Month in Review – October 2018

Well that was fun! Someone spiked Mr. Market’s coffee and he kinda lost it.

The VIX jumped into the 20s and the FANG stocks absolutely shit the bed. While pretty much everything felt the pinch of “Red October”, the pain was focused in the high flying momo stocks, which is fine by me. Arguably this was a long time coming and probably isn’t over yet.

While we’re not totally immune to the selling pressure, I have intentionally tried to minimize the amount of index funds we own specifically in order to reduce our exposure to those types of stocks. I certainly don’t buy any of them individually in the actively managed portion of our portfolio.

 

Like just about everybody, we lost quite a few imaginary cost basis bucks last month. But we continued to save aggressively, and the volatility provided some great trading opportunities.

So let’s dive a little deeper into the month of October.

Portfolio Summary

Metric

End of October 2018

End of September 2018

Total Invested

$486,518.61

$479,516.69

Market Value of Total Invested

$502,390.48

$511,140.84

Allocation % – Equity

61.52%

58.25%

Allocation % – Bonds

17.99%

17.14%

Allocation % – “Other”

2.94%

2.74%

Allocation % – Cash

17.17%

21.88%

Income Assets – Invested

$290,283.51

$262,826.97

Income Assets – Market Value

$292,822.95

$279,471.32

Projected Annual Income

$31,643.57

$13,909.50

Invested Yield

10.90%

5.29%

Market Yield

10.81%

4.98%

It’s worth mentioning that I annualize options premium income and include it in the projected total. The month ended with a number of very lucrative options trades still open, so the projected annual income really jumped.

It’s a little deceptive because I couldn’t really keep those types of trades in force year round, but it’s how I count things so I guess we just have to deal with it.

Stock Purchases

I made five stock purchases this month. Two are new positions. Total investment income is projected to increase by $299.28/year based on the current annual dividend distributions.

10/5/18 WHG – 42 Shares purchased at $50.50/share + $6.95 trade commission for a total investment of $2,127.95. This is an addition to an existing holding and was the first purchase I made in my ROTH IRA since we funded the accounts back in August.

WHG is one of my oldest holdings. I first bought shares way back during the flash crash of August  2015. Historically the $50 level has provided very strong support for the share price.

The price was tanking in September and approaching that $50 range again. So I put in a limit order at $50.50 figuring I might be able to gaff some shares right before a predictable reversal.

Boy was I wrong. The October steamroller kept coming and now we’re in the $42 range, which was where we bounced off the 2016 lows. I might look to add a bit more in November, although at 272 shares this position is approaching a “full” allocation. 300 might be the max.

Projected investment income is increased by $114.24/year based on the current annual dividend of $2.72/share.

10/17/18 VCF – 254 shares purchased at $14.14/share + $6.95 trade commission for a total investment of $3,598.51

Over the course of this year I’ve been dollar cost averaging into this closed end municipal bond fund using the auto invest feature at CapitalOne investing. CapitalOne is dumping their retail brokerage and we’re all getting moved over to E-trade. As part of the transition process, automatic investing has been turned off for the last couple months.

I still had this $3,600 that I wanted to put into VCF, and so I set a limit order and waited to see what happened.

Well if you haven’t noticed, bonds were getting rekt right along with stocks last month, and VCF powered right through my limit order. So this purchase filled out my planned VCF position, which came out to a total of 1285 shares.

Projected investment income is technically unaffected by this purchase, since I’m planning on reinvesting VCF dividends. I don’t count distributions that are automatically reinvested towards my investment income.

10/18/18 CMI – 9 shares purchased at $143.00/share + $6.95 trade commission for a total investment of $1,293.95. This is a new position (although I used to own shares before The Great Catfishwizard Taxable Liquidation)

I mentioned last month that I’m building a portfolio in my actively managed traditional IRA (account #3 in the portfolio) that will be comprised of 11 stocks: one of each from the GICS sectors.

CMI is my pick for “Industrials”. The last time I worked up an investment thesis on Cummins was nearly three years ago. I should publish an update with refreshed numbers from 2018.

Projected investment income is increased by $41.04/year based on the current annual dividend of $4.56/share.

10/19/18 EVC – 400 shares purchased at $5.00/share for a total investment of $2,000.00. This is a new position.

The share purchase was the result of an assigned put contract that expired in the money. I failed to twitter this particular trade. Sorry.

EVC has a kind of thin options market, but there’s tons of premium available right now while it hovers around the $5.00 strike, so I’m trying to make hay while the proverbial sun is shining.

I published my EVC investment thesis in September, and I have to say that I’m pretty excited about this hidden gem.

Projected investment income is increased by $80.00/year based on the current annual dividend of $0.20/share.

10/26/18 LUV – 100 shares purchased at $54.50/share for a total investment of $5,450.00. This is an addition to an existing position.

This purchase was also the result of an assigned put contract that expired in the money. This contract was part of an “earnings strangle” that moved against me when Mr. Market reacted negatively to LUV’s earnings release the day before expiry.

That was a bigger move than I was expecting, but I’m fairly happy to pick up more shares here. The negative reaction was due to guidance that costs would increase in 2019, but revenue should also increase, and as Gary Kelly, the CEO, said during the earnings call, “low cost is in our DNA”.

I’m betting that they’ll be able to keep their cost inflation under control. Even if they don’t, the FCF and balance sheet are incredibly strong, which isn’t something you can say for most airlines.

Projected investment income is increased by $64.00/year based on the current annual dividend of $0.64/share.

Casino

In May I officially retired the UVXY trade. It was fun (and lucrative) while it lasted, but it’s time to move on to something else.

In June I started dabbling in sports betting as an alternative investment. Yeah I know. My wife rolled her eyes too.

This still deserves its own explanatory post at some point in the near future, and I promise I will get around to writing it eventually.

I was up a little bit in October ($29.80), which is nice considering September saw a triple digit loss. I’m still down overall, but gaining back some ground.

I made a total of 60 wagers during the month, and went for a record of exactly 30-30. Each wager risks a total of ~$10. They’re mostly “even money” bets, although some of the NHL plays were on the “puck line” which pays higher odds.

I promise I’ll give more details than this at some point. Hopefully this month will be the month I finally find the time to write up what I’m doing.

Pay Days

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

Total investment income of $1,764.41 with a taxable total of $43.92. We’ll call it 11 “pay days” with 52 individual payments received.

Options premiums represent $925.78 of that total.

Capital gains made up $0.00.

Which leaves $794.71 of actual bona fide dividends (plus $11.75 of P2P interest, $29.80 of sports betting profits, and $2.37 of treasury interest).

After a quiet couple of months on the options front, I took full advantage of October’s increased volatility. It’s nice to see that total up again, and I hope to maintain that activity level through the rest of the year.

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.

One loan was charged off this month. Boo!

Despite the charge off, the situation improved month over month. We now have only one very late loan, and two new troublemakers have been added to the “Grace Period” category. Hopefully we can get a good streak going for a couple months.

The number of bad (charged off) loans we’ve invested in so far comes in at 22 out of 268 or 8.21%.

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

March 2018

0

2

3

13

April 2018

0

1

4

14

May 2018

2

1

6

14

June 2018

1

0

5

16

July 2018

0

0

5

18

August 2018

3

2

3

18

September 2018

1

1

2

21

October 2018

2

0

1

22

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 $24.91 worth of principal for the three loans that are late, but as the eternal optimist, I’m going to continue to wait until the loans are actually charged off before I recognize the loss.

That is down significantly from what it suggested last month ($45.77), so things are actually looking pretty good.

Comparisons

Month over month, investment income was up 106.2% compared to $855.69 in September.

Month over month comparisons are kind of silly given the way that I count “income”. Options activity and capital gains are usually pretty erratic. But that’s how I count it, so it is what it is.

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

So I’ve been including this table in this segment to look at longer term trends:

OCTOBER – INVESTMENT INCOME HISTORY

Year

Dividends

Options

Capital Gains

P2P (Gambling)

Treasuries

Total

2015

$485.08

$0.00

$0.00

$0.00 ($0.00)

$0.00

$485.08

2016

$286.24

$417.17

-$2,255.13

$27.12 ($0.00)

$0.00

-$1,524.59

2017

$432.25

$199.98

$0.00

$11.59 ($0.00)

$0.00

$643.82

2018

$794.71

$925.78

$0.00

$11.75 ($29.80)

$2.37

$1,764.41

Pretty cool huh? Starting next month, I will have 5 years of data!

As I outlined in a post last month, I’ve started using treasury ladders to boost the yield earned on idle cash. I added a column for the treasury interest as I’d like to start tracking that going forward.

Raises

None of the dividend distributions represented a raise this month. What a bummer.

So that was my “Red October”. The headline value of the portfolio dropped a bit thanks to market-wide share price weakness, but I made a bunch of cold hard cash from dividends and selling options premium.

What do you think? Am I crazy? You think I’m crazy don’t you?

Well, say it then. The comments aren’t going to write themselves you know…

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