Today I can fess up to a secret…
Lou Betancourt, founder and president of StreetAuthority, contacted me. I was flattered when someone as highly respected as Lou asked for permission to publish some of our articles.
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StreetAuthority has several subscription investment publications and a mailing list 100+ times bigger than our little publication. I’d love to have them publish our material.
The newsletter business is simple. If we had 25,000 readers, advertisers would pay to put ads in our publications and on our website. We have a long way to go to get there. Being distributed by big publications is an opportunity to grow our reader base.
We discussed the idea of an “affiliate” relationship.
I explained that I only accept affiliates that I’m comfortable personally endorsing. In four years, we have less than 5 that meet our criteria. Our audience is primarily concerned with growing and preserving their life savings. Some publications are more interested in hype than help, short-cutting their research.
Lou suggested I consider a subscription to “High-Yield Investing”. Editor Nathan Slaughter is an industry veteran. In addition to holding several licenses, he has considerable experience with large financial planning firms, performing consultative retirement planning services, managing millions of dollars. Since January 2016 the HYI portfolio has returned 23.2%.
I receive monthly newsletters (16+ pages), plus mid-month updates. Nathan’s picks are followed with 2-3 pages of industry and company education. At Casey Research I wanted our readers to know as much about a potential investment as we did – Nathan follows the same pattern.
My copies are covered with dozens of highlighter circles and notes. One stands out. In July Nathan wrote:
“Ultimately, the true value of any object is whatever somebody else is willing to pay.
… Take Netflix (Nasdaq: NFLX). One analyst has a strong buy on the stock and believes it will reach $420 per share. Meanwhile, another has a target price of just $125 and is advising clients to sell.
Both “appraisers” are looking at the same set of financial statements, the same subscriber base …profit margins…the same assets and liabilities. Yet, they differ in their assessment of the stock’s worth by nearly $300 per share.
"With such wildly divergent opinions from experts, you can see why everyday investors might have trouble knowing when to buy and sell.” (Emphasis mine)
I asked for an interview.
DENNIS: Nathan, thank you for taking the time to educate our readers. Let’s get right to it.
You pride yourself in finding companies that “no one is talking about”. How do you sort through candidates to find good ones?
NATHAN: Dennis, first of all, thanks for inviting me.
We have an entire portfolio section dedicated to securities that are overlooked, ignored, or just plain disliked by Wall Street and the investment community. Popular, momentum-driven stocks making all the headlines can be productive for short-term traders, but dangerous for long-term investors when the tide inevitably turns.
I cast a wide net in the search for 8% to 10% yields because you simply can’t find them in the S&P 500. I could easily say a few nice things about widely-held blue-chips like Wal-Mart or Home Depot and call it a day. But my readers expect more – and they pay me to roll up my sleeves and dig deeper. That might lead to an aircraft leasing company one month, or a Brazilian toll road operator the next.
It doesn’t bother me if these companies might be temporarily out of favor. I’m not watching what other investors are doing -- I’m more concerned with how the business is performing.
When it comes to scrutinizing candidates, I often spend a few days before writing the first word on paper. I’m busy reading annual reports, studying SEC filings, looking for balance sheet weakness and assessing future cash flow. I’m looking for competitive advantages that enable dominant leaders to keep competition at bay and generate superior returns on capital.
DENNIS: You track quite a menu of companies and you list them in groups like, Lifetime Wealth Generators, Undiscovered High Yielders, etc.
I have a friend in his late 50’s who just rolled his 401k into a self-directed IRA an doesn’t know where to start. I also know of a woman in her 70’s who sold much of her Apple stock (huge gain) and realizes the need to diversify. Because of their age differences, they are investing with much different time frames.
At the end of each monthly issue, you highlight a “buy first” list. I’d like to go one step further. Using your categories, where would you tell a younger investor to first look as opposed to someone approaching 80?
NATHAN: At High-Yield Investing, we have a diverse audience. This greatly influences my content and recommendations.
My advice to a younger worker trying to build and accumulate wealth would be quite different than to a retiree that is more interested in capital preservation. However, age isn’t the only consideration. Risk tolerance is also an important factor when it comes to big asset allocation decisions.
Knowing that each reader has their own unique circumstances, I try to present a wide range of investment ideas (some conservative, some more aggressive). As you say, there is a whole menu of options to consider, so each subscriber can choose the “entrees” they feel are most appropriate for their portfolio.
Generally speaking, my “10%-Plus” category is more suitable for younger readers that can withstand some volatility. These are typically higher risk/higher reward stocks, including turnaround candidates that require patience for their value to shine through.
By contrast, older readers might find my “Five-Star Funds” portfolio more to their liking. This is where I recommend top-tier Closed End Funds (CEF) and Exchange Traded Funds (ETF) that are more stable in nature and make reliable monthly distributions. We cover a lot of ground here, from convertible stocks to emerging market bonds.
DENNIS: Each month you also focus on companies that may be increasing their dividends, and also candidates for special dividends. I recently bought one of your recommendations.
Can you tell our readers about the potential they offer and why you regularly mention them?
NATHAN: Our research shows that companies with a policy of making supplemental special distributions on top of regular quarterly dividends have an edge. In fact, my proprietary index of “Special Dividend Payers” has beaten the S&P 500 by nearly a 3-1 margin since 2009.
One of my favorite holdings makes 14 payments a year, 12 monthly dividends along with bonus distributions semi-annually in June and December. But since these distributions are considered extraordinary, they aren’t reflected in the stated yield at websites like Yahoo Finance.
My readers know this “hidden” income spends just the same.
I’ve also expanded this section to highlight stocks poised for meaningful dividend hikes in the near future. Each month, I flag three or four prospects that I feel are ripe for a dividend increase in the coming month. Aside from putting more cash in our pockets every 90 days, strong dividend increases of 15% to 20% (or more) communicate a bullish message regarding the firm’s earnings outlook and ongoing cash flow prospects.
DENNIS: When you recommend a stock, you also outline how many shares you plan to buy. How do you determine that?
NATHAN: I determine a dollar amount and divide by the price per share. For performance tracking, I maintain a $100,000 portfolio in my newsletter. With 30-35 holdings, most positions are in the $3,000 range, although high-conviction picks might get more.
Some readers are just getting started, while others have been investing for decades and amassed a 7-figure net worth. Each investor must adjust position sizes accordingly. I feel my primary job is to find good investment candidates. Each investor can use my research as a guide for their individual situation. I don’t expect subscribers to hold every single security I cover. To paraphrase Warren Buffet, you don’t have to swing at every pitch.
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DENNIS: One final question. I know of publications where the editor hires researchers who do the analysis and ghost-write the recommendations. Nathan, do you do your own write-ups?
NATHAN: I began my career as a financial advisor and quickly learned that it wasn’t for me. My bosses didn’t want me studying industry reports or reading quarterly statements or even watching CNBC – they wanted me on the phone cold-calling or attending various events networking and marketing.
I was supposed to “gather” assets and let somebody else manage them. That wasn’t why I got into this business. My interest is in helping people build and manage wealth.
I found the newsletter industry a much better fit. Fifteen years later, nothing has changed. When I get speaking offers, I politely shy away from them. I don’t like self-promotion or marketing activities. I take pride in writing every single word in my newsletters. (Emphasis mine)
Dennis, thanks again for inviting me.
Dennis here. You can see why I found Nathan’s research very attractive. Those who self-manage their life savings are looking for honest, in-depth research, without the hype. It’s nice to have good, well-researched choices to pick from.
I want to thank all our readers who have encouraged me to continue writing. I’m trying to turn an expensive hobby into an inexpensive one. We are slowly making progress. I never started writing with the idea of making a lot of money, I’d be happy to break even.
I will not add an affiliate that I am not personally comfortable with and have turned opportunities down. It is flattering that we are being noticed by more publications. I’m finding good, honest research is available to help all of us try to figure out how to manage our retirement portfolio. That’s a good thing.
Most middle-class investors cannot afford big-time money managers and are faced with the decision between investing in a wide array of mutual funds offered by their broker or trying to sort through tons of research and assemble a portfolio that is safe and profitable. Good quality newsletters are one option to inexpensively access research. Stay diversified and keep stop-losses or alerts in place.
This article originally appeared on MillerOnTheMoney.com.