August 30, 2015 Rulebreaker

Risk/Reward Vol. 274

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN

“I should be so lucky

Lucky, lucky, lucky

I should be so lucky in love”---lyrics from “I Should Be So Lucky” sung by Kylie Minogue

“I just wanna color outside the lines
I’ve been reprimanded ‘bout a thousand times
I’m a rulebreaker
You know, I’m a rulebreaker.”---lyrics from “Rulebreaker” sung by Ashlee Simpson

“Hey, I don’t feel so good lately
Must I take pills for stability
You take me right to the edge.”---lyrics from “Stability” sung by Deborah Harry

Those who are acquainted with my bride know that “I should be so lucky/Lucky, lucky, lucky/I should be so lucky in love.” And never more than this week. On Tuesday, in the wake of Monday’s 600 point drop in the Dow Jones Industrial Average (DJIA), Barb decided to buy some master limited partnership interests. She did so without any input from me and after consulting one of our investment advisors, Nick Webster. This coincided with encouragement from another of our advisors, Dave Bartz. (Yes, dear Readers, neither Barb nor I are so stupid as to trust all of our money to my management.) Emboldened by her move, on Wednesday, I decided to start buying again. According to Seneca, “luck is what happens when preparation meets opportunity.” Having studied assiduously while on the sidelines, I was prepared with a list of stocks to take advantage of what I perceived as a great opportunity.

I recognize that some may be disappointed that I did not follow my self-imposed rule to refrain from buying until the Federal Reserve decided to raise rates. Unlike Ashlee Simpson, “I don’t wanna color outside the lines/I’ve not been reprimanded a thousand times/ and I’m not a rulebreaker.” But slavishly following a rule just did not make sense when Kinder Morgan dropped so low as to pay a 6.5% dividend; when Realty Income likewise dropped in price so as to pay a 5% dividend; when ETP was paying nearly 9%; when the price of GAB and FFC fell 8% below net asset value, etc., etc. So I bought, and then I bought some more. By week’s end, I had deployed 25% of my available cash.

So how about next week? If I keep “feeling so good” as I have “lately”; if I sense that we are not “to the edge”; and if Mr. Market does not need “pills for stability”, I likely will continue to buy. The key is stability; something I sensed on Thursday and Friday as the Federal Reserve met in Jackson Hole. Indeed, even as the stock market precipitously fell and then rose just as abruptly, the yield on the benchmark 10 Year US Treasury remained remarkably stable. I am beginning to believe that the bond market has priced in a 0.25% increase this year, and it matters little if it happens in September or December. If I continue to see evidence of stability in the 10 Year yield, I will continue to buy.

Wow, what a ride! Who would have thought on Monday, that both the DJIA and the S&P 500 would end up for the week? Times like these are great learning experiences and present wonderful opportunities for those who maintain a healthy cash reserve. I am very interested in your take on what occurred and what you believe will happen in the near future. Follow Deborah Harry's advice and : “Call me, call me on the line/Call me, call me any, anytime/Call me, call me any day or night/Call me.”