Winter break now! Work has wrapped up for the year and now I am about to head home to visit my family. I hope you all have a safe and Happy Holidays!
As I had eluded to in my November Highlights, I have contemplating selling several of my investments. I haven’t done enough analysis to make decisions on all of the positions I listed, with the exception of one.
I decided to sell ARCP over the last few weeks. I have watched the drama unfolding and have decided that the investment is not worth the risk associated with it. I made several mistakes while researching and buying this investment:
- I projected the success of O onto ARCP’s future
- Reached for yield
O has an impressive track records. They have raised the dividend for several decades through boom and bust. As I researched ARCP, I felt like I could be getting into an “O” type investment at the early stages where the initial dividend increases would be higher than they will be when the company reaches O’s maturity level. I feel like the triple net lease REIT space is great for investments, but ARCP proved too opaque for my research. Truth be told, of all the positions in my portfolio, ARCP has bothered me the most, even on the day I bought it for the first of two times. That in and of itself should probably have told me not to bother with it, but I did.
If you have an reservations with your research, do more research.
In the end this will be a tax loss and a lesson learned for me. I sold the position on Thursday at 8:28 per share. I will loose about 162 dollars of income and I am pushed back below my previous milestone, but the proceeds from the sale will be reinvested and should add an additional 50 dollars to my income. A temporary set back of 110 dollars or so. I received around 200 dollars in dividends from this investment, for a total loss of 400.
Sailing down memory lane
Ahh reaching for yield, I’ve committed this sin before. Years ago I bought an investment called Paragon Shipping (PRGN). Shipping was in a golden age in early 2007. Spot prices were high and shipyards were stuffed with orders! Unicorns and rainbows were around every corner, the DOW was almost at 14k. Paragon was adding capacity to its fleet and the fleet was locked into long term leases at high rates! What could go wrong?
PRGN had something like a 8% dividend. Not crazy, but once the market crashed, the Baltic Dry Index went from over 10k to 1k in less than year. PRGN crashed and so I bought more and more and reinvested dividends. Dividends of 20%! When all was said and done, I lost somewhere in the neighborhood of 5k (and some of it in a ROTH account). The total loss was probably 80-90% of invested capital. Easily my worst “investment” of all time.
Ironically, I was researching on how to become a dividend investor at the time. This was the first time O came on my radar, but it’s yield at the time was to “low”. Sigh… I supposed one of the first mistakes a dividend investor makes is focusing on yield over ensuring that dividend is safe and sustainable over decades. Put O and PRGN on the same chart and see how that turned out.
The Fear or Missing out or FOMO
Why did I hold onto PRGN for so long? Even though hindsight is 20/20, it does appear that things were bad enough that I should have considered getting out of PRGN (or never getting in). The main driver in holding onto the stock (and adding to it), was the fear that once I sold, it would go up and all the money I lost would have been recovered. If I sold, I was locking in losses and loosing money, but if I bought more now, my gains would be even better (and it would have to go up less to be in the black!). Or that is probably how my thought process went. I was pretty good about telling myself the recovery was right around the corner!
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffet
Right? I was definitely being greedy, but I was also being an idiot. At the time, I don’t think I had enough knowledge about both PRGN and the shipping industry in general to be making those purchases. I also had bad timing, but I’ve had good timing too, so that evens out. I like this quote from Warren Buffet, but I think there is a caveat of knowing what your doing, which I did not at the time.
Why would I sell an investment?
Over the last few months, I have been pondering whether or not I should sell some of my slower growing dividend growth stocks. This would put companies like T (~2.1%), VZ (3.4%) and SYY(3.4%) into that bucket. I will be examining over the next few weeks and will hopefully put a coherent post together about why I would choose to sell one of those positions.
A small purchase
I hadn’t expected to make a purchase this month, as I am saving up funds for my ROTH come January 2nd. However, I have accumulated enough funds in my Loyal3 account (52 to be exact) and decided to buy some MCD with it. That will execute on Monday ( I put it in to late on Friday).
No one wants to make mistakes, but if you can learn from them, then they aren’t all bad. I would rather make this mistake with a small investment now, than make a large investment in the future and have my income setback much future.
Disclaimer: Long MCD, O, T, VZ, SYY