wearmanyhats

Twenty years ago, I was in my first professional job.  To my chagrin, even though I was finally making a decent living, I was still always broke.

After thinking about it, I thought about my father.  He was never broke.  Ever.  Money was never a struggle.  I called him from Texas and after the usual fond greetings, I asked him about how he managed to always have money.

“Meet us in Vegas and we’ll talk about it,” he said.

Two weeks later we sat visiting.  With his help, I began down a path of understanding investing, and money management. 

One of the first books he told me to read was The Richest Man in Babylon.  To this day, if I mentor someone, it’s the first book I recommend.  There are many key concepts in there, such as “Pay yourself first.”  But the one that also stays in my forethoughts is to never buy diamonds from a camel dealer.

This would have been good concept for those investors who got tangled up in a bank near my church: First Intergrity of Staples, MN.  In this instance, First Integrity began investing in Florida real estate.  During the real estate downturn, First Integrity’s deals dried up, and investors were left in the cold.  The Feds moved in and sold out the bank. 

The lesson here reminds me of doing diamond business with camel traders.  In the past twenty years that I’ve been involved with investing, there have been many incidents of such dealings.  Remember the mechanics who suddenly turned day trader back in the mid 1990s?  And what about the barbers that suddenly began flipping houses a few years ago?  Do you think the house flippers got caught when the bottom dropped out of the market? Many did.

The moral of the story is this:  when doing business of any kind, do it with a person who has experience in that area.  Don’t try to be something you are not. Never trust a person who doesn’t mind losing your money.

And if you never have read it before or if it’s been a while, pick up and enjoy The Richest Man in Babylon.  You might find quite a few lessons that are much needed in your life.

There are some days when I have to sit on the money in my money market because I can’t find a thing that I feel is a good buy.  Then there are days like today:  I don’t have enough money to buy everything I want! 

The bargain of the week is British Petroleum Prudhoe Bay Royalty Trust.(BPT.)  It just paid a dividend and has dropped down to a reasonable price.  The P/E is under 10, and the price of oil is correcting right now.  The dividend yield is 9.92% at today’s close, and that’s close enough to a double digit for me!  The risk is not whether or not the stock price will someday rise.  The risk is whether or not there will be a further drop in the share price until it rebounds when oil goes back up. 

I like BP for multiple reasons. First, it was quickly responsive for the oil leak on the pipeline recently.  The company has fixed those problems and moved on.  Second, BP has dedicated a great deal of time and energy to renewable energy sources.  That’s just smart business, and gives great hope for the future.  That kind of innovation reminds me of the contrast between Toyota’s invention of the Prius, and GM and Ford’s developing ”hybrid” that used both E-85 and regular gas.  GM and Ford’s car bound customers to using fossil fuels.  BP is like Toyota, prescient in its understanding of the importance of developing alternative energy, especially wind and solar technologies.   

You’ll have about a three month wait until the next dividend.  And if I have any complaint at all, it’s that the dividend is not stable.  Zachs reported that this most recent one was over 11%, but list of dividends on Morningstar is all over the place.  Just keep this thought in mind:  you would be investing in a stock that will give you a decent dividend and increase in value when the price of oil rises again.  Capital growth and dividends.  Very nice.

Just to let you know, I don’t usually commit more than 35% of my regular portfolio to high yield dividend stocks.  But since the stock market has been falling, and commodities taking a correction, high yield dividends are the most stable assets you can have. 

Since I pointed out the merits of buying Arbor Realty Trust (ABR), (see ”Better a live chicken than a dead hero, 7/24/08)  the darn stock has taken off like a shot, with me sitting in its dust looking very sad indeed. Hopefully next time I wil grab the stock that insiders are buying heavily. Twice now I’ve resisted doing that, once with another stock, and I am hopefully getting smarter.  Perhaps you have a favorite real estate stock that you’d like to buy, but like me, you are waiting until the sector shows that the coast is clear.

Yeah, right!  Wouldn’t it be nice if all the signs were so obvious? Obviously the huge drop yesterday showed that the real estate and financial sector is far from bottoming out.  But there is something you can do to protect yourself in cases like this. 

First, chose the real estate stock that is has a history of always paying the dividend, and increasing it.  Second, make sure all of the financial data is sound, then make sure the dividend is over 15% or, if you are very lucky, over 20%.    Now even if the sector drags this good stock down with the rest, hopefully it will keep on paying.  And since the insiders are buying like crazy, I figure it will be a strong company.

Finally, put equal amounts into Ultrashort Real Estate Proshares (SRS), especially if you feel the real estate market is going to continue to go down.

Thus my pun:  the double hedge is the shorting of the real estate market, and the sweet dividends.  At least the bottom line of your portfolio should not look quite so dismal with those two hedges putting the breaks on the losses.

I’ve had my eye for a week now on Royal Bank of Scotland (RBS).  It could be because of the fantastic commercials; I’m ashamed to admit that, but it’s true.  You know the ones:  someone is in peril, but only the RBS man can save him while the others stand around being stupid.  So when the numbers flashed on my screener that their stock had dropped down low enough to be paying a 27% dividend, I had to take pause.

Not only do the commercials look good, but the financial number are pleasing.  The ten year income statement shows a strong positive movement.  Deposits are up, but there is a big increase in its long term debt, something I find worriesome.  Still, there is a dramatic upswing in sales that I like, and then that last dividend of $.67 is very nice.

We’re seeing now a condition in which the dividend are beginning to outweigh the risk of being invested in the stock.  I think devoting some 30% of my portfolio to two high risk, but high dividend paying stocks that have strong balance sheets might not be such a bad idea.  I think the portfolio’s return on the dividend side could offset any future sinking of the stock because the sector is getting spanked. 

Martin Weiss, the conservative analyst believes that the woes of the financial sector is not yet over.  I agree.  But the sheer amount of money that some of these institutions have made in the past twenty years is difficult for the average investor to assess.  Likewise, I don’t see evidence that we are going into a depression, though it certainly is possible.  With the pullback of the price of oil, the economy may be given time to catch its breath, and stocks to stabalize a bit.  I do think the market will continue to drop, but a high yield like the one offered through RBS might lessen the pain. 

On Saturday I got an e-mail asking for some comments on a few stocks that are posting good dividends. The writer gave me a list of high yield stock to use as food for thought in my blog.  Immediately Nordic American Tanker (NAT) stood out, and I had to smile.  It was like running into an old friend.

I came across NAT years ago right before one of their lease agreements was set to expire with a major customers.  Investors bailed on the uncertainty, and the stock dropped down to under 15.  I was new to investing, new to my favorite technique of finding stocks, and bought it on a lark.  The stock zoomed to over 20 and I sold out.  If I had sat on it, I would have made good money over the years.

So why am I not recommending them today?  The P/E  of 26 has put me off.  The sector is slowly pulling back from a good recent run, and a patient investor can toss money in when the sector is out of favor.  If I’m wrong, then patiently waiting for a slight correction would be better.

But what about that 8% dividend?  That certainly looks tempting, but there are many other high dividend paying stocks out there such as BPT and FRO.  If you want to stay strictly in water transport, Eagle Bulk Shipping (EGLE) would pay a decent dividend and make more money moving upward. Their financials look solid and their growth as a stock has been respectable.  But like NAT, it’s going through its cyclical correction.  Patience may snag you nicer dividends in the near future.

NAT routinely offers good dividends, but those dividend returns get even bigger when the shipping transport sector corrects.  Let me add this, however.  If you are the kind of person that likes to buy a stock and not look at the returns on that stock for three or four years, then you would not be displeased in NAT.  But if you are like me, checking the thing a lot, you’ll shoot NAT and put it out of its misery long before it can make you the money you deserve.

Last month when I was bottomfishing for something good to add to my portfolio, I came across a company that I had never seen before. Cal-Maine Foods (CALM) caught my eye with its eye popping dividend and a P/E of around 6. This Mississippi based egg producer is the largest distributor of fresh eggs in the United States.  The company had recently instituted a new dividend policy and pass good returns on to its shareholders.  The most recent dividend was over $.80 a share.  I was thrilled.  The numbers looked great all the way around.  I picked it up for around $29/share.

Within a month, the stock had edged up slowly.  Suddenly one day Barron’s gave it a nod, and off it took like a wild horse. It still is cheap, and for the patient investor, might prove quite lucrative.  It’s up over 29% this month and 88% for the 12 month period.  Yet the P/E shows it to be a value stock. 

It makes me happy to see that it’s going to add on to the asset base by buying Zephry Egg Company.    It’s worth a grab and is the kind of stock you can keep long term.  Egg prducers have kept the pric of eggs consistantly high, so the profitability of this company should be good.  There’s been no mention of the upcoming dividend, so hopefully when that gets announce, there should be a push upward on the stock.

So if you want a little action in eggs, you might want to check out Cal-Maine. At least you can get back a little from the ever rising price of eggs at the store. 

No one likes to think that things can get so bad in their life that they need to go looking for money.  But preparing for difficult times and dealing with difficult times are essential.   

Here are some things you can do to prevent economic frustration in your life:

1)  Build up a year’s supply of food and keep it on hand.

2) Keep a healthy stash of silver junk coins and gold pieces as you can afford them.

3) Look for better paying jobs at least once a week.

4 )Take classes to increase your earning potentioal.

5) Keep involved in community activities so that if you should lose your job, you have a network of friends to help you find work.

6) Keep an immediate savings of one year of your salary to cushion for emergencies and job loss.  Try not to use it for everyday expenses unless you have  a true emergency.

7 )If money is tight now, prepare a budget and stick to it.  Include fun activities a couple of times a month that are inexpensive but worthwhile. 

Utilize all possilbe ways to save on how much you spend.  If you want to see a movie but balk at the ticket price, go to a cheaper matinee.  Use coupons if you have them.  Chose a less expensive menu option when dining out.  Shop second hand stores and pawn shops.

9) Check with your insurance agent and ask see if he/she can find cheaper rates on all of your insurances. Do this yearly and you will be surprised how every once in a while, premiums can be reduced. 

10)  Make a list of all of the valuable assets you own that could be sold if you were in dire straits.  Get a realistic idea of their worth by search through E-bay or other online shopping sites to see what buyers will pay for new and used.  Craiglist lets you sell them for free, and in this day and age, free is good.

One stock I’ve been watching carefully is Abor Realty Trust (ABR).  It caught my eye when I saw the incredible dividend it was offering.  But what really struck me was the sheer number of insider trades which had been occurring.  The CEO even bought 3 MILLION shares on June 3o.  That’s an incredible vote of confidence in the company, and  I thought seriously of buying several thousand dollars worth.

So why didn’t I?  Well, I’m chicken.  I have access to the reports like everyone else, but the sector makes me nervous.  ABR owns many mult-family commercial buildings, and with the financial sector tanking, I wondered if maybe there won’t be another downturn after this brief rally. 

One thing that struck me about ABR was that when I pulled up a list of five competitors, none of the competitors had a positive number in their profitabiltiy statements.  ABR was the only one that did.  I think that bodes very well for the firm.

Of course, the stock went blitzing up about over 35% since then.  But I’m watching it carefully to see if more corrections could put the price back to earth for a while.  Then I might jump in.  I fugure if I miss out on the upward rise of such a stock, it wasn’t meant to be mine.  If I felt better about the financial sector, I’d be kicking myself.  But as people have to put gas in the car and businesses struggle, jobs get lost. The financial sector still has a bottom to find.

It’s almost getting to where anyone could cherry pick some long term financial sector investments. Since  I believe we could still see futher drops in the market as a whole,  watch for issues like ABR, RBS, etc.  The sector will go back up someday, and one might as well ride the surf when it does.

My father and I share a true passion for investing.  For years both he and my husband felt that I should have changed careers and been a financial planner.  So why haven’t I?   I think differently than the average planner, and don’t know if I could stick to the rules that the SEC has laid in place to protect investors.  I am more of a risk taker, dabbling in areas that keep some people awake at night.

Take the idea of diversification, for example.  Most portfolios follow a mix of stocks and bonds that represent the correct allocation depending on your age.  The average financial planner is supposed to present their client with a “safe” mixture following this recipie, and the majority of the stocks are to be big company stocks like P&G, or Coke.  These suffer during a severe stock market downturn, and making up the loss of the value of that during a bear market can take years. 

Here’s something else: many financial planners use stocks like Coke or McDonald’s as their small area of investment in global stocks.  Their reasoning is that these companies have a presence all over the world.  That’s true, but during a bear market here in the US, these companies still suffer. Foreign stocks such as Posco (PKX)  are smart, well run businesses, with a very bright future and are truly a foreign stock.

True diversification involves buying silver and gold when times are good and the price is low.  Yes, it involves storage fees or holes dug in your back yard, or a safe.  But during times like right now, you will be grateful beyond words to have  a treasure chest to back you up.  Plan on having three times in your life when you will face difficult enough times that will hurt.   Where are you at now in that time line?  Personally, I remember the 1970’s well, though money wasn’t important to me then.  If you don’t remember that time period, then think about having two more serious economic down turns in your life.

When do you sell out your metals?  When you need the money, or whenever it seems like tons of people in the media are writing about it.  If the people next door are getting into metals and they never even noticed gold and silver before, it’s probably time to sell. Always keep some metals behind in case of a true monetary breakdown.  Consider after World War two whenever money in German wouldn’t buy food, but silver coins would.  I don’t like to think of our country being that bad off, but I’ll be glad if I have something set aside in case it ever were.

Finally, real estate.  I once had a wonderful and well meaning investor tell me that real estate should only be about 3% of your portfolio.  I don’t know what planet he was on, but it wasn’t mine.  There are many true factors to dealing with real estate.  First, you have to have the desire, time, and ability to deal with real estate.  Second, you have to buy right.  Many people believe that now is the time to buy.  To some extent, if you have cash, that may be true.  However, be careful.  There have been times in our nation’s history when people couldn’t afford to pay rent.  Not any rent.  And leaving an empty building is an insurance disaster waiting to happen.  Get a bargain price and  it should stay rented.

I know that responsible financial planner put bonds in portfolios.  I’ll address bonds at a later writing, but suffice to say that unless the return on the bonds is going to be fantstic, I don’t use them much.  I like the returns stocks can give me, and bonds always seem too slow.

 There are other interesting ways of contributing to your wealth long term that no financial planner would ever discuss.  Write a book, invent something that no one can live without, turn your passion into a newspaper column. Buy a cash cow business.  All these build revenue and may even make your life easier as you enter your golden years.  But advice like that goes beyond what any normal financial planner would discuss.   

My hats off to all the financial planners who write the roadmap to their clients’ needs.  I admire them.  I just could never see myself as one of them.

On the drive to my hometown lies a field of what used to be pine trees.  It was planted in the Conservation Reserve Program (CRP),  where farmers are paid to take their crops out of production, put in trees, and then they are paid by the government.  It’s an interesting arrangement; topsoil is preserved and enhanced.  The price of wheat or corn is not pushed down because of too much production, and the farmer still can pay his taxes on the land.  The American taxpayer, despite what might seem at first glance to be a pork barrel subsidy, is kept fat and happy since food prices are stabalized.

 Then China woke up, Saudia Arabia figured out it was cheaper to buy wheat than grow it, and someone at the top of the government got the silly idea that we should burn food (corn) as fuel.  Suddenly the price of commodities went through the roof, and the man owning that field went right out and tore up all of the trees.  The land is going back into production.

I wonder how many other farmers are going to tear out trees and plant something to eat.  How will that affect my biggest holding?  It’s a the Powershares DC Commodity Index Trading Fund (DBC.)   Larry Edelson of the Martin Weiss Research group recommended it last October, and since then, the stock as streaked up over 59%.   Pretty sweet.  I know there are people out there that scoff at ETF’s, but I NEVER scoff at making a profit.  It is a wonderful index of many different types of commodities, including oil, gold, and agricultural products.   I received an e-mail on Monday requesting the call letters for this stock, but immediately asked the reader to return here and hear what I have to say on this subject.

I devoted probably more money to this fund than I have to any fund in my life because for a long time it did nothing but streak upward.  However, after seeing trees being uprooted, and then talking to local farmers, I am thinking about taking a good share of my profits home.  Perhaps  I’ll sell half and leave half in to give me more peace of mind.  Since it also tracks gold and silver, plus oil, it seems to ride on the fast train up every time some commodity gets on a bull run.  I think that’s the secret of its success.  But how long before oil takes another breather, and gold, too?  It lost 10% here this past week, but seemed to recover on Monday.  Looking at the chart, it also seems that it is still in an upward trend.  But how will a bumper crop this fall affect the price of the agricultural commodities that have skyrocketed this year?  I can only predict that we may see a bit of a temporary drop as the market is flooded with corn and beans. 

Over the past twenty years that I’ve invested, I’ve noticed that after a fairly long movement upward, most commoditites rest for six to eighteen months.  There’s a good chance that all these commodities may come to rest all at once.  If so, DBC may decline or just move sideways.

My recommendation is that if you are going to pick up DBC, be careful not to invest more than several thousand in it.  And keep a good stop loss of 25% on it as it moves up the ladder to enriching your portfolio.  DBC is up 78% in one year, and if it could do it agian, wouldn’t you be happy?