Month in Review – February 2018

Although February is the shortest month of the year, it was one of the more interesting we’ve had in a long time thanks to a pickup in market volatility.

I’ve been saying for a while that it will be hard to watch the streak of high scores come to an end and sure enough it was a tough month for the market value of our liquid assets.

But we kept socking money away, and the “total invested” portion of the wet worth tracker continues to climb steadily.

So here we go. Let’s talk about the month that was.

Portfolio Summary

Metric

End of February 2018

End of January 2018

Total Invested

$435,791.06

$428,138.10

Market Value of Total Invested

$461,735.31

$466,901.23

Allocation % – Equity

59.92%

55.15%

Allocation % – Bonds

18.06%

18.03%

Allocation % – “Other”

2.97%

2.76%

Allocation % – Cash

19.00%

23.60%

Income Assets – Invested

$276,505.64

$254,491.93

Income Assets – Market Value

$278,710.45

$265,714.84

Projected Annual Income

$18,618.86

$12,612.23

Invested Yield

6.73%

4.96%

Market Yield

6.68%

4.75%

Stock Purchases

5 stocks purchased. 2 are additions to existing positions, and 3 are new holdings; projected annual income increased by roughly $161.24 based on current dividends.

02/06/18 – VCF: 115.1460 shares purchased @ $14.47/share. I’m continuing to build a position in this muni-bond closed end fund in our taxable account.

I have the sharebuilder auto-invest feature set up to buy $1,666 worth of shares once per month. The account is funded with 6 more months worth of cash for these auto-investments, so this will keep showing up here for a while.

I’m dollar cost averaging into the position because I expect negative pricing pressure on bonds this year as rates rise and inflation picks up. So far that theory is playing out pretty much how I expected.

Since the dividends are set to be automatically reinvested, I don’t count this investment towards my total projected investment income.

02/06/18 – KMB: 13.1094 shares purchased @ $114.12/share. Mrs. Wizard had been sitting on quite a bit of cash in her ROTH IRA. She was tired of setting limit orders and then having the share price run away from her. So she loaded up a bunch of automatic investments into the capital one sharebuilder tool and deployed her cash. The timing was…pretty good.

Projected investment income is increased by $52.44/share based on the newly increased annual dividend of $4.00/share.

02/06/18 – STX: 30.7924 shares purchased @ $48.71/share. This was part 2 of Mrs. Wizard’s auto investment.

Projected investment income increased by $77.60 based on the current annual dividend distribution of $2.52/share.

02/06/18 MJX: 48.1045 shares purchased @ $31.18/share. Part 3 of Mrs. Wizard’s ROTH deployment. The ETF changed it’s ticker to MJ during the month

I have no idea what kind of income to expect from this investment. I’m going to go ahead and just project zero.

02/06/18 SBUX: 25.9961 shares purchased @ $54.89/share. Part 4 of Mrs. Wizard’s ROTH deployment. Between Mrs. Wizard’s ROTH and the inherited IRA, we already owned 128 shares of SBUX, so we’re adding to that position here.

Projected investment income increased by $31.20 based on the current annual dividend distribution of $1.20/share.

Choose the Form of the Destructor

Last month, I closed my UVXY position for a pretty nice profit. I didn’t re-initiate the position because the share price was getting too low. My experience has been that the if the breakeven price gets below where the stock is likely to go through a reverse split, it becomes incrementally harder to make money on the put premiums.

So I was waiting for the next reverse split before getting back into this trade. Boy was I lucky.

Volatility came back with a vengeance in February, and the “short vol” trade blew up in a pretty high profile way. XIV doesn’t exist anymore. SVXY lost 90% of it’s value in a day. And the UVXY LEAPS puts lost a lot of value, although nothing like the popular short ETPs that made headlines.

With all the new scrutiny surrounding volatility products, Proshares decided in their infinite wisdom to reduce the leverage on UVXY from 2X to 1.5X, and god only knows what that’s going to do the decay rate over time. For now volatility is still pretty elevated, and the VIX futures contracts have actually been in backwardation instead of contango.

All UVXY put trades are documented in the “UVXY” tab of the Dividend Income Tracker, and any future trades will also be documented on the twitter (as long as I can remember to post them).

For the uninitiated, I have been shorting UVXY because it is the worst ETF ever. I still think it is, but I may have to watch from the sidelines for a while.

I use long put positions so I can avoid the use of margin and do these trades in tax-advantaged accounts. It remains to be seen if the reduced leverage will bring the ETF decay rate in line with the time decay rate of the options.

Pay Days

Dividend Income Tracker is published here at the mothership and has been updated.

Total investment income of $1,242.10 with a taxable total of -$35.45. We’ll call it 11 “pay days” with 30 individual payments received.

Options premiums represent $785.44 of that total.

Capital gains made up $0.00.

Which leaves $492.11 of actual bona fide dividends (and a recognized loss of -$35.45 from P2P lending).

Lending Club

Lending club income is aggregated into a single income record for simplicity’s sake. It actually arrives as a lot of small payments over the course of the month.

Four loans got charged off this month! I think that’s the worst month yet. The number of bad loans we’ve invested in is now 13 out of 214 or ~6.08%.

It appears that all four of the loans that were extremely late (31-120 days) last month wound up being charged off. That is a real bummer, but the real punch in the gut is the fact that we’ve replaced all those late loans with four new troublemakers which are now listed as moderately late (16-30 days).

Meanwhile, the loan that was in the grace period seems to have progressed to become extremely late. This is not going in the right direction.

Oh well.

Month

In Grace Period Late (16 -30 days) Late (31 – 120 days)

Charged Off (aggregate)

End of 2017

0 0 6

8

January 2018

1 0 4 9

February 2018

0 4 1

13

I’m glad I started tracking this stuff last year. It should be fun to continue to follow it through 2018.

Lending club’s algorithm is suggesting I should write down $55.21 worth of principal for the five loans that are late, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off to recognize the loss.

That is down from what it suggested last month ($76.35), which I guess reflects the fact that moderately late loans aren’t as bad as extremely late ones. Let’s just say I don’t have a lot of faith in the algorithm these days.

I continue to lose interest in my new experiment which involves buying late notes on the secondary market at a discount. I feel like I have a good set of rules to follow to pick out decent loans among the garbage on the secondary market. But it’s so tedious to do. It continues to remain a separate deal for the time being. If/when I ever decide to just cut bait on this half baked idea, I’ll recognize the loss here and move on.

Anyway, here’s the latest on all that.

Comparisons

Month over month, investment income was down -6.9% compared to $1,333.59 in January. The dividend total was much lighter because February is kind of an off month for a lot of companies’ payment schedules.

But I made up for it with a really big month for options, which makes sense given all the volatility that sprang up. So there you go.

I now have over 4 years (!) of data on my income tracking sheet.

So I’m including a table in this segment to look at longer term trends:

FEBRUARY – INVESTMENT INCOME HISTORY

Year

Dividends

Options

Capital Gains

P2P

Total

2015

$89.84

$0.00

$0.00

$0.00

$89.84

2016

$536.37

$99.70

$0.00

$0.00

$636.07

2017

$234.70

$368.31

$796.24

$3.17

$1,402.42

2018

$492.11

$785.44

$0.00

$-35.45

$1,242.10

Pretty cool huh?

Raises

The OHI distribution represents a 1.5% increase, which is like the bazillionth consecutive quarterly increase from the company. It will likely be the last for a while since during the most recent earnings announcement, management indicated that they’re going to hold the dividend at the current level for the year while they deal with tenant issues. I have been saying for some time now that the constant increases were untenable. I’m surprised it took this long, and frankly I’m worried the next step is a cut.

Honorable mention goes to FAST who raised their distribution by and 15.6%. I didn’t hold any FAST shares for the previous quarter’s payment, so I don’t count it as a raise here, but I’ve owned FAST in the past, and it’s nice to have it back in the portfolio.

And that brings us to the end of February. Time to bring on March and wrap up the first quarter already.

What do you think? Any comments on my month? How did your portfolio navigate the sea of volatility?

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