Rob I had thought that I had read it somewhere in one of your YARP articles but maybe you can clarify YARP trading in more detail. Is this done within an IRA account or taxable account or a combination of both? I have to think that if this is done exclusively inside a taxable account the tax ramifications could border on the extreme. But I am here to be educated and learn!!! I appreciate your response in advance. (PS I am gilja61 on SA)
Hi James, good to hear from you. Yes, I know you as gilja61 too! Unfortunately, SA is not very much in sync with my YARP stock approach, and so I am likely to limit my future stock articles there. Their tradition is to require deep fundamental dives that I have never done or felt I needed in 30+ years of professional investing. So we'll see on that.
Now to your question:
In many ways I am an unconventional investor. That may explain why I am not a household name LOL. My main 35% YARP segment of the institutional portfolio is actually a taxable account.
My approach to investing for myself is low volatility total return. Dividend stocks, ETFs, options, whatever it takes to keep the return range tight. So with the dividend stocks, I know that if I move the position sizes up and down frequently, but hold the stocks at least 1% each, most of my dividend income apart from 1% of each of those 40 stock positions will be non-qualified, and I'll pay a higher tax rate. I don't make tax decisions for anyone but myself, but I am comfortable with it and here's why.
That approach, if I manage it well, allows me to pursue 2x the annual yield on the same stocks, which after taxes ends up being a lot higher net income return. For example, the 40-stock portfolio averages about a 3.8% dividend yield, plus I have a pair of income ETFs in there too, so let's round that to 4%. If I buy and hold that set, equally weighted, I expect to earn 4% yield and that is taxed at 20% to net 3.2%.
But what if I am able to earn 7%+ on the same stocks via the rotational approach I use, and that gets taxed at even the max 37% (which I am guessing few actually pay, more like 25-30%? IDK, not a tax advisor). Now I'm looking at maybe 4.5%-5% net yield.
However, that is only one aspect of the YARP strategy. I am also managing risk in 2 ways:
1. My technical analysis of the stocks
2. The put option hedge
VYM (Vanguard High Dividend ETF) has been around for long time, and it has a 1-year return best/worst of up 75% and DOWN 50%! I can't put exact figures to it, but with the combination of stock selection, rotation of the weightings of that fixed 40-stock basket, the put hedge, the call option upside position and perhaps some ETFs to plug in to supplement the stock portfolio, I feel like I have the potential to reach for maybe 30% or more in a very good up year, and limit drawdowns to maybe 7%. The tools are there, if used with some skill.
As I see it, what good is any dividend yield if it is accompanied by steep losses that do not have any certainty as to when they will be made up. And when they are, that just means the investor wasted a lot of time to make no progress. I have ALWAYS felt that was simply a way for Wall Street to keep clients paying fees every year. But the history says differently, that it can decade 1-2 decades or longer to recover from big declines. The dividend yield is little solace to me if I lose 20%-60% in principal. But hey, that's just me!
Summary: I can't guarantee anything, and all I do is tell my subscribers what I am doing, so they can then determine for themselves how to use that information. The more time passes, the more I realize that there is a narrow but very adept segment of the self-directed investment community that really can use my work as a springboard and backbone of their own research process. So from here forward, that is increasingly THE focus for Sungarden.
You answered my question and provided much more delicious meat to the YARP bones and more importantly, your process. I have to say that you are correct about the community you are reaching (yes, narrow, but is that important?) and the limitations of working within the SA guardrails. A lot to think about! Many thanks, as always!
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Rob I had thought that I had read it somewhere in one of your YARP articles but maybe you can clarify YARP trading in more detail. Is this done within an IRA account or taxable account or a combination of both? I have to think that if this is done exclusively inside a taxable account the tax ramifications could border on the extreme. But I am here to be educated and learn!!! I appreciate your response in advance. (PS I am gilja61 on SA)
Hi James, good to hear from you. Yes, I know you as gilja61 too! Unfortunately, SA is not very much in sync with my YARP stock approach, and so I am likely to limit my future stock articles there. Their tradition is to require deep fundamental dives that I have never done or felt I needed in 30+ years of professional investing. So we'll see on that.
Now to your question:
In many ways I am an unconventional investor. That may explain why I am not a household name LOL. My main 35% YARP segment of the institutional portfolio is actually a taxable account.
My approach to investing for myself is low volatility total return. Dividend stocks, ETFs, options, whatever it takes to keep the return range tight. So with the dividend stocks, I know that if I move the position sizes up and down frequently, but hold the stocks at least 1% each, most of my dividend income apart from 1% of each of those 40 stock positions will be non-qualified, and I'll pay a higher tax rate. I don't make tax decisions for anyone but myself, but I am comfortable with it and here's why.
That approach, if I manage it well, allows me to pursue 2x the annual yield on the same stocks, which after taxes ends up being a lot higher net income return. For example, the 40-stock portfolio averages about a 3.8% dividend yield, plus I have a pair of income ETFs in there too, so let's round that to 4%. If I buy and hold that set, equally weighted, I expect to earn 4% yield and that is taxed at 20% to net 3.2%.
But what if I am able to earn 7%+ on the same stocks via the rotational approach I use, and that gets taxed at even the max 37% (which I am guessing few actually pay, more like 25-30%? IDK, not a tax advisor). Now I'm looking at maybe 4.5%-5% net yield.
However, that is only one aspect of the YARP strategy. I am also managing risk in 2 ways:
1. My technical analysis of the stocks
2. The put option hedge
VYM (Vanguard High Dividend ETF) has been around for long time, and it has a 1-year return best/worst of up 75% and DOWN 50%! I can't put exact figures to it, but with the combination of stock selection, rotation of the weightings of that fixed 40-stock basket, the put hedge, the call option upside position and perhaps some ETFs to plug in to supplement the stock portfolio, I feel like I have the potential to reach for maybe 30% or more in a very good up year, and limit drawdowns to maybe 7%. The tools are there, if used with some skill.
As I see it, what good is any dividend yield if it is accompanied by steep losses that do not have any certainty as to when they will be made up. And when they are, that just means the investor wasted a lot of time to make no progress. I have ALWAYS felt that was simply a way for Wall Street to keep clients paying fees every year. But the history says differently, that it can decade 1-2 decades or longer to recover from big declines. The dividend yield is little solace to me if I lose 20%-60% in principal. But hey, that's just me!
Summary: I can't guarantee anything, and all I do is tell my subscribers what I am doing, so they can then determine for themselves how to use that information. The more time passes, the more I realize that there is a narrow but very adept segment of the self-directed investment community that really can use my work as a springboard and backbone of their own research process. So from here forward, that is increasingly THE focus for Sungarden.
You answered my question and provided much more delicious meat to the YARP bones and more importantly, your process. I have to say that you are correct about the community you are reaching (yes, narrow, but is that important?) and the limitations of working within the SA guardrails. A lot to think about! Many thanks, as always!