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Old 01-11-2013, 08:39 PM   #41
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It'll work until it doesn't. The question is...will you be around then to admit it?
In almost 10 years on this board, I have only seen that once. Some guy who got mangled with a concentrated BAC position, as I remember in fall of 2007 or 2008.

But he was not into teaching us with his Socratic method or other delights, so I would not necessarily expect the same behavior should this go bad.

I can't remember how he got caught, but he was a complete big boy about the whole thing.

Ha
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Old 01-11-2013, 08:45 PM   #42
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I'm not at all trying to convince anyone that my strategy is better than everyone elses. My point here is that for me, it works far better than any passive investing. Your mileage may and will vary. I think what we can agree on is the importance of diversifying.
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Old 01-11-2013, 08:45 PM   #43
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In almost 10 years on this board, I have only seen that once. Some guy who got mangled with a concentrated BAC position, as I remember in fall of 2007 or 2008.

But he was not into teaching us with his Socratic method or other delights, so I would not necessarily expect the same behavior should this go bad.

I can't remember how he got caught, but he was a complete big boy about the whole thing.

Ha
That was VaCollector who still posts here.

He gained my respect by having the courage to tell his story, warts and all: Adios & thanks for ALL!
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Old 01-11-2013, 08:46 PM   #44
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I purposely separate my trading money from safer / stable money.
There's a huge difference between having 1 small slice of your portfolio in risky assets vs going all-in. So what strategy do you want people to attack? a 100% high-yield or 90% generic 10% high yield?
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Old 01-11-2013, 08:50 PM   #45
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Some examples of blue chips high dividend yielding stocks that tanked were GM and C. All the dividends shareholders got did not come close to the loss from drop in the stock prices. Current examples of high dividend stocks not necessarily represent good investments are the utility stocks. XLU, the utility sector ETF, has a total return of 1.12% in 2012 when S&P 500 got a robust 16% in 2012.
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Old 01-11-2013, 08:59 PM   #46
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The problem is that risky has different meanings to different people. I have friends that bought american airlines a few years back to hold long term and lost many thousands after it went bankrupt. I know others with highly diversified assets that returned a whopping 1.5 % over the past 10 years. I consider both of these approaches to be extremely risky. First example was not a safe move because no one can predict where a company will be in 10 years. Second example is less risky, but still not a smart move considering that it didn't even keep up with inflation.

Now we talk about active investment. The so-called high yield high risk investments. Shorter term stock trading, for example. When I see a particular investment start to go south, I dump it and move onto something else.

I look at the stock exchange as a horse race. The first horse to the finish line wins. This horse race has a few special rules. You can start the race whenever you like. You can stop the race whenever you like. In fact, when your horse falls behind, you can stop the race, and jump onto the lead horse! It seems kind of hard to lose a race like that

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There's a huge difference between having 1 small slice of your portfolio in risky assets vs going all-in. So what strategy do you want people to attack? a 100% high-yield or 90% generic 10% high yield?
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Old 01-11-2013, 09:10 PM   #47
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That was VaCollector who still posts here.

He gained my respect by having the courage to tell his story, warts and all: Adios & thanks for ALL!
Yes, many people are still trying to get out and recover from that period of financial hell, whether they got whacked by a stock portfolio that tanked, an underwater home mortgage or a permanent job loss.

Brutal Recession Destroyed Americans' Wealth, Net Worth Down 40% In 3 Years - Forbes
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Old 01-11-2013, 09:24 PM   #48
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So your portfolio investments have a given stated yield and you with draw this amount. What do you do when you have a default on a junk bond or a dividend cut due to a business imploding? How do you make up for the permanent loss of capital?

Separately, what do you do about inflation? My experience is that you can have high dividend yields or substantial dividend growth, but not both.
Alex - I don't believe that you have answered this question from brewer12345 yet.
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Old 01-11-2013, 09:53 PM   #49
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I'd be leary of executing any active strategy into my 80's, so that may be a limitation eventually.

There is no way we can "approve" of nearly any active strategy posted here with little specifics. We have no idea what level of experience you have. We can be pretty sure that that an "average" person visiting this board will lose their shirt with an active fast-trading scheme, or something as far from "normal" as all high-yield with an underlying buy/sell strategy. For all we know, this is some strategy that you found in the back of a comic book have used for a year with success, and no defaults.

We have a few active traders who are regulars. I don't know of any that have a majority or more of high-yield. Stick around and we'll see how it goes.
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Old 01-11-2013, 10:04 PM   #50
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Originally Posted by haha View Post
In almost 10 years on this board, I have only seen that once. Some guy who got mangled with a concentrated BAC position, as I remember in fall of 2007 or 2008.

But he was not into teaching us with his Socratic method or other delights, so I would not necessarily expect the same behavior should this go bad.

I can't remember how he got caught, but he was a complete big boy about the whole thing.

Ha
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That was VaCollector who still posts here.

He gained my respect by having the courage to tell his story, warts and all: Adios & thanks for ALL!
There was another (maybe the only other?):

dixonge

Insane Emergency RE strategy

Yes, refreshing to see people be so honestly open when things went against them. I think that means they can learn from missteps, which is a valuable trait.

-ERD50
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Old 01-11-2013, 10:10 PM   #51
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response #3 to comments on my high-yield investing

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Your principal is very at risk, especially with high-yield stocks and bonds as opposed to something more tame. Those kinds of yields I associate with nearly out of business companies.

You are not very diversified, meaning you can expect wider portfolio value swings than necessary. With so many similar investments you are more vulnerable to a single event/trend knocking your entire portfolio down.
OK, now we're going to start getting into some of the nitty gritty. IMO, my portfolio is extremely diversified. These are my guidelines there: no more than 6% of the portfolio in any one company... no more than 3% of the portfolio in any one "junk" bond... and no more than 12% of the portfolio in any one industry (stocks and bonds combined). This has allowed my portfolio to roll with the punches and keep growing the dollar dividend payout and the dividend yield percent notwithstanding the occassional dividend cut and even dividend suspension.

At this moment, I hold positions in 25 separate companies in 14 different industries. Is that not diversified? (Cash and real estate I've kept separate from this discussion.)

Regarding why these companies' dividends are so high. These are not companies "nearly out of business". Setting aside the occassional accidental high-yielder, every company I own stock in is committed to returning value to its stockholders in the form of dividends to the highest degree possible within the bounds of financial responsibility. And every capital action these companies take is intended to be accretive to that payout, either immediately or within less than a year of the action having been taken.

Notes:
[] I'm responding to comments in the order they appear, so thanks for being patient

[] Don't be put off (please) by my use of the word "attack" in the thread title; I DO want and APPRECIATE any and all devil advocate comments

[] And, no, I'm not saying my way is the best way to make money in stocks; but I am questioning why so many financial advisors have told me (without providing reasons) that my way is NOT a way to make money in stocks.

Alex in Virginia
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Old 01-11-2013, 10:19 PM   #52
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I look at the stock exchange as a horse race. The first horse to the finish line wins. This horse race has a few special rules. You can start the race whenever you like. You can stop the race whenever you like. In fact, when your horse falls behind, you can stop the race, and jump onto the lead horse! It seems kind of hard to lose a race like that
Except in the stock market horse race, if you jump on the leader, you don't get any of the benefit of the leading horse's effort up to then. It's pulled back to the same position as the horse you just jumped off of. Maybe that lead horse will continue to run better than your last horse, but quite often that lead horse runs out of steam. What that analogy sounds like is a "buy high, sell low" strategy. I doubt you really meant that, or really follow that.

Good luck. I appreciate that you (or maybe it was the OP) say that for you, active investing has been better. For me, I found that my passive investments were doing better, so now I'm nearly 100% passive. But I didn't spend enough time and didn't have any real rules or guidelines for getting in or out of individual positions. And I certainly didn't have any ironclad rules for when and how to adapt. In all seriousness, you're sounding somewhat like the 5% monthly Forex system guy.
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Old 01-11-2013, 10:24 PM   #53
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Alex in Virginia
Good luck with your investment plans. My "pretty well diversified dividend yielding blue chips stock portfolio" made a total return of 10.4% in 2012, including both growth and dividends, which was significant less than the return I got from the mutual funds I held at either Fidelity and Vanguard.

If the trend continues, I'll probably go more with index funds or having professionals picking stocks and rebalancing the holdings in actively managed funds in the future.
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Old 01-11-2013, 10:38 PM   #54
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Hopefully I can make it clear that I make nowhere near 5 % / month nor do I expect that kind of return. That sounds like a recipe for disaster. I average a little better than 10% in a year. Trying to improve on that would require more risk than I'm willing to take.

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Except in the stock market horse race, if you jump on the leader, you don't get any of the benefit of the leading horse's effort up to then. It's pulled back to the same position as the horse you just jumped off of. Maybe that lead horse will continue to run better than your last horse, but quite often that lead horse runs out of steam. What that analogy sounds like is a "buy high, sell low" strategy. I doubt you really meant that, or really follow that.

Good luck. I appreciate that you (or maybe it was the OP) say that for you, active investing has been better. For me, I found that my passive investments were doing better, so now I'm nearly 100% passive. But I didn't spend enough time and didn't have any real rules or guidelines for getting in or out of individual positions. And I certainly didn't have any ironclad rules for when and how to adapt. In all seriousness, you're sounding somewhat like the 5% monthly Forex system guy.
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Old 01-11-2013, 11:01 PM   #55
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I'm an accountant so I'll suggest that the OP take a look at the financial statements of a sample of the entities that have bonds that are yielding 10% in the current low interest rate environment. I suspect that the financial statements will be really "ugly". The entities will probably be insolvent, under-capitalized or unprofitable. I would be hesitant to have a large percentage of my retirement savings invested in these type of entities. Good luck though.
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Old 01-11-2013, 11:07 PM   #56
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As a dirty rotten market timer, I must say the OP and his sidekick have launched one of the best "sell soon" signals I have seen lately. Crap, now I've got even more homework for the weekend.
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Old 01-12-2013, 06:05 AM   #57
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the biggest problem facing those who's argument is i don't really care what my principal is doing if i am not selling it is this.

if you are living off dividends and or interest the issue becomes when dividends and interest are cut and there is a a shorfall in income you will have to sell a bigger chunk of principal to make up the shortfall in income cutting future income.

total return is all that counts and those that turn a blind eye to the principal part eventually get a rude awakening.
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Old 01-12-2013, 06:19 AM   #58
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Response #4 to comments on my high-yield investing strategy

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Keep in mind if you have a company that goes bankrupt in your portfolio, that is a permanent loss. So your portfolio won't be spitting out 8% once that happens.
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your portfolio would not be growing if you are taking all the income out... so any defaults are to principal... and your buying power will be dropping over time due to inflation...
These comments I think go to the questions of diversification and of the management of the portfolio. I've already spoken to diversification, so let's see if what I say about management makes sense to you all.

This is an actively managed portfolio, with some buys and sells happening pretty much on a weekly basis. I have hopefully explained already why IMO my investing approach frees me from having to sell holdings in order to generate income from the portfolio. But I do sell holdings whenever there is a sufficient gain to be realized. That's (and some of you may have caught this) how I can have an 8% dividend-yield portfolio that has grown in actual book value by more than 20% per year over the last 3 years. (I have left out of that calculation the bumper crop gains of the 2009 recovery, the first year I used this investing strategy.)

So, my first answer to the points raised by hlfo718 and Texas Proud is that gains so realized will cushion realized losses as well as provide added capital to keep the portfolio growing. And over the last 4 years that is what has happened. Whenever I have taken an intentional realized loss, there have been realized gains to offset it. The loss has not been "permanent" -- as both commenters quoted above seem to assume.

My second answer (and I realize this will require an extended explanation in a future post) is that I vett in depth every one of the companies I invest in to ensure as much as possible that the company is not going to go bankrupt, as hlfo718 fears.

Nevertheless, and in spite of best efforts, sh*t does happen. So I'll close with 2 little war stories that I hope will give more color to what I am trying to explain.

FIRST STORY. I am still holding shares in a regional telecom (OTT) that has lost 90% of its market value since I bought the shares -- and the dividends have been "deferred." OTT unexpectedly lost its service contract with one of the major national telecoms, and that contract represented too large a share of its business. Now OTT management is scrambling to find replacement business and to rework its financing. But because OTT represents only 4% of my portfolio's book value (diversification!), I have just suffered a "ding" and not a disaster. And realized gains from other share sales have allowed me to buy more shares in other dividend-paying companies to more than make up for the (temporary?) loss of OTT dividends.

SECOND STORY. Just 2 days ago I sold off my ARR shares at a 10% loss. I sold them because in my judgment recent shifts in Federal Reserve policies are going to inexorably eat into ARR's ability to pay dividends and ARR management can't do anything about that. Was ARR a bad buy? Not hardly. Over the 2 years that I held ARR positions (bought, sold, bought, and now sold), I collected 30% of my investment in dividends and realized a net 6% loss on the stock sales. My net net is a 24% realized profit (12% per year +/-) on my original investment. My portfolio's book value and dividend generation grew as a result of the reinvestment of that 24% realized profit. Works for me.

As far as inflation goes, I believe it will be a wash. Inflation will push up company profits and dividends, right along with consumer prices.

Am I making sense?

Alex in Virginia
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Old 01-12-2013, 07:53 AM   #59
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time will tell....

kind of like those who in their mind say that they will give up the 10% at the top and the 10% at the bottem and keep the 80% in the middle.

like those who followed fabian and his moving averages proclaimed.

it all sounded like a wonderful plan. how could it fail?

well under battlefield conditions nothing went as planned and things only worked until they broke rank and didn't.

needless to say it all sounded so good but failed to actually work out that way.

all i can say is good luck and hope it works for you.
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Old 01-12-2013, 09:12 AM   #60
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The past years have been great, but not at all representative of a variety of market conditions. Much more similar to the run-up to 2000, though hopefuly not too overvalued. Pretty much all positive and hard to do anything wrong. I would suspect a good debt ceiling fight might change things a bit.

You sound less diversified than the S&P 500. Which is not terribly diversified itself. International? Growth? Anything without a dividend? Small cap? Emerging markets?

Here:
Is High Yield Overvalued?

"Historically, high-yield bonds have been one of the riskiest fixed-income sectors. In 2008, the high-yield bond category had a drawdown of over 32%. Since 1989 there have been 12 occurrences of drawdowns of over 5%. High yield is what's known as a high-kurtosis asset class, which means that extreme market events happen more frequently than in other asset classes. As you can see from the chart below, high yield is prone to negative shocks."
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