Author Topic: Non diversification woes  (Read 7752 times)

Magclaw

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Non diversification woes
« on: October 29, 2014, 09:33:39 AM »
I need everyone to facepunch me. My taxable investment account is about 100k, and despite all the advice on here, I have about 50k of that in ARCP. As of this morning the CFO and the chief accounting officer both were forced to resign and the stock is down 33% today. All together I have lost about 16-17k in this stock, in the last year.

This has pulled my overall portfolio into the negative (down 4k over 2 years of investment).

Any thoughts if I should bail on ARCP at this price and just call it a loss (sell all and buy vti/blv).

I am having a bad day :(

Aphalite

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Re: Non diversification woes
« Reply #1 on: October 29, 2014, 09:45:51 AM »
Silver lining: Harvest that tax loss against the other portions of your portfolio

hodedofome

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Re: Non diversification woes
« Reply #2 on: October 29, 2014, 09:54:40 AM »
You DID have a plan, before you bought the stock, as to when you would sell it? What does your plan say?

If you didn't have a plan, then chalk this up to a very expensive experience and get out now. Don't buy stocks again until you have a defined methodology for entry, position size, and exit. Otherwise you're just gambling.

NP

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Re: Non diversification woes
« Reply #3 on: October 29, 2014, 10:10:49 AM »
You wrote you'd buy the long term bond index (BLV), even though the most commonly recommended bond fund for buy and hold investors is the total bond index (BND). Owning BLV instead isn't necessarily a bad idea depending on your goals but be sure you've thought it through and have a very good reason to stray from what's considered the safer choice.

GlassStash

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Re: Non diversification woes
« Reply #4 on: October 29, 2014, 10:11:55 AM »
I guess it comes down to whether you believe the stock will ever rebound. This is the market-timing/stock-picking that index investors seek to avoid.

Numbers Man

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Re: Non diversification woes
« Reply #5 on: October 29, 2014, 10:27:57 AM »
Sell while you still have some money. A stock down 30% in one day is telling you the worse is yet to come.

skyrefuge

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Re: Non diversification woes
« Reply #6 on: October 29, 2014, 10:31:34 AM »
I don't have any advice, but I wanted to thank you for at least publicly sharing your negative experiences, and acting as a cautionary tale. It's a natural human tendency to only report successes, which makes stock-picking appear simpler than it actually is, so thanks for stepping up to take the face-punches to help fight that impression.

Especially since this is explicitly an example of why an obsession with dividends is often a bad idea. What use did you have for large monthly dividend payments anyway?

The particularly sad thing is that this is the third time in 12 posts you're acting as a cautionary tale:

First of all I own about 35 different stocks, and yes I know I should be buying index funds, but all of us make mistakes don't we....
Well I ran some numbers to see what percentage gains i have averaged....
My gains were 16.3%/year taking into account how long each batch of deposits were invested.

Now this shocked me in that had I simply invested in VTI I would have realized 44% returns for 2 years.

And even more tragically:

I screwed myself with TZA, bought 200 shares at 16.50 (i know overpriced but this was a month and a half ago) and then sold it at its low of 13.5 for a 600 loss. I know I did everything wrong but I got nervous and sold....

Actually I moved that money into ARCP and it just jumped today so the loss may have been not so bad.

I have loved trading ARCP lately, though I am heavily overweighted with it (its 50% of my portfolio). I just love the 8% monthly returns.

:-(

Magclaw

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Re: Non diversification woes
« Reply #7 on: October 29, 2014, 11:06:59 AM »
Actually since my last posts I had sold off some of my stock picks, but was holding onto ARCP and AUY to hopefully break even, I wish I had not waited.

I pulled the trigger and sold off 60k worth of non diversified stocks and am nervous about any reinvestments.

I currently hold about 20k in VTI, and 10k in BLV, but now I am worried if BLV is diversified enough and should I have gone for BND?


zoltani

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Re: Non diversification woes
« Reply #8 on: October 29, 2014, 11:12:32 AM »
50% of portfolio in one stock is risky, 50% in one REIT is down right scary. Did you buy just for the dividned? Were you aware of risks involved with REITs and tax implications?

I have a very small position in ARCP in a very small taxable account, but I will likely not sell at the moment to see how it plays out.

If I look at my entire investment portfolio, including rental property, ARCP is about 0.5% of total.
« Last Edit: October 29, 2014, 11:15:36 AM by zoltani »

Magclaw

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Re: Non diversification woes
« Reply #9 on: October 29, 2014, 11:55:39 AM »
Yes I did buy for the dividend. I am unaware of the risks, but I was going to stay in for the long haul, until I read that current news which scared me.

Regarding the tax implications, now that I have a big write off, will that cancel out all the REIT dividends this year? That is to say will my 6,000 of losses, offset my 3,000 of REIT dividend gains. This is something I was not sure of (it would be a small comfort).

I had read up on ARCP and had figured they were similar to O, but paying out a better dividend (my holdings in O were up about 16% for the year)

Would I (40 years old) be safe (I know its relative)  in throwing all my money now into a blend of VTI/BLV?

shuellmi

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Re: Non diversification woes
« Reply #10 on: October 29, 2014, 12:01:06 PM »
Quit doing stuff and invest for the long term!

Kaspian

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Re: Non diversification woes
« Reply #11 on: October 29, 2014, 12:05:08 PM »
Any thoughts if I should bail on ARCP at this price and just call it a loss (sell all and buy vti/blv).

Here's a question:  Would you buy more of it?  Buying more of something is the same thing monetarily as keeping your cash where it is and hoping for a recovery. 

Read the section on "Framing":
http://www.moneysense.ca/invest/train-your-investing-brain

larmando

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Re: Non diversification woes
« Reply #12 on: October 29, 2014, 01:20:12 PM »
50% of portfolio in one stock is risky, 50% in one REIT is down right scary. Did you buy just for the dividned? Were you aware of risks involved with REITs and tax implications?

I have a very small position in ARCP in a very small taxable account, but I will likely not sell at the moment to see how it plays out.

If I look at my entire investment portfolio, including rental property, ARCP is about 0.5% of total.

Could you explain why you would consider a REIT as more scary than a stock? (of course we all agree 50% of a portfolio is *not* healthy in a single entity) And what risks are you talking about? (I know the tax implications, although they seem to be applying more to americans than non-americans)

Thanks in advance!

Jack

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Re: Non diversification woes
« Reply #13 on: October 29, 2014, 01:30:26 PM »
(Magclaw: Please, for the good of your portfolio, ignore what I'm about to say! As Skyrefuge so clearly pointed out, stock-picking is not for you...)

Here's a question:  Would you buy more of it?

I'm interested in others' opinion about this. Given that the fraud has been detected and (at least some of) the responsible executives have stepped down, it strikes me that maybe the stock has already taken the hit and is now undervalued. I mean, it seems like the company has a fundamentally good business model (and is backed up by real assets), so now that the untrustworthy officers are gone maybe it will do well. On the other hand, there's still further auditing and investigation to be done, and the article I was reading speculated about "an ugly legal battle ahead."

From a contrarian investing perspective, the fact that it's had these issues makes me want to investigate it as a potential buy (for a small part of the "play money" portion of my portfolio -- maybe $500 or $1000), as long as it's unlikely that any remaining issues could be bad enough to result in a complete wipe-out.

SunshineGirl

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Re: Non diversification woes
« Reply #14 on: October 29, 2014, 01:33:04 PM »
You can take the loss against capital gains, not dividends.

usmarine1975

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Re: Non diversification woes
« Reply #15 on: October 29, 2014, 01:39:00 PM »
I have a play account in which I play and it's not a huge account to start with.  In it I have a few funds that are down at the moment.  I have been tempted to sell, at that moment I face punch myself and remind myself why I bought them and don't look at my account balance sheet until I absolutely need too.  Granted my down or loss is no where near what yours is.  But then I don't even look at the bigger accounts on a regular basis.

I agree with others you NEED a Plan and the discipline to stick to it.  Trying to time the market is for the gamblers.

hodedofome

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Re: Non diversification woes
« Reply #16 on: October 29, 2014, 01:45:20 PM »
The problem is that you bought a stock based on how much you thought you could make. You never figured out how much you could lose - beforehand.

In order to ever even think about making money in individual stocks (and really all investments - including index funds), you must first figure out how much you are willing, and possibly, could lose. Until you know that, buying individual stocks is foolish.

That, and you had way too much of your net worth tied up into 1 stock and didn't consider how scary that could be.

Jack

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Re: Non diversification woes
« Reply #17 on: October 29, 2014, 01:52:18 PM »
You can take the loss against capital gains, not dividends.

Ouch. Way to rub salt in the OP's wounds (with his REIT-heavy, and therefore dividend-heavy, portfolio)!

NP

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Re: Non diversification woes
« Reply #18 on: October 29, 2014, 01:57:05 PM »
I currently hold about 20k in VTI, and 10k in BLV, but now I am worried if BLV is diversified enough and should I have gone for BND?
BLV is well diversified but has a very long average duration. Long term bonds come with unique risks. Unless you understand those risks and have carefully considered if they suit your circumstances, it'd be a gamble to extend the duration of your bond holdings relative to the total market. Maybe you'd get lucky, maybe not, and if BLV temporarily plummets, perhaps you'd panic and sell because you would have no idea really what you're doing with long term bonds in the same way you had no idea about the individual stocks. Better wait until you're more experienced.

I've been in your shoes to some extent. When I started investing, I bought some BLV, too, because it had impressive returns and my time horizon was long so I thought it made sense to accept the extra risk. It seems simple and logical if you're ignorant like I was. I got lucky but it was a dumb decision nonetheless because in my situation it would've made more sense to take extra risks on the equity side or to use a different long term bond fund if I had to have one.

If you'd like more options, some prefer BIV as an alternative to BND, so go ahead and research the topic if you feel like it. You'll find a lot of conflicting views and no obviously correct answers. On the plus side, they're similar enough that you can't go very wrong with either.

RyeWhiskey

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Re: Non diversification woes
« Reply #19 on: October 29, 2014, 02:38:39 PM »

Would I (40 years old) be safe (I know its relative)  in throwing all my money now into a blend of VTI/BLV?

You should first make an Investment Policy Statement (google it for more info or go to Bogleheads Wiki and check out their page). In this IPS you should think through your long term investment plan and write it out (you will then refer back to this document in the future any time you wonder about markets, individual stocks, etc). Ideally it would involve the simplest combination of low-cost index funds possible, VTI/BLV is fine, but do you know why you want to own BLV instead of a total bond market index?

In short, you did well by selling your individual stocks as you were clearly not emotionally capable of being responsible with them. It's time to be responsible and shore up your portfolio for the long run. Keep things simple, well diversified, and low cost. Do not speculate.

wtjbatman

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Re: Non diversification woes
« Reply #20 on: October 29, 2014, 08:18:22 PM »
A lot of dividend investors have been wary of ARCP for a multitude of red flags over the past year. The decision to issue so much stock when the stock price was depressed (despite assurances just before that they would not issue stock with the stock price lower than $15 a share), the purchase of the Red Lobster (a failing business) locations, etc.

Not that it helps the OP, but ARCP was never a low risk play in the REIT field. Not to mention, 50% of your taxable portfolio in one stock?? Good god man.

Ironically, after everything that has happened, ARCP might finally be a good long term buy and hold play.

Magclaw

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Re: Non diversification woes
« Reply #21 on: October 30, 2014, 07:42:15 AM »
Just an update at noon I sold 3000 ARCP for 8.10 and it closed the day at 10. I do have policies about stock trading, but yesterday I ignored it and pulled the trigger on selling it. I have read some articles on ARCP and was planning on holding it for a long time since their business model looked sound, but my fear yesterday was that if they were lying about their financial statements, it could be another Enron and collapse, especially since the CEO had just got out.

Terrestrial

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Re: Non diversification woes
« Reply #22 on: October 30, 2014, 08:31:35 AM »
You can take the loss against capital gains, not dividends.

Unless there is some special rule for REITs that I am unaware of and it wasn't being held in some kind of a tax advantaged account, I don't think this is true. 

Losses do cancel capital gains first, but if in the end you have a net loss you can then take up to 3k of the net losses against your taxable income (includes dividends/wages)...and also roll the excess loss over 3k to future tax years.




Terrestrial

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Re: Non diversification woes
« Reply #23 on: October 30, 2014, 08:43:13 AM »
Try not to take this the wrong way but you don't seem built for investing in individual stocks.  First your portfolio weighting/allocation is extremely risky, second it seems like you have a solid history of buying bad investments and/or selling them at bad times when you get nervous.  Not to depress you but your previous underperformance noted by someone relative to the rest of the market and then taking a massive loss on half of your portfolio probably set your portfolio back years of long term growth.

Chalk this up to the hopefully final learning experience and pick an index ETF of some sort and a bond ETF if you feel it's necessary, in whatever allocation makes sense for you, then for heaven's sake...leave them alone.  No more 'trading'.  No more 50% in one individual stock.  Only a couple simple ETF's/mutual funds. 

Good luck and sorry to hear about your situation I know it stinks to lose hard-saved money.  Be smart and patient, you'll get it back, but not by chasing returns with more speculation.

Magclaw

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Re: Non diversification woes
« Reply #24 on: October 30, 2014, 10:23:37 AM »
You can take the loss against capital gains, not dividends.

Unless there is some special rule for REITs that I am unaware of and it wasn't being held in some kind of a tax advantaged account, I don't think this is true. 

Losses do cancel capital gains first, but if in the end you have a net loss you can then take up to 3k of the net losses against your taxable income (includes dividends/wages)...and also roll the excess loss over 3k to future tax years.

This is also what I had believed. Thanks.

Also I feel my situation was almost exactly the same that happened to Doug and Carey in King of Queens, if you are familiar with the episode.

SunshineGirl

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Re: Non diversification woes
« Reply #25 on: October 30, 2014, 11:13:17 AM »
Yes, yes, you're right! I was misremembering my basic tax training. The loss can cancel capital gains and then be used to reduce your taxable income, and THEN if there is more than a $3,000 loss, it can be carried over to future years.


You can take the loss against capital gains, not dividends.

Unless there is some special rule for REITs that I am unaware of and it wasn't being held in some kind of a tax advantaged account, I don't think this is true. 

Losses do cancel capital gains first, but if in the end you have a net loss you can then take up to 3k of the net losses against your taxable income (includes dividends/wages)...and also roll the excess loss over 3k to future tax years.