Income Investing

In May 2013, then Federal Reserve Chairman Ben Bernanke hinted to Congress that the Fed would consider tapering its $70 billion monthly bond-buying program. The markets reacted swiftly and violently to the news. Investors immediately began pulling money from the bond markets. Bond yield pushed significantly higher as money outflows scared investors. The event became known as the “taper tantrum.” #-ad_banner-#The reaction in the U.S. REIT market was just as swift. The total returns of the FTSE NAREIT All REIT Index fell sharply, ending the month down 6.6%. The index lost another 8.5% over the next six months. The volatility… Read More

In May 2013, then Federal Reserve Chairman Ben Bernanke hinted to Congress that the Fed would consider tapering its $70 billion monthly bond-buying program. The markets reacted swiftly and violently to the news. Investors immediately began pulling money from the bond markets. Bond yield pushed significantly higher as money outflows scared investors. The event became known as the “taper tantrum.” #-ad_banner-#The reaction in the U.S. REIT market was just as swift. The total returns of the FTSE NAREIT All REIT Index fell sharply, ending the month down 6.6%. The index lost another 8.5% over the next six months. The volatility in the REIT sector illustrated the conventional wisdom among investors about REIT prices and interest rates. REIT prices usually decline when interest rates rise. This is because higher interest rates reduce the present value of future cash flows. As such, asset prices must come down — all other things being equal. And that’s exactly what happened. But that doesn’t mean some economic law is in place here. Nor does it mean that all REITs should experience declines equally. Residential and office REITs can actually rise with interest rates, thanks to the higher demand and rising rents that come with economic… Read More

During a bull market, you can just about set your watch to individual investors being fashionably late. Institutional money is always early to the party. They must be per their investment mandates. But individual retail investors are a completely different animal. Why do individual investors always get in late during a bull run? This chart of the S&P 500 going back to the turn of the century is the best explanation. Over the last 17 years, the index has endured two bear markets, where the average decline was 47%, and two significant corrections with average drawdowns of 16.5%. Read More

During a bull market, you can just about set your watch to individual investors being fashionably late. Institutional money is always early to the party. They must be per their investment mandates. But individual retail investors are a completely different animal. Why do individual investors always get in late during a bull run? This chart of the S&P 500 going back to the turn of the century is the best explanation. Over the last 17 years, the index has endured two bear markets, where the average decline was 47%, and two significant corrections with average drawdowns of 16.5%. This translates into a major market downturn every 4.25 years. That’s a lot of volatility, and volatility always frightens individual investors. But as everyone knows, when dealing with market forces the opposite side of fear is greed. Once individual investors see that the train has left the station, they usually chase it. One of the main vehicles used in the chase, of course, is the venerable mutual fund. #-ad_banner-#With this is mind, fund manager stocks are an excellent way to profit from tardy investors jumping into the market. As investors shovel money into the funds, increasing the managers’ assets under… Read More

If you’re like me, then you have probably entered your investments into a portfolio tracking service for easy monitoring. Instead of manually typing individual ticker symbols day after day for stock quotes, you can enter them once. After that, it just takes a click of the mouse to instantly see how all of your holdings are performing on one screen. It’s a real time saver. And many financial sites like Morningstar and Yahoo Finance offer this service for free. #-ad_banner-#Before long, you’ll notice that on up days when most stocks are in the green, some holdings always seem to ride… Read More

If you’re like me, then you have probably entered your investments into a portfolio tracking service for easy monitoring. Instead of manually typing individual ticker symbols day after day for stock quotes, you can enter them once. After that, it just takes a click of the mouse to instantly see how all of your holdings are performing on one screen. It’s a real time saver. And many financial sites like Morningstar and Yahoo Finance offer this service for free. #-ad_banner-#Before long, you’ll notice that on up days when most stocks are in the green, some holdings always seem to ride a little bit higher than others. If most stocks in the group are up 1% to 2%, these outliers might gain 3%. The opposite is true on down days. When most stocks are in the red by 1% to 2%, these typically get hit harder and might drop 3%. I’m not talking about an isolated good (or bad) day triggered by company-specific news, but simply the stock’s general sensitivity to market fluctuations over a period of months or years. There is a way to measure this sensitivity. It’s called beta, and it measures the degree to which a security rises… Read More

With stock markets setting new records in 2017, it might be prudent to recall the much weaker start to 2016. In January 2016, the S&P 500 declined 5%, followed by another 5% decline in early February. About a year ago, on February 12, 2016, a rebound started, and the market… Read More

James Carville, the colorful political strategist also known as the “Ragin’ Cajun,” once quipped about reincarnation, “I’d like to come back as the bond market. You can intimidate everybody.” That used to be the case. However, with half a decade of abnormally low bond yields, investors no longer seem to fear the bond market. That’s about to change. The equity markets shifted to wide-open rally mode with the ascendancy of Donald Trump to the Oval Office. Warren Buffett has often referred to the stock market as a voting machine. If that’s case, Trump won the popular vote in a landslide,… Read More

James Carville, the colorful political strategist also known as the “Ragin’ Cajun,” once quipped about reincarnation, “I’d like to come back as the bond market. You can intimidate everybody.” That used to be the case. However, with half a decade of abnormally low bond yields, investors no longer seem to fear the bond market. That’s about to change. The equity markets shifted to wide-open rally mode with the ascendancy of Donald Trump to the Oval Office. Warren Buffett has often referred to the stock market as a voting machine. If that’s case, Trump won the popular vote in a landslide, with the Dow advancing 12% since election night. But while a 12% move in stocks always gets my attention, this stopped me dead in my tracks. It seems that Trump’s Twitter app isn’t the only thing he’s pounding. Now, to be fair, as much as it may disappoint the President, he alone isn’t causing the 44% rise in 10-year Treasury yields. The most likely culprit is a combination of expected fiscally expansive government policy combined with a rapidly improving economy spurred by wide sweeping deregulation. An accelerating business cycle is long term bullish for stocks. However,… Read More

This past December was an interesting time in the United States, with everyone gearing up for the holidays but keeping an eye on the news to see what crazy thing would happen next… #-ad_banner-#But amid the year-end flurry many missed some great news: The consumer sentiment index hit its highest… Read More

Real estate investing is a time-honored method for building substantial wealth. However, I learned the hard way it’s a long, dirty way to the top for the undercapitalized, do-it-yourself investor. Having voraciously read Robert Allen’s seminal book, Nothing Down, as a college student, I decided to purchase a duplex in what I believed was an up-and-coming part of the city. #-ad_banner-#Following the guidance in the book to the letter, I was able to buy the dilapidated building with little capital of my own, financing the rest. After several weeks of hard, dirty work that I did not enjoy in the… Read More

Real estate investing is a time-honored method for building substantial wealth. However, I learned the hard way it’s a long, dirty way to the top for the undercapitalized, do-it-yourself investor. Having voraciously read Robert Allen’s seminal book, Nothing Down, as a college student, I decided to purchase a duplex in what I believed was an up-and-coming part of the city. #-ad_banner-#Following the guidance in the book to the letter, I was able to buy the dilapidated building with little capital of my own, financing the rest. After several weeks of hard, dirty work that I did not enjoy in the least, it was time to rent out the units. Everything went perfectly for the first several months — until things started breaking in the building. First, it was the water heater, then the electrical system shorted out, and then the furnace blew up! Along with this trouble, both of my tenants lost their jobs and refused to leave their apartments. It turned out that both of the tenants were experts at avoiding eviction. They seemed to know the law better than the attorney I was forced to hire. Months went by with zero income from the building, and I was… Read More

You didn’t hear about it on any nightly broadcasts. It wasn’t covered in newspaper headlines. Even on dedicated financial websites, there was barely a passing mention. But last week, the Financial Times Stock Exchange (FTSE) 100 Index quietly ventured into record-high territory. The FTSE tracks the performance of the 100… Read More

Since last June, I’ve sold nine portfolio holdings in my premium income newsletter, High-Yield Investing. All nine were for positive gains, between 2.1% and 74.1%. But I didn’t sell any of these stocks because I expected them to decline. Rather, most had lived up to their short-term potential and the time had come to cash out gains and look elsewhere for candidates with stronger upside. But there are investors who do actively bet against certain stocks by selling them short. In the simplest terms, this involves borrowing the shares and immediately selling them. A few weeks or months later, the… Read More

Since last June, I’ve sold nine portfolio holdings in my premium income newsletter, High-Yield Investing. All nine were for positive gains, between 2.1% and 74.1%. But I didn’t sell any of these stocks because I expected them to decline. Rather, most had lived up to their short-term potential and the time had come to cash out gains and look elsewhere for candidates with stronger upside. But there are investors who do actively bet against certain stocks by selling them short. In the simplest terms, this involves borrowing the shares and immediately selling them. A few weeks or months later, the shares are repurchased (ideally at a lower price) and returned to the original owner, with the trader keeping the difference. It’s “buy low and sell high” in reverse order. It’s a risky strategy. If you buy a stock at $10, the most you can lose is $10. And that’s only if it winds up completely worthless. But if you sell short at $10, the stock can rise to $20, or $30, or more. The more it rises, the more you lose. So in theory, the potential risk is unlimited (although in practice traders take steps to cap their losses). That’s… Read More

While the investing world continues to shovel money toward exchange-traded funds (ETFs) (full disclosure: I find myself using them more and more), it’s almost as if the grandfather of the ETF, the closed-end fund (CEF), has been reduced to a memory like dial phones or the Nehru jacket. But when I’m at a loss for finding value in an individual stock, I often find myself looking through CEF names like a millennial at a record shop. #-ad_banner-#CEFs can trace their origins back to the 1860s in Great Britain, when they were primarily used to raise money to build U.S. railroads. Read More

While the investing world continues to shovel money toward exchange-traded funds (ETFs) (full disclosure: I find myself using them more and more), it’s almost as if the grandfather of the ETF, the closed-end fund (CEF), has been reduced to a memory like dial phones or the Nehru jacket. But when I’m at a loss for finding value in an individual stock, I often find myself looking through CEF names like a millennial at a record shop. #-ad_banner-#CEFs can trace their origins back to the 1860s in Great Britain, when they were primarily used to raise money to build U.S. railroads. The first American CEFs appeared in 1893, 30 years prior to the first U.S. open-end mutual fund. Prior to the Crash of 1929, American CEFs claimed over $4 billion in assets, which was big money for the time. CEFs have evolved over the decades since, but their organization and basic features have remained relatively consistent. CEFs are and always have been professionally and actively managed, exchange-traded, internally leveraged, and income oriented. Recently, while screening a handful of CEFs, one piqued my interest: Calamos Convertible Opportunities and Income Fund (Nasdaq: CHI). As the name suggests, most of the fund’s heavy lifting… Read More