attack my high-yield investing

[brewer12345]

My income and my 8-8.5% annual IRA withdrawal expectations are based on the dividends and interest generated from this point forward by my portfolio, and do not require cashing out any of the portfolio's holdings. So, it is irrelevant to my projected income stream what the price of any stock in the portfolio -- or the market value of the portfolio as a whole -- may be at any given time. I don't have to sell anything, and I particularly don't have to sell anything when the market pendulum is on a downstroke.

Alex in Virginia

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.

 

[LOL!]

Over the years,
...
For almost 4 years, I have invested my IRA funds only in high-yield dividend stocks. When I started, I set a minimum of 6% yield, but in practice I have been operating on a minimum 8 - 8.5% yield for the last 3+ years. Over the last 6 months, I have begun shifting some money into bonds, but again only high yield (10% or better).

This means, of course, that starting next year (at 66), I anticipate a withdrawal rate of 8% per year from my IRA -- without touching the principal (which has doubled since March of 2009).

What have other possible investments done in 4 years? You act like this is the only way to make money. Maybe there are other -- less riskier -- ways to make money? We all know that since Jan 2009 (4 years ago) that everything has been up 80% to 100%. And since the low of March 2009, small cap value has almost tripled in value. Total Stock Market Index is at 2.4 times its March 2009. It sure seems like you have underperformed simple stock market indexes.

Be sure to revisit this thread in the heart of the next bear market.

 

[foxfirev5]

It's going to work great until it doesn't. Yawn, I guess I'll go back to whatever no work boring portfolio I have.

 

[heeyy_joe]

Your strategy is aggressive, and if you are comfortable with actively trading on it you may continue to do quite well. In my experience, knowing when to sell (or sell and adopt a new strategy) is much more difficult than plunking your capital into what the market, by virtue of the yield, has defined as risky. I would be much more interested in learning about when you have decided to adopt a new strategy when the market faces rising Fed rates and attempts to stave off inflation. I recommend watching aggregate fund flows out of bonds into equities. Please let us know your "yield" after eating any capital loses. I am rooting for you, but then I always root for the underdog.

 

[Alex in Virginia]

response #2 to comments on my high-yield investing

Looking at your spending thread, I'd suggest you immediately cease and desist on any and all efforts to increase spending. Your investment strategy will likely result in you needing every penny you can get your hands on.

OK, REWahoo, I think I just caught you rolling your eyes at what I'm doing. You clearly are assuming some kind of disaster is going to happen. But what disaster? If you can be more specific, I'll do my best to think through your negative expectation and respond to it.

(Ditto samclem and Texas Proud?)

Alex in Virginia

 

[REWahoo]

OK, REWahoo, I think I just caught you rolling your eyes at what I'm doing. You clearly are assuming some kind of disaster is going to happen. But what disaster? If you can be more specific, I'll do my best to think through your negative expectation and respond to it.

I don't believe any additional comments from me on this subject would be productive, so I'm done here. The best of luck on your spending and investing strategies. Hope all turns out well for you.

 

[Gill]

In all my readings, I have never heard of anyone advocating this route.

Does that give you a clue that maybe the rest of us are not stupid and quite possibly you're overlooking something?
Bruce

 

[vxp036000]

Ever heard of don't follow the masses? Maybe there is some truth behind it.

I see the question of when to sell. There is no question I decide when to sell before even placing a buy order. So when the condition I've already decided upon is met, I sell. And if the sell condition is never met? I choose the condition to sell such that this is impossible. Can't really get much simpler than that.

 

[haha]

I have a question. What would motivate anyone to "attack" your investing or anything else that you do? It's purely your business. It is impolite to go around attacking things, and generally stupid also.

So like many others, I'll just say I hope it goes well. I am in favor of anything that produces a taxpayer rather than a taxtaker. Bonne chance!

Ha

 

[Rustward]

I don't believe any additional comments from me on this subject would be productive, so I'm done here. The best of luck on your spending and investing strategies. Hope all turns out well for you.

Or as they would say on Shark Tank (TV Show):
You're Out.

I'm out, too.


I'm just following this thread for its entertainment value.

Edit to add: Like others, I hope it works well for the OP.

 

[brewer12345]

Ever heard of don't follow the masses? Maybe there is some truth behind it.

I see the question of when to sell. There is no question I decide when to sell before even placing a buy order. So when the condition I've already decided upon is met, I sell. And if the sell condition is never met? I choose the condition to sell such that this is impossible. Can't really get much simpler than that.

Sweetheart, I have rubbed elbows with far sharper knives than you in the investing world and I can tell you one universal truth: longevity of a portfolio and investing success can only rest upon a very solid foundation of risk management. I also think it is pretty clear that even the very sharpest manage to cut themselves from time to time, so make sure you have lots of bandaids handy.

 

[growing_older]

It requires adhering to a strict set of rules and never deviating.

And when the market changes, you will adapt or end up broke.

I cannot reconcile these two. How do you know when to stop your strict adherence and adapt? Usually that happens in hindsight.

 

[vxp036000]

My rules clearly define how to adapt and when to adapt. So there is no point at which I break the ground rules I've established for trading. I have a set of criteria to determine what sector to invest in, weeding out companies, exactly when to buy, and precisely when to sell.

 

[eridanus]

I was making big bucks writing options. Until 9/11 when the airlines collapsed to single digits or went bankrupt.

Then I was making big money trading futures. That is, until 2008, when margin increased dramatically overnight and my 6 figure account got squashed in a margin call.

It'll work until it doesn't. The question is...will you be around then to admit it?

 

[vxp036000]

I don't use margin But in all seriousness, I purposely separate my trading money from safer / stable money. So when things go south, and they have, I'll still have options. Will my strategy remain profitable long term? That remains to be seen, but it has served me well so far (knock on wood).

 

[haha]

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

 

[vxp036000]

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.

 

[REWahoo]

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: http://www.early-retirement.org/forums/f28/adios-and-thanks-for-all-41947.html

 

[photoguy]

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?

 

[bondi688]

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.

 

[vxp036000]

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

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?

 

[bondi688]

That was VaCollector who still posts here.

He gained my respect by having the courage to tell his story, warts and all: http://www.early-retirement.org/forums/f28/adios-and-thanks-for-all-41947.html

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

 

[Major Tom]

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.

 

[Animorph]

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.

 

[ERD50]

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: http://www.early-retirement.org/forums/f28/adios-and-thanks-for-all-41947.html

There was another (maybe the only other?):

dixonge

http://www.early-retirement.org/forums/f30/insane-emergency-re-strategy-40682.html#post939013

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