Search No Further If You Seek Solid Advice

Jeannette Showalter, CFA, 3.6.2013

There are many challenges that professional and self-styled investors face in a prolonged zero interest rate environment. Primary among them is finding reasonable income streams while taking reasonable risks.

In 2009, most investors accepted low rates as an inconvenient but necessary Federal Reserve tool to spark the economy. However, those investors with a need for income are now exasperated by a five-year stint of zero rates that the Fed threatens to continue into infinity. So, the hunt for yield is on! But where are solutions to be found?

The well-beaten path offers non-solutions for those needing higher yields. A 3 percent dividend yield on U.S. big cap stocks, 4 percent yield on 10-year sovereigns, 6 percent yield on the junk bonds, etc. These work no charm for retired couples who need 8 percent or more to keep the tires on their wheels.

The vicissitudes of the stock market do not allow assurance of monthly payments of bills or sound sleep. Income investors seek out-of-the-box solutions: undervalued companies paying a rich dividend/ distribution until such time as analysts and institutional portfolio managers perceive such value and bid up the company. Income paired with value is often found in sf stocks/preferreds of companies too small for the big players or too complex for most to unravel.

Finding these rare investment gems requires: keen minds; courage to look at the unloved and complex stories; very good investment research; and top-notch analytics that drill down and hypothesize distributable cash flows, replacement value, accounting treatments, etc.

It is unrealistic to think that solo investors can successfully undertake such a litany of tasks. A solution can be found in a cadre of seasoned professionals and seasoned do-it-yourself investors who individually bring some level of expertise, work product or insight to be shared with a much larger group. In my opinion, such a “team” exists…on a website, for a nominal fee; it is called Value Forum, a very high caliber, investment group committed to finding alternative sources of investment income and collaborating to that end. This group optionally: shares research, vets each other’s ideas (most often in a collegial style), discloses portfolio allocations, etc. Value Forum has been a topic of this column previously (Dec. 15, 2011, “Getting A Little Help from Your Value Forum Friends”; Nov. 21, 2012, “The Process Is As Important As the Information”).

Started in 2003, Value Forum is a 1,400-member community of investors who manage a collective $3.5 billion of capital. Most are individuals over 55, with a sprinkling of hedge fund and money managers. Though the ideas there are largely driven by more seasoned investors who sleuth for sectors and companies on the brink of successful changes, novices and non-posting members are welcome. Not all contributions reflect rocket science; some can be as simple as, “Went to JCPenny… seemed no one was in the store” or “I have a brother -in-law in the Bakken and he says…” There are a handful of posters whose research is outstanding; I make an effort to read their ramblings every day. As it stands, all of my equity positions in my personal portfolio have genesis in Value Forum postings.

A great way to get in the Value Forum groove is to attend its annual conference, InvestFest, held April 18-21 at the Chaparral Suites in Scottsdale, Ariz. You will get exposure to income propositions and strategies that dominate the website and meet some friendly folks who have not forgotten their more humble investment beginnings.

The conference theme is “Energize Your Portfolio” with an emphasis on dividend paying stocks and, in particular, energy stocks. There is a sea change taking place in that sector: big (and getting bigger) U.S. energy production in Bakken and East Texas; delivery of these resources to Gulf Coast refineries by rail, barge, truck; new pipelines under construction (e.g., East Texas), possible new pipelines (e.g., Keystone) and reversal of Gulf Coast product pipelines; retrofitting of refineries to handle different blends; liquefaction of natural gas for export; a hotter than blazes rail car manufacturing business; etc. From my perspective, this energy shift is a several year story, has potential to create a true equity bull market and certainly will displace some companies and give rise to others.

The energy sector presenters include: Mike Mercer, CFO of EV Energy Partners; William Schreier, portfolio manager of Infrastructure Energy Income Fund, a NYC Hedge Fund specializing in energy investments; Jonathan Hoopes, president of Green Hunter Energy; Sterling McDonald vice president of Evolution Petroleum; and Dan Steffens, president of Energy Prospectus.

Much conference time will be devoted to the heavy, dividend paying AMREITS/ MREITS sector which sailed with the wind from 2009 to 2012 but now faces headwinds with stagnant (and possibly rising) interest rates. Obviously, the focus will be on how book value can grow and dividends maintained. Value Forum members legitimized AMREITS/MREITS years before Wall Street got on the bandwagon. Presenters include: Gary Kain, CEO and CIO of AGNC and sister company MTGE, and Tom Akin, CEO of Dynex Capital. In panel form will be several institutional-grade REIT analysts: Merrill Ross from Wunderlich, Daniel Furtado from Jeffries, and Joel Houck from Wells Fargo Securities.

And if you own any of John Fredriksen’s dividend paying companies (Seadrill , North Atlantic Drilling, Golar, Frontline, and more) then you will want to hear from some Value Forum members who “eat, love and pray” Fredriksen.

Nevertheless, Value Forum is my number one research pick for investors.

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