Retail investor claims you only lose when you sell – Interview

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Wall Street – A retail investor claims that investors shouldn’t be worried about this current stock market selloff.  The retail investor says this is temporary and just a blip in the market. “Sometimes stocks go up and sometimes stocks go down,” the retail investor states. According to the retail investor “you only lose when you sell.”  The retail investors top holdings are Occidental Petroleum Corporation (“OXY”), Chesapeake Energy Corporation (“CHK”) and Targa Resources Corp. (“TRGP”).  We interviewed this well-versed retail investor this afternoon to get his take on the market.

Why should investors not be worried about the downturn?

Sometimes stocks go up and sometimes stocks go down.  This is how a stock market works.  But the best thing about a stock market is that you only lose when you sell.  This is key.  I have been holding some names that are down 90%.  But I haven’t lost any money on them because I refuse to sell them.  If my holdings go down 99% during this downturn, I will be ok because I won’t sell them.

How do you pick which stocks to buy?

I like to buy big yielding names.  I screen for companies with yields over 25%.  Most of the time my screener spits out MLPs and REITs.  If a company doesn’t have a thick 25% dividend yield it is really hard for me to buy it.  I like to get paid to wait.  I call my investing style “Dividend Investing at a Reasonable Price”.  I also get 87.5% of my stock ideas from Seeking Alpha.  There are a lot of analysts on Seeking Alpha that really understand what a 25% plus dividend yielder looks like.  I’ll buy hand over fist if someone writes up a 25% yielder on Seeking Alpha.  I also follow a fella named Mr. Skilling on Twitter. Mr. Skilling always highlights high yielding dividend ideas.  I actually found my second biggest holding Targa Resources from a Mr. Skilling Tweet.

What are your top holdings?

My top holding is Occidental Petroleum Corporation (OXY).  Occidental has a dividend yield of 26% at the current price.  YOU GET PAID TO WAIT.  I have 20% of my portfolio in OXY. The only reason why I won’t bring it up to 40% is because the EV/EBITDA is 6.66x.  This scares me so I only have a modest 20% position.

The second biggest name I own is Targa Resources (TRGP).  Targa has a 37% dividend yield.  This is a very attractive dividend yield. Not only do you get paid to wait but the yield is a whopping 37%.  This yield is a higher return than most professional investors make a year.  And the kicker with Targa is that if the stock goes up you get to lock in the dividend yield at 37% plus you get all the upside.

A third name I own Chesapeake Energy Corporation (CHK).  Chesapeake is a unique company and something I would like to call “special situation dividend investing”.  Currently Chesapeake doesn’t have a dividend.  But Chesapeake recently announced a massive capex cut for 2020.  I’m not sure why they are cutting capex, but I suspect they want to implement a massive dividend.  At $0.21/share I bet they could do at least a 50% dividend yield.  Chesapeake Energy is a long-term compounder and at $0.21/share you can’t really lose much besides a measly 21 cents.  If the implement a massive dividend I will quadruple down on my position. 

What is the difference between a dividend and a distribution?

I’m not sure I really understand what you are asking.

When investing in MLPs you typically have to file a K-1. How do you manage the tax consequences when filing your K-1?

I just throw these K-1 things in the mail when I get them.  If I don’t look at them, I never got them. 

A lot of these MLP names are highly leveraged. How do you mitigate the risk of a tripped covenant or total default?

A 6-8x leveraged company really isn’t that bad.  If oil goes to $150/bbl a 6-8x leveraged company goes to 1-2x real quick as these companies have significant operating leverage.  Another thing that gives me comfort is that these companies can always sell more shares to raise capital.  I am always a fan of a company selling more shares – especially at a rock bottom price.  The lower the stock price when a company sells shares the more shares that are sold.  This not only improves liquidity but gives the company a better position because they can always buy those shares back!

Are you fully invested?

I am always fully invested.  You can’t time the market.  Plus, when you are a high yielding dividend investor like me you always want to be fully invested so you can collect those dividend paychecks. 

Any final tips you have to investors?

If you have a home take an equity loan out on it.  The current interest rate is something like 3%.  If you take a home equity loan out on your house and put it in a quality company like Targa Resources, you can collect your HUGE dividend payment and pay your house off with that.  This is pretty much a risk free trade.

Where can readers find you at?

You can follow me on Twitter.

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