morning workout.

music selection:  “Radio Gaga” — Queen

waist-line:  37.5 inches

So I have knocked another half an inch off my waistline.  It doesn’t really show as a visible change.  Except maybe my flab is getting a little saggy.  I’m going to have loose skin when I’m done.  Haven’t decided if I’m vain enough to have it surgically corrected.

Weights are creeping back up to where I was before the de-load.  I’m definitely stronger on the bench press.  Maybe a tiny bit on overhead press but it is a trivial gain.  I failed my fifth set at 55 pounds today with only four reps.  I can probably get it next time if I am patient about getting a full rest in between set four and five.  Deadlift was today and it still feels really weird. I don’t think I have the form right yet and I think I’m going to drop 30 pounds next time re-focus on form one more time.  It is frustrating to not be making gains but avoiding injury is important to me.  Especially for my back.

Don’t forget to read Daydreamer’s guest post, if you haven’t already.  That went up Monday and needs more comments to help a community member along their way to financial independence.

Devour your prey raptors!

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Guest Post by Daydreamer

Raptors, today I have a guest post from Daydreamer.  The two of us have been chatting by email, sharing inspiration and investing strategies.  I asked him to write a short case study for the edification of the group.  He welcomes comments on his position and approach to help refine his thinking.  Thanks for helping raptors!

music selection: “Wildflowers” — Tom Petty


Hi, I’ve always been somewhat against the traditional way of living, as in theres got to be a better way to live my life.  Not that I’m unhappy  but if I could have more freedom and more independence from the norm it would be nice.  This was only multiplied by the fact that both of my parents never got to enjoy their retirement.  I’m 38 yrs old now and have had a few financial setbacks.   Two separate times I had to cash out my IRA which yes its big no no but life happens.  When I was younger I took most of the money that my parents had left me and paid off my house so that I only had a 25k mortgage.  Looking back I should have invested that money as I had a pretty low interest rate.  Fast forward 11 years I am happily married (both with blue collar jobs) and have three sons 15, 14, and a 4 yr old.  We sold the house a year ago which freed up the equity I had in it, and moved to my wife’s home town and paid off our cc debt.  My financial stance as of right now not including my wife’s IRA is as follows.

Company IRA.      =     $32,000
Savings.                =     $50,000
Brokerage act.     =     $59,000

Inherited IRA.       =   $109,000

(Cant touch until 59.5yrs, my day was smart lol)
Manditory Inherited IRA payment
Approximately.    =        $2,500/yr
Mortgage total     =  $136,000
Auto loan.             =     $21,000
Auto loan.             =     $14,000
Cottage expense =       $2,500/yr.
My plan for now is as follows.
Max out my company IRA yearly as long as I can.  As of next week I will up my pre tax contributions and use some of my savings to supplement the amount taken from my check.
The cottage is paid for and I share ownership with my sister.  It is an association of multiple cottages and no income can be made in renting.  We’ve thought about selling it but I would never be able to afford another one so the plan is to keep it.  The manditory IRA payments cover most of the related expenses.
I recently managed my brokerage account to reflect the following.
All holdings to be no more than 5% of my portfolio
Have a trailing stop loss of no more than 20%  but I expect it will be between 10%and 15%
Fixed income of 40% to 70%
Currently have $8,500 on the sidelines.
I have never traded options or bonds and am currently learning how to trade options.  This may take a while until I feel confident enough to execute.  Hopefully as my savings grows smaller I can take cash from my brokerage account and put it into my company IRA to keep it maxed out.
My current goals are in the works.  If things work out in my favor I will be able to retire early.  The age that would happen is still a mystery.  The second would be to be able to be semi retired and work part time or full time with my own woodworking/metalworking business building furniture ect.  Above all if anything fails I want to make sure that after we retire we can live comfortably without worrying about running out of money and at the end of my life I have something to leave our kids like my parents left me.  Any questions, comments or suggestions would be appreciated.  Thanks for reading!

Lizard King’s comments: Priority number one is an emergency fund sufficient to cover six months of expenses.  Never know when you or the SO could become unemployed.  Second priority is to max out company tax advantaged accounts (the money isn’t stranded until retirement age.  You can read up on how to withdraw substantial portions penalty free here.)  I like that you are predetermining your asset allocation with respect to a healthy mix of fixed income.  Markets are volatile and fixed income adds ballast that is very emotionally soothing during crashes.  Don’t rush options trading.  When you are ready, start with just one contract at a time.  Learn what your personal emotional reaction is going to be to getting called and/or assigned.  Adjust accordingly.

Hope the lizards playing the home game have a lot to offer you.


Devour your prey raptors!

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Friday Fixed Income

New closed end funds.

music selection:  “Bitch Came Back” — Theory Of A Deadman

Each Friday, I explore options in the fixed income space.  When there are no attractive discounted corporate bonds available, I default to highlighting closed end funds invested in income and income like investments that are yield rich and trading at a significant discount to par.  I have two such investments today, plus an update on my limit orders for two discounted bonds that have yet to fill.

Western Asset High Income Fund (HIX) is a closed end fund that seeks high current income through investment in high yield debt securities.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 11.85%
  • Yield – 8.53%
  • Effective leverage – 26.35%
  • Expense ratio – 0.86%
  • Learn more

MFS Charter Income (MCR) is a closed end fund that seekscurrent income through investment in foreign government bonds, investment grade corporate bonds, mortgage backed securities, high yield corporate bonds, money market securities, emerging market debt and high yield bonds.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 10.29%
  • Yield – 8.92%
  • Effective leverage – 17.54%
  • Expense ratio – 1.03%
  • Learn more

I have limit orders open on two discounted bonds that I expect to be money good.  These are the Alliance One International (AOI) 9.875 coupon with 15JUL2021 maturity bond at 87 cents on the dollar and the CEC Entertainment (CEC) 8.000 coupon with 15FEB2022 maturity bond at 85 cents on the dollar.  AOI is currently trading at 94.6727 with an indicated yield to maturity of 16.51% and CEC is currently trading at 88.5500 with an indicated yield to maturity 14.48%.  If you are playing the “home game”, do NOT chase these bonds higher than my limit price.  Patience while stalking prey is the raptor way!

Devour your prey raptors!

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Bro, do you even lift?

Progress.

music selection:  “Endless Love” — Lionel Richie & Diana Ross

waist-line:  37.5 inches

Sam Houston State head football coach Keeler is holding an event tonight at a north side brewery to talk about this year’s team.  I intend to go.  Hopefully, I can keep the count of brews low enough to not erase my dietary progress.

Another good workout is in the books.  I finished all sets with 1-1/2 minutes rest, including the overhead press.  Of course, I’m still building back up from the 10% deload last week.  But I feel much better about my improving form.  Squat is especially looking good.  I’ve found a benchmark I can use to make sure I’m breaking parallel on squat.  The pegs that hold the weights are at just the right height that if my eyes go below the top pegs, I’m at parallel.  I shoot for another inch and it is a good squat!

The only thing that concerns me still is the deadlift.  The Strong Lifts 5×5 program calls for one set of five reps every other workout.  Since I’m not getting a lot of reps, I’m not getting a lot of form practice.  It still seems like no two sets have the same form.  I’m going to go review the videos on deadlift one more time after finishing up a few online errands.

Devour your prey raptors!

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Monday Option Trades

Several positions expired over the weekend.

music selection:  “Tenth Avenue Freeze-Out” — Bruce Springsteen

weigh-in:  198.0 +1.2

Multiple positions expired over the weekend.  Shares in Match Group (MTCH) were called away at 46.  Shares in Ford Motor Company (F) (held short) were put away at 10.

I have a buy/write position in Scott’s Miracle Grow (SMG).  The thesis is they have moved strongly into the supply of the legal marijuana market where they are earning superior margins.  The position has struggled none-the-less.  I sold covered calls this morning at a strike below my entry price.  I sold SMG180921C00085000 for 20 cents a share.  The trade will be in force for 33 days and yields an expected 2.60% annualized.  Assignment will result in a 5 dollar per share capital loss.

I decided to get back into Match Group (MTCH) after being called away with cash secured puts.  I sold MTCH180921P00048000 for 2.25 a share.  The trade will be in force for 33 days and yields an expected 51.85% annualized while enjoying 5.36% downside protection against a decline in share price.  I should do very well here.

I opened a new position in Ingersol Rand (IR).  This is an industrial company that supplies such brands as Trane.  It is a high margin business in a strong uptrend and offers attractive put premiums.  I sold IR180921P00100000 for 2.28 a share.  The trade will be in force for 33 days and yields an expected 25.22% while enjoying 2.09% downside protection against a decline in share price.  I’m very happy with what the market gave me here.

I sold four covered puts against my short position in Ford Motor Company (F).  The yield is low but it helps cover my cost to carry the short.  I sold F180928P00009000 for 7 cents a share.  The trade will be in force for 40 days and yields an expected 5.07% on an annualized basis.

Finally, I sold puts in communications provider CenturyLink Inc. (CTL).  I sold CTL180928P00023500 for 90 cents a share.  The trade will be in force for 40 days and yields an expected 34.95% on an annualized basis while enjoying 4.52% downside protection against a decline in share price.  This is a good return for what is normally a slow moving stock.

I was unable to get a fill at an attractive price on Macquarie Infrastructure Company (MIC).  I will try again tomorrow.

Today’s trades average an expected annualized return of 23.94%.  This is how I regularly beat the S&P 500, while taking on less risk than buy and hold indexers.  Check in Friday for Friday Fixed Income where I highlight high conviction ideas in the fixed income space.

Devour your prey raptors!

 

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Friday Fixed Income

Another double in waiting is indicated by the bond market.

music selection:  “Little Miss Can’t Be Wrong” — Spin Doctors

On Friday’s I like to cover the fixed income investing universe. My favorite way to invest here is by buying corporate high yield bonds that are selling at a steep discount to par that I think will either mature or liquidate at a fair price. I have made great money that way. Better than with equities and options. My second favorite, which has been the subject of many FFI posts; is to buy closed end funds with high yields that are trading at a discount to Net Asset Value (NAV.) Today, I’m going to show you a third way to profit from bond research. You see, the bond market is often called the “smart money”. It is mostly institutional investors that have huge teams of analysts, attorneys, and expertise in multiple industries to help them evaluate a security. Sometimes, a stock (the equity) will fall 50% or more while the same company’s bonds barely budge from trading around par. Nine times out of ten or better, in the disagreement regarding the company’s future, the bond market has it right. You can expect the equity of these beaten down companies that still have the faith of the bond community to double or better over the next 18 to 24 months.  I shared some high conviction ideas in this space here.  Today, I’m sharing a new high conviction idea driven by a disconnect between share prices and bond pricing.

Ferroglobe PLC (GSM) is a producer of iron alloy materials.  This is a highly cyclical commodity business.  GSM insulates itself partially from commodity cycles with vertical integration.  It owns mines for its own raw materials.  Traditionally, this company has had its share price track with the commodity price for silicon metals.  Lately that correlation has broken down and the stock has tanked while metal prices rally.  Despite the pessimism of equity investors, bond holders are still willing to pay a premium to par for its bonds.  Historically, the stock has trade around 23 times Enterprise Value to Earnings Before Interest Taxes Depreciation and Amortization (EV/EBITDA).  It is currently trading around a scant 7 times EBITDA.  Reversion to mean would give us a triple.  We don’t need reversion to mean however as management is projecting organic growth of EBITDA to double in the following 12 months.  Logically, the share price should double as well.  If we get reversion to mean at the same time, this is a six bagger.  Management reports quarterly numbers in just a couple weeks.  They have beat estimates in the past 3 out of 4 quarters and I expect a blowout quarter.  GSM is a buy up to 9.75.  I purchased shares today at 7.25.

In other news, I have price updates on three other stocks bought because I expect that the bond market is right about beaten down companies.  These are Acuity Brands (AYI), which I purchased at 133.00; AMC Entertainment Holdings (AMC), which I purchased at 16.94; and Stericycle (SRCL), which I purchased at 69.77.  AYI is currently priced at 143.56, a gain of 7.94%.  AMC is currently priced at 18.45, a gain of 8.91%.  And SRCL is currently priced at 61.33, a decline of 12.10%.  Ravenous lizards who are playing the home game can consider all three buys at current prices with plenty of room to run towards expected doubles.

Devour your prey raptors.

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Bro, do you even lift?

Missed a couple workouts.

music selection:  “Cotton Fields” — Tesla

waist-line:  38.5 inches

I got a little distracted and missed my Friday and Monday workout.  The Strong Lifts 5×5 app noted I hadn’t worked out in a week and recommended de-loading by 10%.  I took the advice.  What I did today was almost trivially easy and I’m glad because it gave me opportunity to be hyper focused on my form.  Especially on the squat where I’ve been cheating a little by not always breaking parallel.

I think I will ultimately lift more for this set back.  I feel pretty good.  I’m not making much progress on my weight but I’m very happy with the two plus inches I’ve lost from my waist-line since starting Strong Lifts 5×5.  Logically, I must be replacing fat with lean mass.  Clearly, that is a positive indicator for my health and well being.  Next workout is Friday and I’m eager to get after it.

Devour your prey raptors!

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A three pronged approach to portfolio risk management

No new trades this week.

music selection:  “Welcome To My Life” — Simple Plan

weigh-in:  196.8 (1.2) – back on track.

The best investors obsess about risk.  It is a quirk of mathematics that a 50% decline requires a 100% gain to break even.  So losses can hurt a lot more than gains help out.  Today, I am going to cover the three most important risk management tools for your portfolio.

Asset allocation:  Not enough is written about this topic.  Over long periods of time, it is more important to have the right mix of equity to bonds than it is to pick “good” stocks.  There is a growing chorus in the early retirement movement to go with a 100% stock allocation.  This to me, is foolish.  Without a buffer, sequence of returns risk can end an early retirement.  But there is another park of asset allocation that is equally important and that is diversification.  Most investors have a home country bias and invest too much in their own country and not enough abroad.  Similarly, within America investors gravitate towards local industries with Midwest Americans buying lots of heavy industry and West Coast Americans over allocating to tech names.  Having exposure to many different industries can reduce the volatility in a portfolio.

Position sizing:  Too many people put too much capital in a few high conviction ideas.  This is quite dangerous as the market has a way of humbling the mighty.  It is inadvisable to put more than 5% of your capital into any one ticker.  You can go a little higher with well diversified funds and ETFs.  This does not necessarily mean you must continually rebalance to maintain your position sizing.  There is a lot of research that indicates it is best to let your winners run (and to cut your losers early).  My next point will make clear when to sell.

Trailing stop losses:  The best way to protect yourself from catastrophic losses while allowing access to upside is to implement a strict trailing stop loss rule for your portfolio.  This lets you predetermine what your pain threshold is, thereby taking emotion out of the equation for determining when to sell.  You track the daily closing price of each of your positions watching for new highs.  Each time you notch a new high, you adjust the exit price accordingly.  I usually use a 25% trailing stop loss.  So if a stock rises to a new high of 100 dollars, my stop loss will be set at 75 dollars.  I likewise adjust my stop losses for dividends and other distributions received.  So, if a stock with an all time high of 105 has accumulated 5 dollars in distributions during my holding period, the 25% stop loss will still be 75 and not 78.75.  You can theoretically get to a stop loss of 0 this way.  And that is fine, a company that has paid distributions in excess of your cost basis is probably worth keeping through a crash.

Devour your prey raptors!

{ 3 comments }

Friday Fixed Income

New closed end funds.

music selection:  “Bitch Came Back” — Theory Of A Deadman

Each Friday, I explore options in the fixed income space.  When there are no attractive discounted corporate bonds available, I default to highlighting closed end funds invested in income and income like investments that are yield rich and trading at a significant discount to par.  I have two such investments today, plus an update on my limit orders for two discounted bonds that have yet to fill.

Multi-Market Income (MMT) is a closed end fund that seeks high current income through investment in bonds, non investment grade high yielding bonds, derivative securities and emerging markets.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 11.50%
  • Yield – 9.00%
  • Effective leverage – 17.36%
  • Expense ratio – 1.09%
  • Learn more

Advent Claymore Convertible Securities and Income (AGC) is a closed end fund that seeks total return through investments in global convertible and non convertible securities and utilizing and option writing strategy.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 10.94%
  • Yield – 9.89%
  • Effective leverage – 40.91%
  • Expense ratio – 3.48%
  • Learn more

I have limit orders open on two discounted bonds that I expect to be money good.  These are the Alliance One International (AOI) 9.875 coupon with 15JUL2021 maturity bond at 87 cents on the dollar and the CEC Entertainment (CEC) 8.000 coupon with 15FEB2022 maturity bond at 85 cents on the dollar.  AOI is currently trading at 93.9920 with an indicated yield to maturity of 16.45% and CEC is currently trading at 89.5000 with an indicated yield to maturity 14.43%.  If you are playing the “home game”, do NOT chase these bonds higher than my limit price.  Patience while stalking prey is the raptor way!

Devour your prey raptors!

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