Choosing a sound investment is easy. How you comport yourself after the purchase determines your success.
Many investors fail to comport themselves well. They do something when they should do nothing. Investing success is frequently a matter of letting an investment be. This is especially true of income investing.
An income investor comports himself well when he practices patience. This is easier said than done. I frequently see investors — as my email account can attest — consumed with impatience.
Impatience is the great wealth slayer. It always rears its monstrous head at the most inopportune times: during fits of “crisis”-induced price volatility and exaggerated uncertainty.
Taming the monster begins with repelling unrealistic expectations. No expectation is more unrealistic than the unbroken linear trajectory.
Investors imbue their investments with the “endowment effect.” Now that it’s their portfolio, it’s personal. Investors expect their stocks to maintain a northeasterly price trajectory. When the stock behaves goes otherwise, impatience begins to gnaw at the conscious before it consumes it.
Repelling the Impatience is Key
I offer two veteran High Yield Wealth recommendations as examples of the importance of repelling impatience.
I first recommended Gladstone Commercial Corp. (NASDAQ: GOOD), an equity REIT, to High Yield Wealth subscribers in September 2012. The reference purchase price was $17.95 at the time.
Here we are five years later, and Gladstone shares trade at around $22 as I write.
A $4 gain on an $18 investment over five years might seem piddling. It’s not. Gladstone was recommended for current high-yield income above all else. The dividend offered an 8.4% yield on my initial recommendation.
Gladstone has delivered on my recommendation. It has paid $7.38 per share in dividends. Forty-one percent of the recommendation price has already been returned in dividends.
When dividends and price appreciation are taken in total, Gladstone shows a 63% total return.
Not that we didn’t have to endure our share of teeth-grinding moments. The time frame has been punctuated with fits of price volatility. At one point, Gladstone shares traded 25% below my initial recommendation price.
I tamed impatience; I maintained the course. My patience was fortified by the facts: Gladstone had never missed or lowered a dividend payment.
Through my analysis, I felt assured that Gladstone wouldn’t miss a dividend in the near future. Patience was key to realizing the 63% total return we see today.
The Case of BGC Partners
BGC Partners (NASDAQ: BGCP) offers a more extreme example.
I first recommended BGC Partners to High Yield Wealth subscribers in November 2011. Its share price was depressed on lower trading volumes among its institutional clientele. BGC Partners was also venturing into commercial real estate brokering. Commercial real estate brokers were also depressed, some to the point of bankruptcy. BGC Partners was buying disfavored assets on the cheap.
BGC Partners shares were down roughly 50%. I saw a buying opportunity. The depressed price had lifted the dividend yield to 10%.
Little did I know that the price would become more depressed.
The downward volume trajectory among institutional clients continued into 2012. BGC Partners was pouring more money into acquiring more depressed commercial real estate broker assets. Bankrupt Grubb & Ellis was brought in the fold.
By mid-2012, BGC Partners shares traded at half my initial recommendation price. The quarterly dividend was reduced 29% to conserve cash.
My resolve remained firm. I was confident that trading volumes would recover and that BGC Partners would benefit from the low cost basis on its commercial real estate broker assets. Management certainly had the chutzpah to make things happen. BGC Partners survived after a third of its workforce was killed during 2001 attack on the World Trade Center.
I’m glad I tamed impatience, because I was eventually rewarded, though it wasn’t overnight. The upswing in the institutional brokering and commercial real estate brokering businesses finally occurred in 2015. BGC Partners shares trended higher.
BGC dividend payments also began to trend higher. Here we are today and BGC Partners has paid $3.44 in dividends. Nearly half my initial recommendation price has been returned in dividends. The share price is double my initial recommendation. Most of the gains materialized over the past year.
BGC Partners has generated a 148% total return since my November 2011 recommendation. Nothing extraordinary occurred. I simply practiced patience.
Perhaps I’m wrong. Perhaps something extraordinary occurred — patience. People have been inculcated to expect immediate gratification as they never have in the past.
Whether I’m right or wrong on patience, I’m convinced that patience is not only a virtue, it is the essence of wealth building through income investing.