Why Are You at Breakeven?

We do quite a lot of reading on many message boards and forums around the web and one current theme seems to be that many investors are near the breakeven level in their income portfolios.  Now we aren’t looking at the wild west of forums (which is Yahoo Finance), but instead look at those that have rational investors and some really smart people in certain sectors and we are really quite shocked that many of them appear to be near breakeven (plus or minus a couple percent).

We believe that way too many income investors out there are not THINKING.  They are chasing the flavor of the day–most recently they have chased too many MLP’s and preferred stocks related to these issues.  Diversification seems to have gone out the window to a large degree.  You have to know that if you are loaded up with too many MLPs, REITs, BDCs or Perpetual Preferreds you are going to get severely hammered down at some point in time.

Now lest you think we are being critical of folks–we are.  Sometimes that includes outselves.  Our best performing personal portfolio is one that is almost identical to the 2014 Short/Medium Duration Income Portfolio.  This account is up around 10% and it is the most conservative of all our accounts. We have another account that we ‘goof off’ with–trade options, buy penny stocks and just generally deviate from the income investor theme.  That account is up a couple percent.  The point is we would be much happier (and wealthier) if everything was up 10%–so why not quit doing dumb things.

One of our key goals of this website is to test many different portfolio ideas so we can deal with the fickle markets as they occur.  Over the years (excepting last year where we learned that holding an overload of high quality perpetual preferreds is not necessarily good) our various models have performed very well. Unfortunately (or fortunately) we have not gone through a rising interest rate cycle in the 6 years we have been publishing ‘models’ (we didn’t publish any the first 2 years) and that is maybe what is starring us in the face in the coming year.

To summarize.  To be successful an income investor has to get serious, start thinking, and construct your porfolio as if you really want to be successful in income investing.  Right now, that means that if you are holding a huge pot load of perpetual preferred stocks, you better be prepared to see a potential vaporizing of a large chunk of value.