Getting A Little Help From Your Value Forum Friends

Jeannette Showalter, CFA, 12.15.2011

Investing is not an easy thing to do. If it were, the world would be replete with multi-millionaires who made their fortune investing.

In the 1980s and 1990s, managing your own portfolio was made easy: a rising tide in worldwide equities and declining interest rates lifted all portfolio boats. Many an individual who tried his hand at running his own money arrived at a self-assessment that he (if he must say so) did a pretty good job. In reality, his investment performance was largely buoyed by a bull’s run.

The new millennium brought a much harsher reality to do-it-yourself investing as tech equities collapsed in the year 2000 and ensuing years brought two major market crashes and, now, another international banking crisis looms large. And traditional places to hide funds until the economic coast was clear have been unavailable to Joe the Investor; rapidly declining fixed income and CD yields are now nil. This time around, the Federal Reserve changed the rules and made cash a very painful place to stay.

So where might the retiree and/or income-dependent investor go to find alternative, higher sources of investment income? Where to find equity plays that might have sufficient value to weather more volatility and uncertain times? They found answers at an online website called Started in 2003, VF is a 1,400-member community of investors who manage a collective $1.4 billion of capital. Most are individuals ot over 55; there is a sampling of hedge fund and money managers in the mix. VF serves as a clearinghouse for members’ insights and research. It is “rich” in content from outside experts and from many members who, unquestionably, are skilled beyond the standard money manager fray of talent. The forum allows the novice to follow a thread; for the experienced trader/investor, there is a community with like expertise. Within the broad forum are smaller groups… and entry is by invite. Not that the group is snobbish; entry to some inner circles is best made by quality of your postings.

The group generally embraces the investment style of Warren Buffett, who, in my opinion, now value invests on a billionaire’s preferential playing field.

Buffett often appears in critical times/ situations when a lot of money is immediately needed and deal negotiation must be extremely fast; Buffett is handsomely paid and often well-protected in his investments.... far beyond terms available to the public.

But traditional value investing, the pieceby piece analysis of a company’s assets and cash flow, is really not dead as VF carries a torch for individual investors. In general, the VF investor seeks higher income with added benefit that the dividend or distribution often provides a floor for the equity in volatile markets.

A widely accepted maxim (akin to “too good to be true”) is: if the yield is so high, there has to be something very much wrong. But there are important caveats to that truism: if a company is sufficiently small, it will not be covered by an institutional analyst and, if the industry or company is sufficiently complex, many an analyst will stay clear of coverage as they know that few of their clients would have the patience, interest, time or capacity to read even the best of breed research on such. But this is where VF members thrive.

Certain sectors offer many of the abovementioned size and complexity components: mortgage REITs, oil and gas MLPs/ trusts; shipping companies; and SBICs (i.e. real estate investment trusts, master limited partnerships, and small business investment companies). The Value Forum group likes the hunt and relishes prized annual yields of 10 percent plus; some pay upwards of 18 percent!

Not all VF coverage is on high-yielding plays as some follow natural resources, agricultural/fertilizer plays, consumer products, even a tad of tech can be found. Not all postings are fundamental; some members share their technical approaches and some discuss business cycle/wave theorists (e.g. Nenner, Armstrong, Prechter, etc.)

Participants post by “handle” and can remain anonymous… except the forum hosts an annual event called InvestFest, held all over the country but, as it happens, this year is in Tampa on Feb. 12. Three days of learning and sharing — many a face matched to their handle.

One of the big highlights of the conference will be presentations by mortgage REIT AGNC and its recently formed sister company (MTGE) explaining how it manages their leveraged mortgage portfolios (with heavy explanation on how they have produced AGNC’s quarterly dividend of 18 percent.... for several years). Another speaker is a VF member who is an expert in shipping companies, particularly those of John Frederickson. (Some VF members actually travel to Bermuda for Frederickson companies’ annual meetings and face-to-face fact-finding.) Other topics are: wealth planning, technical trading, etc. I am also on the speaker list but, lest you think this is self-promotion, I am eager to learn as I invest/trade in AGNC, MTGE, and CHKR and a list of others to be bought at certain prices.

You can try VF online for a nominal cost. Downsides? This is not a free site, which is also an upside as it keeps out online riffraff. Also, the vituperous online dialogues sometimes lack decorum.

A trial membership might make a great Christmas gift for the beginner investor (who needs a fish but was never taught how to investment fish) or the retiree who doesn’t need more hardware, software, gloves, ties or gift cards.

« back