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(02-16-2014, 03:56 PM)hendi_alex Wrote: There is no reason to doubt that TMA, which was considered the best of the jumbo alt-a operations went down the tubes. Everything was fine with them, except mark to market caused loan covenants to get exercised. TMA had great clients with very low loan to values and had extremely low delinquency rates. Still went broke. New Century was considered very strong. NFI (novistar) had a huge cult of followers who believed all of the hype related to various scenarios and how NFI would do just great no matter what. They are still around, but are a different business and are still at very few pennies on the dollar to precrash values. IMH is not on the list, but it came close to going under and has come nowhere close to recovering. ACAS was considered the best of breed in the BDC area. They nearly went broke, and have come nowhere close to recovering precrash values. They as well got caught by mark to market and loan covenants. The business itself appeared sound.

I'm not really interested in engaging in a pissing contest, so will end further comments on this thread. We will just have to disagree, and I hope your portfolio of investments works out exactly as you plan. Good luck going forward.

Some info concerning my portfolio and strategies:
The portfolio is currently about 10% in property REITs, spread between CSG, HCP, O, and RYN. RYN is just a temporary covered call play.
The portfolio's main categories are as follows (approximate %): TECH (28%):AAPL CSCO INTC; Energy production (28%) BTU CCJ ECA; Insurance (5%) MCY OB ORI; energy delivery (12%) NAT PBA SPH TGP; Misc (21%) GE POT SSL T

CSG MCY O OB ORI PBA POT SSL TGP NAT HCP (15%) are all longer term positions. All other positions (85%) including most of NAT and 1/3 of HCP are temporary covered call plays, most originally going out about six months.

I'm sure that my portfolio with its high level of management (turnover) would give you just as much aversion as I would feel with heavy exposure to the REIT, MLP, BDC areas. It takes all kinds to make a market, and there are many right ways to go about this thing called investing.

P.S. - I recently wrote a piece, posted at this site, concerning NLY as best of the breed.

(02-16-2014, 04:01 PM)Be Here Now Wrote: Alex,

I'm not interested in a pissing contest either. Vigorous debate is good for everyone.

I am not familiar with many of your symbols, but one category you like, Tech, is one I stay away from. Too much risk of obsolescence for my peace of mind.

Best of luck to you in your investments.

Eye opening. Good discussion. H_Alex, just wondering why no oil majors or well known mlp's (KMP, ETP etc) in your portfolio? Thanks for the discussion to both.
I recently dumped my only major which was RDS-B. I think that the prolific drilling in the U.S. will put a damper on prices for the next several years. Also think that majors are in a bad spot. They have huge reserves which are eroding at an increasing rate, while new oil is harder and harder to find, and has an ever increasing cost of production. I would consider CVX, but only with greater than 4% yield at purchase.

I love EDP, but IMO the yield chasers have pushed valuations way too high. I held both EPD and ETP for several years but sold them when prices and yields dipped too low for my tastes. A second reason that I sold ETP is because of tax implications. I had held the shares for a couple of years inside an IRA, and didn't like the possible UBTI issues. I'm sure the mlp's will correct at some point, and I'll be waiting to buy shares of both, perhaps under $40 for ETP and under $50 for EDP. If those are rebought, the shares will go into my cash account as long term positions.

I held KMR and KMP for a while last year, but the company seems to have some issues. I didn't like the price action or the pressure that seems to be directed toward the company and its shares, so dumped them. Perhaps will consider revisiting KMP this fall when prices should be seasonally weak.

In general, I will not buy shares of an MLP if they are yielding much less than 7% nor if the share price is under pressure for what may be a valid concern. My biggest worry right now is the immediate effect that any rate increases will have on share price, especially for those MLPs that have gotten stretched so far in valuations. So am mostly just watching this investment class, patiently waiting on a much better entry point.

BTW, SPH is just a seasonal play on the propane shortage and very high prices this winter. Added shares at $44.48 before the ex. dividend date. Sold March $45 calls for $1.35 and sold May $45 calls for $1.65. Plan on netting around 10% through May, and will likely sell at expiration if the shares don't get called. Will sell May $45 calls if the March calls expire.

TGP is a long term play. IMO as huge NGL projects come on line in a couple of years, demand on the NGL fleets will increase dramatically. IMO there will be a significant shipping shortage at that time. TGP has fixed rate long term charters, many of which expire about the time that the increased production comes on line. They should be in a great position to renegotiate very high charter rates, and are in a good position to expand the fleet.
Thanks Alex. Much food for thought. I am a relative latecomer to this and in my rush to start an income generating portfolio (~3/2011) will likely take a beating during the next real big pullback. I am even on KMP even though I've owned it for a few years. I have a cost basis of 117 on CVX and 60 on COP. I really like the energy space but also own JNJ, PG, KO, T, AAPL, GE etc. I am generating a reliable income from my 70k portfolio and could pay my property tax bill with it ~$2500, however I automatically DRIP everything. For that reason I won't sell, instead I'll add to lower cost basis and use cash secured puts for COP if it gets near 60. I'll look at your options closely-they look interesting! Thanks for your response.


Edit: TGP looks good. Only thing is 122% payout ratio-will dig deeper, it could be just a one time event. NGL fleets are certainly increasing in size so earnings should be headed upward.
Pay out ratio as a GAAP measure has little meaning to MLPs. These entities have large amounts of depreciation that as a line items takes away from GAAP earnings, but the depreciation actually takes nothing away from cash flow. Investors use DCF (distributable cash flow) to determine dividend coverage for MLPs. In the third quarter TGP had $64.6M in DCF. Total distributions were $56.402M. Based upon those numbers the pay out ratio would be about 87%.

Edited to reflect high distribution number which was pulled from a company release.
Ok thanks Alex. I did not even realize it was an MLP. I appreciate your time and explanations. I own 2 MLP's, KMP and CLMT. I am filing taxes this year instead of paying an accountant and I'm in the process of getting the K-1 tax packages. I'll be using Turbo Tax Delux or whatever version handles LP's. If it isn't too complex, I'll be looking very closely at TGP. Those were interesting details on the charters expiring and the timing of new NGL projects which should benefit TGP. Nice distribution too!
KMP is trading at near yearly low and issues yet another secondary. What timing companies often have for selling its stock! If KMP respresents such a value at this level, as claimed by management, they should be issuing debt and buying shares. What does it say, the fact that they are instead selling shares? According to the linked discussion, KMP is selling the equity to pay down debt. The yield on debt is very low, yet the shares issued will yield almost 7%. This move will result in several percentage points of negative cash flow on the amount of debt paid out. This equity issuance is purely dilutive and represents yet another red flag against buying KMP at this point.

I'm not a great fan of S.A. articles in general, but this one seems to be balanced and factual.

I pulled this quote from the prospectus for the offering:
"We expect to use the net proceeds from this offering to repay commercial paper debt and for general partnership purposes."

"This may include, among other things, additions to working capital, repayment or refinancing of
existing indebtedness or other partnership obligations, financing of capital expenditures and acquisitions, investment in existing and future projects, and
repurchases and redemptions of securities."

Given likely uses for this cash, this issue would appear dilutive to the extent of about 2% as measured against current outstanding shares of KMP stock.
This puts KMP on my watch list to sell. Probably best to wait for the inevitable price recovery but after that I'll be waiting and monitoring. If I had 100 shares I'd start with covered calls. Thanks again Alex for the glimpse of your reasoning behind these decisions. TGP would make a good replacement.
My yield on cost is now 7.63% and current yield is 6.79%.

I accumulate most of my dividends with the intention of reinvesting opportunistically (and use the balance for current living expenses). I will add to the following positions if the price (i.e. the yield) is right, the technicals indicate oversold to deeply oversold, and the fundamentals have not changed for the worse.


My list of initial buy candidates is considerably shorter:

Since my last update, I have done some buying and selling. I try to continually refine my methodology for allocating my portfolio. I have 3 different accounts - regular, IRA, and Roth IRA - and I reinvest dividends from my high yield companies opportunistically, so it can get complicated. These changes are mostly as a result of an allocation review.

Started a position in BDCL. See PSEC below.

Reduced my positions in HTA and NMFC. Both were over allocated, and I want cash for expected buying opportunities.

Sold all of my position in PSEC. This was the fundamentally weakest of my BDCs. For as much or more yield, but less capital commitment, I started the position in BDCL.

Added to positions in HTGC, TCPC, and WPC.

Revised my list of positions I want to increase. Removed ARCC and OHI.

Revised my list of positions to start: removed BDCL (done); MCEP, MEMP, and MMP (these are upstream MLPs and I have plenty there already); added CEFL, DVHL, MLPL (these are for some time in the intermediate to long term).

Added list of positions to reduce.

Here are the new lists:

Positions to increase:
  • BDCL
  • CSG
  • EPD
  • GIS
  • HTGC
  • LXP
  • MCD
  • O
  • PG
  • STAG
  • TCPC
  • VTR
  • WPC
  • WU
Positions to reduce:
  • DLR: over allocated, will reduce when total position hits break even
Positions to start:
  • CEFL
  • DVHL
  • MLPL

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