Taking profits for yield and growth with David Alton Clark

0:00Thank you. We had a Fed meeting. We have some tariff discussions. We have NVIDIA reporting later today. We've had a slew of some earnings lately, but up ahead, not so much. How are you thinking about the markets these days? What are you focused on? Well, thanks, Rena. Right now, I feel as though the market is a little bit toppy. It's been at all-time highs. We've made new all-time highs several times throughout this year already. We've had a big bounce back from the April low. The markets have gone up about 40%, I think, at this point in time. And everything seems to be peaking somewhat, especially with the big bump we had on Friday after Powell came out and said that there's a high probability that we're probably going to get a 25.

1:22That's not what he said, but he pretty much opened the door to at least a 25 % cut at the September 17th meeting. So actually just within the last few weeks, I've been taking profits on a lot of my growth side of the portfolio. NVIDIA, Micron, AMD, a lot of the ones that I had in the quality growth portfolio were up substantially, you know, 40 to 50 % on some of them. So I've kind of employed my risk management strategy and taken profits on those at this time and raised cash to get some dry powder in case we hit some bumps throughout the summer. And I do think we're going to see a little bit of some type of disappointment or volatility coming up between now and, you know, November timeframe.

2:18It's kind of happened every year so far, Rena. If you look back, it's been kind of a rough September, October timeframe in the past few years. So I'm expecting kind of the same right now. Everything's really stretched as far as valuations and technically at this point in time. It seems like everybody's kind of all in already as well. There's a high level of retail money that's in the market presently. And one of the other things that kind of raises my risk management hairs is that there's a lot of IPOs have started to proceed, you know, through the market now. And there's a bunch that are planned coming up.

3:08And that's kind of one of the signs of a money grab, if you will, for the AI boom that's going on right now. And if you look at some of the IPOs that have happened just recently, a lot of them have popped almost 100 % on the day that they IPO'd. And most all of them have given all that back so far. So they're not really acting as if things are going to be so rosy coming up. But I'm still in there. I never go, you know, I'm not saying sell out of everything that you have. I don't feel like, you know, we went through the 2000 and 2008, you know, both of the downfalls there. And I was right there in the middle of it in 2000 out in Silicon Valley, working with some of the venture capitalists qualifying their IPOs.

4:15And I don't feel like we're there, you know, that this is going to be as euphoric as we were at that time. but it is time to employ some risk management. But I do still have some growth stocks. I've got Block, Boeing. I just recently bought Palo Alto and Tesla. So I'm still in there, but I'm more limited. Can you share with us what the risk management strategy was that made you take the profits off the table in terms of the stocks you sold? And then what made you get into the specific stocks or stay in those stocks that you're in? Part of it has to do with how much I'm up on it. When I start feeling as though things are getting toppy and valuations are stretched and technically the market has gone into the overbought zone, I'll look at the ones that I have that are anything that I've got in the growth side of the portfolio, it's over 20 % gain.

5:25I'll take a look at it and review all of the key factors that the reasons why I bought it. And especially some of them, like I was up 50 % on NVIDIA and it had gone from 100 to, you know, It was like 160 or so, I guess, when I sold it. The reason why I have the growth side of the portfolio, if you look at the methodology, I'm really about creating income. So I look at the growth portfolios as more of like an income garden, where once in a while you have to harvest the proceeds to reallocate into the income side of the portfolio. So with 50 % up on NVIDIA, everything hitting all-time highs, there could be some, we're heading into a seasonally rough patch usually for the market.

6:19That's why I went ahead and just took profits on it right then. 50 % profit is, you know, just fine with me, you know, so like book that in. And a lot of the, you know, right now, overall, since the three years since inception, we're up 80 % total return. And a lot of that has, a lot of that came up, probably about 20 % of that was due to dividends and distributions. But the other 80 % of it was taking profits on the gains of the growth portfolio and then reallocating that into the income. So when things get like this, one of the things is to, I shrink my number of securities. I want to concentrate down in on my highest conviction ideas.

7:08So I'll look through there and cull back the number of positions I have. I think I was at about 40 or so, and now I'm down to 23, especially in this type of situation. And the ones that I am holding on to are the ones that I have the highest conviction in. And normally, I'm talking when I call things in the risk management phase, it's mainly from the growth side of the portfolio. On the income side, that's what I'm trying to build up for retirement. So most of those, if they go down at a certain time like this, I'll use that opportunity to actually buy another tranche and increase my yield and decrease the basis on those.

7:50But on the on the growth side of the portfolio, I'm going to snap off the profits and then use that as dry powder, either enter back into some growth ideas that I see are more set up to have more upside. like Tesla was one of my most recent buys in Palo Alto, which both of those were kind of in a beaten down state, even though the market is way up. The Tesla in Palo Alto in recent times had actually taken big dips down and actually bounced off the bottom of their, they're still in uptrends, but they're at the bottom of the uptrend channel and they bounced off the bottom of the uptrend channel.

8:32It's an ideal time to start a new position. Plus I'm layering into those as part of the risk management strategy too. When I go into a new position like Palo Alto, I'll buy, I've got planned like four 1 % tranches rather than plunking down the whole position, a full position in one shot. So I've still got three more bullets to fire. Let's put it that way at Palo Alto So to layer in and get a good basis going on those. So that's kind of the way the risk management discipline works. I appreciate that. And then in terms of the seasonality you mentioned, and it's known that the September season is somewhat negative, historically speaking.

9:21Do you have a sense or how are you thinking about the proposed rate cuts coming in September? Will that maybe affect that negativity? Will it make it more positive? What are your thoughts there? Or has it already been priced in and are people assuming that that's already coming? Yeah, that's a good question. Definitely, I feel that it's priced in as far as the 25 % cut coming up on the September 17th meeting. Even a lot of the Fed speakers that have come out lately, they are substantially restricted. Looking at where inflation is right now and where they have the rates at 4.25 and you've got inflation at 2.7.

10:06Um, you know, there's, there's room for them to cut and still be in a restrictive stance. Uh, I think there's a lot of, uh, political side of it going on right now with Trump saying he's going to fire Cook. Um, so I see a lot of uncertainty and, uh, I think they might be, you know, overpricing in what's going to happen. And I'm not sure if I think Powell's going to do a one and done type situation. I don't think he's going to set us up for, you know, they're going to cut each sequential meeting. I believe two or three cuts is actually priced into the market right now. And I'm thinking Powell might just do a 25 % cut at the next meeting.

10:54And what I'm calling it is a hawkish cut to where he's not going to say, hey, you know, we're in a new paradigm. And he's going to go and stay with his same mantra where he's like, we're data dependent. And I do see part of the reason why I took profits now is I do see some risk between now and the September 17th meeting due to the fact that we got PCE coming up on Friday. And if there's any pop in inflation, you know, on any of the upcoming data points between now and the 17th, that may even throw a monkey wrench into that 25 % cut and that could precede a sell off in the market. That's part of the reason why I've kind of got set up with some dry powder now, just in case, because I can see how that would happen.

11:44A lot of people are starting to talk about stagflation, Rena, where inflation is going up and the economic indicators are going down. And we have had some some issues, you know, where employment is going, you know, getting worse, but slowly but surely. So it's not like dropping off a cliff. So it's kind of the way they want to glide path in to, you know, a Goldilocks scenario. But if anything happens to where all of a sudden there's a sharp, sharp drop in the employment and some of the economic indicators, then, you know, that could be trouble. And speaking of this part of the marketplace, there's a lot of talk about bonds in conjunction with interest rates and what the Fed will be doing and where we are economically speaking.

12:36What are your thoughts about the bond market? How would you contextualize that for investors? I feel good about the shorter term bonds. It's kind of interesting you just ask that question because my latest buy from Friday was the Barings Global Short Duration High Yield Bond Fund. And I started that off with a 1 % position in that it's actually yielding 10 % right now. There is a higher level of risk in bonds right now with we get into a rate cutting cycle. But the Barings Global, The ticker is BGH. And I think that's one of the best ways to get a little bit involved in the bond market and get yield out of there.

13:23It could be risky. It's a little riskier than normal because it is a CEF, so they use leverage. I think the bond market's going to hold up just fine, but I'd be more interested in the shorter term bonds, two and five yield bonds, because those are the ones where the interest rates on the shorter terms are going to hold are more reliable and hold steady. The long term bonds could be the ones where if we have some kind of economic trouble or something, those might fall more than the shorter term bonds. And how are you thinking about high yield vehicles? How should retail investors, investors in general, be thinking about the high yield space these days?

14:09I have, you know, one of my portfolio is the quality high yield portfolio. The thing about that is that I think a lot of people don't take into consideration is that I see a lot of portfolios where everything's in high yield. Like, let's say you've got, you have 40 positions in your entire portfolio and they're all high yield positions, all of them, you know, 8 to 10%. I don't really advocate for that for a few different reasons. One is that high yield itself is a class of stocks. And so even though you have 40 high yield stocks, you're really not diversified because they're all in that one class.

14:54And so high yield tends to gravitate up and down this, you know, together, just like all other types of stocks. So I still feel like my my thing is to have about 20 percent of your portfolio in high yield. and I like to use, be more in my most high conviction positions. Like rather than buying, you know, whatever it might be, 20 or 40 high yield stocks, I'd rather have, like right now, I'm looking at my high yield portfolio and I have 11. So I'd rather have my top 11 highest conviction, high yield stocks in this environment rather than spreading it across a whole bunch more. So I feel like high yields, there's definitely some good high yield picks right now.

15:50The one that I just picked was BGH. And I like to pick the ones that are like BizD instead of BDC. I'll get the one that's a conglomerate of all those. And so I've got Starwood and Aries Capital and some of the best of the best, the cream of the crop of the high yield, I would stick to that. I mentioned at the start of the conversation that you're the Winter Warrior investor. That's the name of your investing group on Seeking Alpha. Do you share these portfolio selections with your subscribers there? Yes, yes. On the service, there's a resources tab. I have the portfolios in the inception portfolio resource link.

16:41And then I do a weekly macro update insight piece on Saturdays where I kind of go through everything that happened in the past week, what I think is going to come up the next week. And then underneath that, I'll put, you know, the current performance and the five best winners and the five biggest losers for the previous week. And yeah, everybody's got access to all the, there's five portfolios and everybody has access to all five of the portfolios. There's 20, 24 positions altogether. I've got a super swan portfolio, which is they, they range that because a lot of the service members, depending on their suitability, some of them want the, just the safest.

17:27just, you know, they've got a lot of money and they want something really safe and secure, and they only are looking for about a 5 % yield. So I've got a SuperSwan portfolio, which is where I'm really not concerned at all about capital loss with this. And the yield right now is currently 4.7. And we're actually up 10 % on that out of those. And there's only four positions in that one. And so we have capital gain plus a 5 % yield there. And then I've got the Swan portfolio, which is actually fairly high yield. It's a 9.2 % yield. There's six positions in there. And there's also, we're also up 6 % on that.

18:13So, you know, part of the thing is, you know, my main mantras, and this is what I learned from my dad, he was a stockbroker. I was actually born in Omaha, Nebraska. And my dad was kind of going up at that time, the same time as Warren Buffett. And a lot of the people from that area of the country are conservative. I look for income, capital appreciation, but also capital preservation. There's a lot of people that they don't want to lose their money. They don't want to lose money to try to make it on just the income. So in the SWAN portfolio, it's up 6%. It yields 9.2. Then I have the quality high yield portfolio, which actually yields 11%.

18:59There's eight positions in that one. And we're up 3 % on that one. So I haven't lost any money on any of the income side since the start of the service where you know i don't i one thing and that's kind of a personal thing for me i i really have a hard time taking uh you know capital losses even if they're unrealized so if i'm getting if i'm making 10 on something but this the the vehicle i bought is down 50 you know rena then i kind of feel like they're just they're giving me back the money that that that i already lost You know what I mean? So it's like I'm not really making any money off that.

19:41So I like to have it to where I don't lose any money on the capital side, but yet I get the dividend. And now that's not always true. You know, I've I had a couple of big ones that that I lost on the Icon Fund. You know, I took a hit on that. And my the issue with that, the lesson learned there was is I was a big Icon fan from the very start of my career. I just really admired the way that he made his way up from nothing himself and became this big investing icon. And so I kind of let that gloss over the obvious issues with the icon fund. So at some point in time, you know, you've got to you've got to cut your losses on one that you're losing in and reinvest that money into something else.

20:32Another thing I've learned over the years is you don't have to make your money back on the exact same stock that you lost it on. So that used to be one of my issues when I was younger. I would just keep hanging on and hanging on and trying to just get to a point where I got back to even. And then normally you would end up selling out. And so you had a bunch of opportunity costs there because you sat there for a year or two just to get back to even just to get out of it. Whereas you could have sold out and maybe picked some a better vehicle that might have gone up already. And so when a recent example of that was I bought Pfizer at when it was at its lows, I thought it was the lowest.

21:17It was at about, I think, like 26 or 27. And I thought the Pfizer is just beaten down. It's yielding 6%. So I'm going to, I'm going to start a position in that. And I think it's probably going to make a recovery, but it actually ended up going down to like 20. And so I was down about$8 ,000 on the position. It wasn't very big, but you know, it just, the, the, the story had changed to where I thought, okay, this isn't playing out the way I thought it would. So instead of just hanging onto that, hoping it would make its way back up to 26 or 27. I went ahead and sold that. And I went into a speculative growth, IONQ, I-O-N-Q, one of the most speculative stocks in the quantum field.

22:08And that one actually popped up 69 % within a month or so of buying it. So I more than doubled my money back on that one. And I ended up selling that one. It was up 69%. I had one big day where it really, really popped big on some news. And I decided to go ahead and clip the coupon on that. And so I made the, you know, the money I lost on Pfizer, I made it back on the IMQ in just a couple of months and then put that back into the bank and actually use that money to level up some of the income portfolios. What I'll do from time to time is I'll go across one of the portfolios and I'll add 15 ,000 or whatever 1 % is.

22:56Right now I had to, we're up pretty well now. So I was at about 1.5 million. So it was 15 ,000 was 1%. But now that we're at 1.75, it's 17 ,500 is the 1 % level. So I'll take that and go across one of the income portfolios and just add 1 % to every position to increase the income levels. I'm 62 now. I'm about to be about I'm 61. I'm about to be 62 in September. But so I'm still not quite there to retirement yet. So I'm still in that building phase. And as time goes on, like right now, I'm probably like 60, 40 with 60 percent on income and 40 percent on growth. But as time goes along, that's why this service actually works for people that are building a retirement portfolio and for when they retire and then actual retirees, because you can still use these same positions, just you're waiting.

23:59As you get older, the methodology is that you just keep increasing the weight on the income side. So somebody that's 75 or 80 or so, they might be 80 % into the income side and only have 20 % in growth stocks that they're still harvesting from. And this is something I learned from my dad. And actually, you know, one of the one of the biggest lessons learned from that was that my dad actually passed away in 2013. And he was managing his own money. He had his own portfolio and it was about a million dollar portfolio. He had just bought Tesla a few months before he passed away. I started helping my mom, you know, going through all of her finances and everything and making sure that everything was squared away as far as, you know, everything was under her control and all that kind of stuff.

24:55And that's when I really got involved in my parents' portfolio. As far as the way that my dad had done things, you know, he had a pension and everything else. So my mom really didn't even need any of the income from the portfolio at all. or she didn't need to take any risks either at that point in time. So when I looked at it, I saw the Tesla position. And, you know, at that time, you know, it was still kind of an unknown as far as how well, you know, what is this? And so I told her, I said, you should just take this money and just put it into CDs. You don't really need the income from it. That's the safest thing to do.

25:34But she's she was just she was I call her nickname was the general. She passed away in 2019, but she told me, you know, I'm not changing anything your dad had in there. You know, we're leaving it exactly the way it is. You know, I was like, OK, mom, you know, and Tesla turned it out to skyrocket over that over that 10 year period or from 2013 to 2019, at least. So that's when I thought, well, hey, you know, you should probably always have a little bit, you know, towards the growth side and speculative things in the portfolio just to just in case for the wealth creation aspect of it, because that almost pretty much doubled my dad's portfolio over that six or seven year period.

26:17Well, you sound like a good son and somebody who knows how to learn from experience, which is, I think, a really important skill for an investor specifically. Anything else, Dave, that you would share with our audience about dividend investing specifically or something to keep in mind about this time that we're in? At this point in time, I would definitely go through all of my, it's what I'm doing right now and what I've already just finished doing, but just, it's a time when you should really, one thing I could say is that if you don't have a lot of time to dedicate to this yourself, you probably shouldn't do it.

27:00because even a dividend stock, like a lot of people think, well, you know, the stocks might go up or down, but I'm always going to get that dividend payment at the end of the day. Well, that's not necessarily true. You know, when, when, if something goes bad in the stock market and, you know, the dividends might be the last thing to go, but if, if a stock takes a big hit, they might uh they might have to cut or completely eliminate or suspend the dividends so i would go through my my dividend portfolio and and just double check on on each of the positions and and make sure that uh you feel solid about it like i did sell off a few a few things it was with some of the pimco funds that i held i went ahead and took profits on those because I was about even on those, but PIMCO had actually cut their distribution payments on a few of their funds recently.

27:56And so they didn't cut them on the ones that I owned, but I thought, okay, well, why don't I just do a little risk management here and I'll just, I'm up, you know, I've collected a bunch of dividends over the past few years. And so I'm going to go ahead and sell those and then reallocate it to the ones that I feel stronger about. But another thing too, that you can do is like with ExxonMobil, I know when we first started talking, I had ExxonMobil. A long time ago, ExxonMobil was at like$35 and it yielded 10%. And so I put like$100 ,000 into that. I was like, look, I'm going to get this. I'm going to lock in this 10 % yield.

28:37And so over the next couple of years, ExxonMobil had gotten up to about$120. Big, huge capital gain in that I was still making 10%. But what I see a lot of people do is they're just happy to have that big cushion of unrealized capital gains in a position so they don't have to really worry about it losing any money. And they're making the 10%. So they're like, look, I'm still making 10 % on it. I've got this huge unrealized capital gains. But another little trick I learned from my dad is like, go ahead and take profits on that. If you don't want to sell it all, cut it back at least to all of your capital gains and then buy into something else that's making 10 % currently.

29:23Because ExxonMobil at that point in time, it was only, if you bought more ExxonMobil, it was only yielding about 3 % because of how high up it had gotten in the price. So I took that money and I bought an enterprise product and that was yielding 10%. Doubled my income on that instead of just sitting on capital gains unrealized. take some profits on that, reinvest it into something else that's making 10 % and you double your income on that position. So I see a lot of people sitting with big capital gains on their dividend positions when if you take some profits, you don't have to sell it all, or you could sell it all, and then reallocate that to other ones that are yielding 10 % of the time.

30:06That's a way to increase your income. Appreciate it, Dave. Again, it's David Alton Clark on Seeking Alpha. The Winter Warrior Investor is his investment group. Really so much good stuff just on this podcast alone, I think is enough reason to be a part of your service if this is something that you're interested as an investor. Such good stuff, Dave. Really, thank you for taking the time and sharing so much with us. Any final words? I'll leave you with the final word if you'd care to. I'd just like to say thanks a lot. I really appreciate everything you've done for me, Irina, and Seeking Alpha. And I guess my final word would be, you know, what I talked to about the group.

30:50We've got a great group of investors. So if you're out there working alone, you know, it really takes a village. So if you can find an investing group or some type of group of people or friends that you can use as a sounding board, I think that's really important part of the success a major part of success my success over the last three years has been the team members and charter members of the uh winter warrior investor that that we've got a really lively chat room and that's a big place where i can put my ideas out there before i uh i make a buy and then i'll i'll hear the pros and cons of what people think about that other people have ideas of what they see as opportunities in the market.

31:37So I would definitely advise anyone that's listening to this podcast to sign up for Seeking Alpha, especially the premium product is really great. And I use that a lot for all my research and everything. So yeah, I think it takes a village is the final word and patience equals profits. You should take your time, do a really good due diligence on whatever you're about to purchase later into it. There's no rush.

32:06David Alton Clark:Just a reminder, anything you hear on this podcast should not be considered investment advice. This is for entertainment purposes only, and you should seek advice from a licensed professional before investing. If you enjoyed the episode, leave a rating or review on your favorite podcasting app, and we'll see you soon with a new episode.