Focused Investing Perspectives #43
Wall Street vs Reality
Perspectives This Week
An article by an author I respect, who nonetheless is a bit of a Wall-Street type, described the real estate and energy sectors as treacherous. Such comments are common. They always jolt me a bit since I invest in exactly those sectors, with attention and focus but with no sense of inherent threats to my goals.
What explains this is a disparity of goals and perspective?
First the Wall Street side, focused on savers and retirees not would-be traders. It appears that the biggest perceived threat is that the total market value of the portfolio will go down.
This likely reflects the reality of running funds or financial advising. The biggest challenge is to keep your investors from panic selling when markets drop.
Of course it is not good for investors to panic sell and it is pretty bad for the advisors too, since fees vanish. There are lots of consequences of this view. For example, we see lots of advocacy for holding bonds and for increasing the bond percentage as one ages.
This is despite the reality that much of the time bonds are a pretty stupid investment. They have productive purposes, but my preference was to lock in high yields in late 2023 by purchasing single-premium lifetime annuities.
Another aspect of Wall Street houses and many advisors is an utter lack of understanding of or interest in dividends. They are all running variations on Modern Portfolio Theory (MPT), which focuses only on total return.
Many of them do not have the knowledge and background to assess the viability of a business model and how well a company can grow dividends with time. Well, if those skills are not in your tool kit then you had better stick to statistical approaches like MPT.
In contrast, my goals are to sustain and grow dividend income, and along the way to find large gains by purchasing undervalued stocks. Since market participants reliably over-react to events, these opportunities come along regularly.
The criticism from the Wall-Street side would be that during bad markets and crises my portfolio value might drop more than an MPT-focused one. Well, so what?
I’m with the comment made many times by Warren Buffet:
"You've got to be prepared when you buy a stock to have it go down 50% or more and be comfortable with it, as long as you're comfortable with the holding."
Nearly all of my investments are with investment-grade companies with rock-solid business models, and who will be able to sustain their dividends though difficult times. Is there risk? Yes. Is this treacherous? No.
Focused Investing News
Forthcoming:
I am thinking my way through a portfolio redesign, to support holding more high-quality stocks with both income and upside. This element will be better aligned with the interests of many readers.
My workup on NNN REIT (NNN) will be out this coming week; the following one will focus on Regency Centers (REG). The main driver of what I work on for a while now will be when 10-Ks come out.
Personal News:
We took our wine-dinner clientele to Tuscany this week, with wines from Casaloste, which means “the house of the enemies” as a hilltop tower there was a lookout during ancient periods of local threats. The highlights were Scottish salmon and wild boar, each with a bold, Sangiovese-dominant wine.
Meanwhile, here in Gaylord we are less than 7 inches from setting the all time snowfall record. Another foot after that would make 200 inches; one of my friends is rooting for that.
Member News
Material in February has included the following.
Items that went to all members:
Three of these perspectives articles.
My analysis of Plains All American.
Items that went to paid members, often including a free preview of much of the article:
My January Monthly Update
My full 2025 Go-Fishing Portfolio article.
My analysis of Alexandria Real Estate.
A Brief Note after earnings on Armada Hoffler.
Paid members have access to the Focused Investing chat.
The Google Sheets (for annual members):
The main attraction on the Google sheet is full disclosure of my live, real-time portfolio. If you are an annual paid member and do not have access, please contact me.
There are in addition a REIT assessment sheet and a Midstreams assessment sheet, each a tab. And if you scroll down on the portfolio tab, you can see some tickers I track and some playing with possible portfolios.
Also:
Paid members can also post items of interest on the Focused Investing chat, which I do often. Check it out and post your own items, please. Comments and questions are always welcome.
There is a search function on the Focused Investing home page, to help look for past articles.
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I've been thinking about your Wall Street author and I wonder if this just comes down to expertise? REITs are a niche market so my expectation is that a generalist may not spend enough time on it to gain in depth knowledge like we see from writers like you. So they see a large wobble in prices and it looks scary because they don't have the insight to know if that's temporary volatility or actual long term impairment.
In O&G I think the driver is different. It's a niche of its own (but a really big niche), but the shadow of the climate change narrative looms over it, and people who ought to know better get caught up in it. In Feb 2020 the President of BP promised to cut oil production 40% by 2030 and replace that income with wind and solar and biofuel. What I considered to be a lunatic decision was actually made by a guy name Looney. Five years hence and Auchincloss, Looney's replacement, is divesting BP of renewables and doubling down on O&G. So if the President of BP can get convinced that renewables are the future, I imagine many wall street analysts are similarly persuaded, making O&G a scary market.
Very interesting comment:
“This is despite the reality that much of the time bonds are a pretty stupid investment. They have productive purposes, but my preference was to lock in high yields in late 2023 by purchasing single-premium lifetime annuities.”
I am retired and have one baby bond (TRINZ) and no annuities. I will relook at my lone bond (rate is 7.86%) and take a look at annuities. Never have looked annuities. Now may be the wrong time as rates have declined.
My one concern with the bond is I own 1500 shares and their daily trading volume is only around 10K.