Invest Based on Research Not Emotions
Investing should be based on research and not on emotions. As volatility creeps into the market, many investors tend to react to emotions rather than doing the homework necessary to make the correct investment decision. There are really only three choices to be made with any investment. Buy, sell, or hold and the decision should be based solely on research of each individual investment. For example, we have recently been selling off positions in some of our MLP holdings. MLP stands for Master Limited Partnership and the ones we have been selling are mostly energy related. MLP’s have been a great way to achieve a higher income stream or dividend payment during this low-interest rate environment. Many of our clients rely on the income generated through their investment portfolio to live during retirement. It has not been an easy task to generate a decent income stream because interest rates are so low. It has been a great trade, but we believe that many of these investments may have run their course for now. Why? The ability for many of these companies to keep paying their current dividend has become riskier than it was when we did our research to buy these securities. This increases the risk in holding on to these income producers. How risky can these investments be at this level? We saw one drop by half its value in a single trading day on Monday. We have been proactive in selling off the positions we own in these securities that we have determined to have a diminished ability to continue paying their current dividend. This is not guess work. This research is done through a detailed process. We run various equity screens on a daily basis. The average investor does not have the ability to run these sophisticated screens, much less the knowledge to interpret the data and make a decision. I am pointing out MLP’s because they have become a widely held security in many portfolios. They have performed extremely well over the last 5 years, and could continue to outperform. However, we believe that many of them have become too risky for the portfolios we manage. If you are not sure if your portfolio consists of any MLP’s, check with your financial advisor, or if you had any K-1’s last year you most likely own one. I am not saying all these MLP’s need to be sold. The point I am trying to make is that it’s time to really scrutinize each one to make sure the ability to pay the dividend is still healthy. We, as a firm, have not sold all of our positions in this type of investment, but we have eliminated the ones we feel have a greater risk to their principal. The market does move on emotion and fear and greed are the two that influence it the most. However, doing the proper research is imperative to make you comfortable as the market becomes more volatile. Investors tend to make bad decisions when proper research is not performed. As always, the opinions in this article are that of the authors and should not be considered investment advice. Everyone has a unique financial situation and you should always consult a qualified Financial Advisor before making investment decisions. If you have any questions on this article feel free to call Fogel Capital Management, 772 223-9686.