Sunday, May 10, 2020

Covid trades and emotional attachment

Yes I know, I know the worst thing you can do is get emotionally attached to stocks....I know.

But the thing is when these little champions are paying your FIRE wages it's possible to argue you can't help but get attached, it just goes with the territory. I mean you spent the time researching, hunting down the good deal at the ideal price, following the quarters so you've got some skin in the game. Then you spend each quarter checking out the Charles Schwab history tab and see them paying into your account with a wry smile and happy vibe. You may have gotten a really good deal and watched the stock sit in the green for quite a while, your ego giving itself a well earned pat on the back for being so savvy.

But then along comes Covid-19 or a 2008..

The emotional attachment then has to go out the window, sh*t get's real if you'll pardon the crass expression. Decisions need to be made when the day of reckoning arrives and from then on it's survival of the fittest.

The point of this post is we lost a few good foot soldiers recently in the Covid portfolio battle. It felt like those times working when an old friend got laid off and it was like someone removed a part of your emotional centered stability. Very sad for those of us who unintentionally become emotionally attached to our companies.

First there was the bye bye to Royal Dutch Shell, this was a tough one but it's been time to say goodbye for some time if we're being totally honest. No offence but they've been a bit too fast and loose for us for quite some time, did themselves no favors with the attempt to re-domicile the entity back to native Holland and with it drag us into their tax bracket. Management got overruled back then by the world investor voting community and it's common sense so normal service was resumed, however the dye was cast. RDS.B was on borrowed time. Then Covid and this time it pulls the rug from under our poor UK pensioners who all the oil majors know rely on the dividend for their pensions at their time of most fear and vulnerability. If the earnings call was scary it would be understandable but even then a scrip would have been acceptable, give us a few shares in lieu until you find your feet. Nope hack job on the dividend ensued and some (us) would argue needlessly. Time to say goodbye (waves like Granny at the end of the Beverly Hillbillies credits)

Sticking with the UK it was also time to bid adieu to our long time holding in UK bank HSBC, through no fault of their own too which really sucks. The UK government instructed poor HSBC to drop their dividend for the remainder of the year. This level of meddling is not acceptable and we feel bad for HSBC but it is what it is, they have to go because we can't account for this type of government intervention in our income stream.

Next on the chopping block was Centerpoint Energy. Since they took over high quality name Vectren we've had high hopes, some would say pie in hopes for them but this has fizzled out to quite the mismanaged letdown. Understanding that oil prices were deep in the toilet at their MLP but even still there was more to this in our minds, an opportunity to hack the dividend to cover up sloppy workmanship internally maybe? The CFO departure bears testament that all is not good over at CNP. We're letting the Preferred run on for now, got a good 18 months left to sell it off before it get's flipped over to the common but most likely that will experience Granny wave too...Uncle Jed would be proud.

Next two (said this was a rough time) were both Westrock (WRK) and Welltower (WELL). The former should be rolling in green right now due to the stay at home demand for their corrugated cardboard but it feels like they took the opportunity to hack their dividend even though their news was not really bad.
As for Welltower it was a good opportunity to set them adrift when they go dividend choppy chop and you've got plenty better like MPW, PEAK and VTR in the space that are performing and for now keeping the ship upright a lot better. (trying not to speak too soon obviously)

One of the largest holdings and bitterest pill was NRZ. We loved ourselves some New Res with Mike Nierenberg at the helm but his masterplan was scuppered by FED heavy-handedness and the calls just mounted up to too many resulting non-agency debt sells. The portfolio is now decimated and with it the business model is now changed for good and doesn't meet up to what we want anymore. Especially when you look at ABR and what Ivan Kaufman's doing over there, even Leon Cooperman is a fan evidently.

That's pretty much all the sells for now, brutal to be honest but necessary. The next quarter should be interesting when a lot of our businesses have been sitting empty for the longer time period but hoping for the best still. The ones with the most common sense have already suspended the dividend which ironically we don't mind, the cuts are what we actually mind because they are more permanent. technically. Resetting dividend growth is a bit of a meaningless exercise, we might as well be buying a Preferred and flattening out the curve with a higher yield in the first place, makes no sense.

On that same subject the Portfolio has effectively stepped in the DeLorean and begun to resemble a little more like our 2015 version. Like a DGI-Preferred hybrid mix. Reason being thus far the Hotel Preferreds have continued to pay or stopped cumulatively while the commons have been suspended indefinitely. Maybe we should have stuck to the 2015 model on reflection but hindsight is awesome.

With the proceeds we've been stocking up again on those long Cumulative Preferred's. Gladstone GOODM, GOODN, RILYP and TWO/PRA. TWO have ditched most of their non-agency MBS so are now a little more investor-friendly. Overall the decision is that we are no longer going to take it personally when call dates happen, just keep flipping Preferred's over and hang on longer term.

This doesn't mean we're now anti-Dividend Growth, quite the contrary we also added to PPL and some VTR and T. We're just being a lot more conscious about where we purchase and if we're taking on too much risk. Boring it may be from here forward so many apologies in advance if the blog now becomes a little more dry when detailing it's purchases. Less juicy dividends more military and utility stalwarts.

Moving forward the hope is the portfolio emerges from the Covid battle more of a lean machine ready to aid us through a long term retirement with less thoughts turning to work. Just can't do it anymore really, this time around really has to be it.


Love to all and stay healthy out there,


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