January 2015 Report

hp_blt

I received $148.64 in dividends in January.

PSEC $56.41
MAIN $12.43
FSC $54.56
FSIC $25.25
Total $148.64

 

 

As stated in my last report, I’ve sold ARCP and the reduced dividend income is showing up now. As I bought heavily into my margin until end of December, the newly available funds more or less brought my used margin back to zero. Hopefully I’ve learned from this expensive loss-selling lesson. In the future I will only invest the amount of my monthly saving rate using my margin – this gives me more flexibility instead of waiting to buy until I receive my monthly paycheck. In 2015 I will reduce the amount of trades and minimize the  brokerage fees – I cared much less in the past months – and I will continue to hunt quality companies which may offer some discount but at the same time show good fundamentals.

I’ve selected Helmerich & Payne (HP) and Billiton (BLT) this month as my best investment choices.

Oil stays low and I will continue to invest in oil dependend oil companies. As I’m just starting my investment endeavor my time span are decades instead of years or months. My heavily disbalanced portfolio is much less an issue to me as I will balance it over time by investing in other sectors later, when there are opportunities. Right now Energy and Basic Material continues to decline which is a clear buy signal to me.

As stated before, I will decrease my BDC exposure – as much fun it is to increase the dividend rate at an insane rate, it’s much more fun to watch your principle rise instead of going heavily into the red and loose sleep at night. An important lesson for me – as I imagined having a higher tolerance level but I don’t. The problem is the lack of transparency and consequently lacking of known fundamentals. You’ve to trust a very expensive management to select the right kind of small cap companies. In the last months the oil price plunged and the whole BDC sector was dragged down – shareholders are showing less patience with these kind of companies because of lacking transparency and safety. Even when some companies were stating the minimal oil exposure, the prices stayed low. Of course, there are other factors as well (tax loss selling last year, impending rising rates) but I want to make a point to myself – imagine the shareholder reactions when experiencing a black swan event or a recession! I have no problem with falling stock prices but I want to hold a company which is doing a transparent and understandable business which won’t fall apart when the wind changes. PSEC showed me the example some exceptional bad management moves. Rising the dividend to consequently cut it by 25%, but balance sheet suggested a cut a year ago. They even issued shares when the stock price was way below NAV – I begin to understand the use of the term “smoke and mirrors”. The guideline for buying a BDC should be at least having a payout ratio less than 100%. Which would include PSEC after the cut, but would exclude FSC(104.5%) and MCC(100%). Logically, these would be my first choices for selling. Maybe I should make a separate post about BDC selection criteria.

One thing I want to add is another lesson learned: I’ve bought Billiton on the London Stock Exchange in GBP. I think this was a mistake.

  • Reason number 1: trading in London is expensive! They are deducting a stamp fee(0.5%) and the brokerage fees are higher than in the US and Germany.
  • Reason number 2: Reinvesting the dividend is a problem as changing currency cost me 4 GBP.

It’s not all bad – that’s why I’ve bought it in GB in the first place: the daily traded volume is very high because of being the domestic exchange(BP, GSK, BBL, …) and second I could diversify over more currencies (I hold only USD at the moment). For simplicity I will continue to stay in USD. I would love to swap BLT vs BBL, but it seems to be a very good catch at the moment – the cost base converted to BBL would be near $38.00. Hopefully there will be another opportunity.

Purchase made in January

Stock Units Price Date Cost
LON:BLT 120 £12.54 2015-01-14 £1504.20
HP 40 $54.91 2015-01-29 $2196.36

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