You run toward the fire... or you run away from it. My investing style has been to run at it, try not get burned, and generate above market returns for my clients while doing so. That's what we call active management. Passive management entails just sitting around and waiting for others to continue to overpay for assets. That strategy has worked well for the first trimester of 2023, but performed horribly in 2022.
But at my firm, Excelsior Capital Partners, we charge asset management fees (albeit only 50 basis points annually, which does tend to cut down on my discretionary spending) and therefore we need tangible results from our investments in every period. And we get 'em... via dividends and interest payments. We have money to burn, or rather perform what I call "persistent reinvestment".
This week I have been buying the Series D preferreds issued by Gladstone Commercial (GOOD) in size. You might be able to look at Friday's (GOODO) chart and see exactly when ExCap's order was finally filled. Damn you, Robinhood (HOOD) ! Hahaha. Just kidding. Robinhood does not offer trading in preferred stocks.
Anyway, that is the hand-to-hand combat that is required to participate in less liquid securities. You really wouldn't have to worry about Apple (AAPL) dropping like a stone 30 seconds after your order was filled... but that's a different ballgame.
Megacap stocks are the product of a weird, self-fulfilling prophecy - big will always get bigger - that really omits any valuation reference to macroeconomic factors, especially interest rates. But what is really galling to me is the fantasy that accompanies some of them. If you want to own AAPL and Microsoft (MSFT) because they are huge, highly liquid and pay dividends and buy back stock (albeit both at below-market-average rates) feel free.
Just please don't waste my time by making stuff up to justify some weird, rosy future. Ark Innovation's (ARKK) Cathie Wood is the clown princess of doing this, as shown by her fanciful valuation for Tesla (TSLA) , in particular. Most of her other picks have actually performed much worse than TSLA in the last 18 months, as has her flagship ETF, ARKK. She spouts off about a $2000 share price target for TSLA based on "robotaxis" and I just sit behind my keyboard and laugh.
But is that really any different than spouting off about AI? AI and robotaxis really are the same math problem. The big difference is that every person wants to use ChatGPT to answer inane homework questions or translate weird languages (like English,) but no one needs a robotaxi. They are a solution in search of a problem. Cathie Wood is a portfolio manager in search of a clue.
So then, where is the fire now? Well, I have been having a fun time in Friday's trading loading up on the Gladstone Commercial preferreds ( (GOODO) and (GOODN) ) that I mentioned here. Trading illiquid securities can be challenging, but GOODO is yielding 9.3% at Friday's levels, and, dammit, I am running toward that fire.
It really is a matter of philosophy and the willingness to work hard to grow your portfolio. That makes it all worthwhile...or had better, because otherwise ChatGPT will tell you that you are wasting your time.
When I sit back on a Friday and wonder if this yield-chasing is all worthwhile, I take in the majesty of Exxon (XOM) , which is a core constituent of the HOAX model portfolio I launched on 12/23/21. Real-time performance-since-initiation data (or what I refer to as "The Stagger" between HOAX and its benchmark, which I wisely chose as ARKK).
- HOAX: +53.82%
- ARKK: -63.68%
Yeah, active management works, and XOM's quarter was just an orgy of cash generation. Please do not sell XOM. Ever. But when you are looking for the next XOM, realize that commodity producers are similar to each other -- Chevron (CVX) had a pretty nice quarter, too -- and only when an entire class of people (like Cathie) decide to demonize that commodity, and its securities, thanks to ESG, that actually opens an opportunity.
So, 2021's XOM, is in my opinion, 2023's Gladstone Commercial. "Just Stop Oil" has morphed into "CRE is the next shoe to drop."
If you think GOOD's sleepy little office buildings and industrial parks are going to fail like First Republic Bank (FRC) (I believe FRC will be euthanized this weekend) you are missing the point. Assets should be valued based on the cash flow they generate and then propagate to investors via cash-flow yields.
Gladstone's rent collections will continue to cover its expenses (of which virtually all are handled by its external advisor; Gladstone Commercial has zero employees) and leave enough left over to pay dividends. My spreadsheets show me that clearly. When Mr. Market chooses to ignore such mathematical logic, we at ExCap choose to act.
Sometimes running to the fire gets you a hot bargain or two.
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