Leveraged Income Experiment

George the original one · Sun Jan 08, 2012 3:07 am

$18,000 invested, last deposit in June 2011

$18,923 account value on Dec 31, 2011
XIRR function accounts for irregular deposit timing.
Commissions and fees all came out of the $18k.
Taxes not accounted for because people have different tax situations.

jennypenny · Post by **jennypenny** » Sun Jan 08, 2012 3:12 am

I guess that's still okay given the volatility the last 6 months. Nothing ventured . . .

George the original one · Sun Jan 08, 2012 11:43 pm

While setting up my private spreadsheet for 2012, I realized I had an error in the XIRR data... first entry for 2011 had 2010 as the year.
Corrected XIRR total return was 5.9% for 2011. That's more than twice the S&P 500, even when you count S&P 500 dividends. Still not as strong as my regular portfolio.

Dragline · Post by **Dragline** » Mon Jan 09, 2012 3:16 am

But not bad. Thanks for doing this.

George the original one · Tue Jan 10, 2012 8:38 pm

Yesterday and today, I've been adjusting the mix...
Sold half of the LTC and all of the MAIN because they're at the high end of reasonable valuations.
Bought more ARCC and TICC. Then added 100 NRP today at an okay price... halfway expect to add another 100 NRP, but only when the price dips again.
As it stands, there's still $3.5k of excess liquidity. Income will be about $250/mo.

George the original one · Mon Feb 06, 2012 4:57 am

January results are posted:

https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK
Account value is right back where it was at the start of July, before all heck broke loose, so I'm feeling a little nervous. The past two months have been solid rallies with the market acting like European soveriegn debt doesn't matter and the US budget deadline isn't looming.
If you're keeping track of the rolling average for net dividend income, you'll notice the recent trades have bumped up the rolling average income and the yield has stabilized in the neighborhood of 17%.

George the original one · Tue Feb 07, 2012 9:58 pm

AGNC announced that they're lowering the dividend from $1.40 this quarter to $1.25 next quarter, dropping AGNC's yield down below 17% from yesterday's 19%. As a consequence, I've tightened my stop loss.
On the other hand, Mr. Market apparently was expecting a larger cut, as the shares have risen today.

George the original one · Tue Feb 07, 2012 11:25 pm

To offset the drop in income from AGNC, I've purchased PNNT, thus using up most of the excess liquidity.

Hoplite · Post by **Hoplite** » Thu Feb 09, 2012 3:36 am

Thanks again for publishing this; I think the income approach is becoming a bit more challenging in a rising market. So glad you got out of NRGY before the most recent deluge.

George the original one · Mon Mar 05, 2012 6:37 am

https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK
Big spike in income this month since the portfolio currently is more concentrated in the Feb payees. 3mo avg income is up to $300.

George the original one · Mon Mar 19, 2012 4:54 am

Thinking of selling AGNC. We're two weeks past ex-div and the share price is following the market by trending in the wrong direction.

George the original one · Thu Apr 05, 2012 4:16 am

March 2012 numbers are posted... 3mo average income was above $300 again.
Trying to make trades while the chaos of my office is surrounding me means I made a small mistake and didn't sell all of the NRP in this account. Never did sell AGNC as it keeps recovering just enough to keep me happy.
https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK

secretwealth · Post by **secretwealth** » Thu Apr 05, 2012 4:50 am

Thanks for the update, George. I'm curious: do you think there's going to be a market pullback in May thanks to Operation Twist ending? I'm waiting for summer to jump back in the market--a shame, because I want to do this kind of experiment soon.
Also, have you thought of increasing the money in this account? Double the money in this account and you're reaching ERE-level income. Retiring on $36k would be a pretty impressive feat.

jennypenny · Post by **jennypenny** » Thu Apr 05, 2012 11:34 am

"Trying to make trades while the chaos of my office is surrounding me means I made a small mistake"

I was relieved when I read that. If the great GTOO can make a clerical mistake with his investments then I feel a little better about the couple I made last month. (although I don't have an excuse--my office just has 3 kids and 2 dogs distracting me).
Will you change anything if they let all of the tax breaks expire?

George the original one · Thu Apr 05, 2012 5:40 pm

@secretwealth - I can't read the future all that well, I'm best at reacting to over/underpricing rather than knowing WHEN the market price will move. For instance, it was obvious to me last year in April that UHT had become overpriced, so I sold it, but I had no clue as to when it would become favorably priced (August, but I haven't repurchased).
It's tempting to increase my leveraged stake, but I'm still not comfortable doing so due to the volatility of the capital. Unfortunately my expenses are more like 2.3 Jacobs per person and there are 2 of us to support at that rate (of course it includes house payments), so $36k wouldn't cut it, either!

George the original one · Thu Apr 05, 2012 5:43 pm

@jennypenny - the stocks in the leveraged portfolio are REITs and BDCs and MLPs, so dividend tax changes will have no effect on these investments.

George the original one · Fri May 04, 2012 3:44 am

April results are posted:
https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK
Past 6 months income has averaged $290/month... FINALLY the portfolio has been showing some stability, but it's taken a bull market to do so. Stability of the income & volatility of the portfolio balance are the two areas that would cause me to lose sleep if the portfolio were significantly bigger than it is... and it's all too likely that the turmoil of last August was no fluke.
Better news is that several holdings have increased their dividends (PNNT, BWP, OHI, ARCC, & TICC) to offset AGNC's decrease. AGNC has shown a solid quarterly report that will probably result in a bit more capital gain despite their reduced dividend.

George the original one · Mon Jun 04, 2012 3:23 am

May results are posted.
https://docs.google.com/spreadsheet/ccc ... y=CMHbguoK

George the original one · Wed Jun 06, 2012 2:41 am

Never thought I'd see the day! I just checked my XIRR (internal rate of return function in Excel) and noticed that the leveraged portfolio has done better than my regular portfolio so far this year.

George the original one · Tue Jul 03, 2012 7:57 pm

Obamacare getting a stamp of approval from the Supreme Court has boosted the OHI shares nicely. Another boost from rising market the last couple of days in June and first two days of July plus more dividends gave me some excess liquidity, so I added ADC to the mix.
This is the second hardest part of a leveraged portfolio... deciding what to purchase when the market is rising and shares are no longer sitting on lows. [The first hardest part of a leveraged portfolio is watching these newly purchased shares sink in price because one is buying higher than one normally would]
As usual, Interactive Brokers is slow to publish the monthly statement, so I don't have the June numbers yet.