Here is the dividend income report for March, 2020.
The monthly dividend income came out to $1863.26. The yearly income total for 2020 through the end of the month was $2071.44.
The income for March, 2019 was $1143.33, and the yearly income for 2019 through the end of March was $1372.50.
Up until the coronavirus pandemic, it was looking like switching from individual stocks to ETFs was working out very well. I had sold my shares of RWR that I held in a taxable account, and even without those shares, I had the best March ever. (Granted, I still need my three-month moving average to be about triple what it is in order to live off dividend income.) I still have RWR in an IRA.
I sold my RWR shares in my taxable account and just about broke even. I made some money in dividends, but I had to pay taxes, and sold when the price was at $90. I know I am always saying that people put too much emphasis on price and capital gains, but if something goes to $0, then there are no dividends. Besides, I do not know what is going to happen, and I might need some cash at some point. I think selling after a 10% is not a bad rule to go by.
I am still not sure what all my rules should be for investing. There is a saying on Wall Street: Bears make money, bulls make money, pigs and sheep get slaughtered. I think this is another way of saying plan your work, and work your plan. Should I sell the ETFs in my tax-advantaged accounts? Or should I let them go as they are since I do not need to touch them for 10 or 20 years? (I assume things will be better in 10 or 20 years.) I was planning on making an investment policy statement as Ron DeLegge recommended. Perhaps I will put his podcast back into my MP3 player and see what he has to say. I will also see what Phil Ferguson has to say about what is happening. I knew at some point there would be a recession (there always is at some point). I know that stocks might go down. I did not think there would be 15% of the labor force filing for unemployment in a month.
I may even look into the ideas of “The Black Swan” author Nassim Taleb, although there are some issues with Taleb and his ideas. He may know what to do when the world is ending, but he sounds like an angry crank when talking about every other issue. When I was living in Chicago, I knew someone who worked on the floor of the NYSE on 9/11. He thought it was kind of funny that Guiliani got a reputation as a guy you want during a crisis. He said that if Guiliani did not have a crisis to handle, he was making one of his own.
The basic strategy of Taleb is “tail-risk hedge”. One firm had a 10x return in March using tail-risk hedge. Here is another page from the Felder Report explaining tail-risk hedging. CALPERS recently exited one of two tail-risk hedges that according to Bloomberg could have returned 3,600%, or about $1 BILLION dollars. They kept a second one that still had a positive return (see article here). One issue with CALPERS is that the Chief Investment Officer did not tell the board that he had exited one of the hedges at a March meeting (he exited the hedge in January). Maybe he is an Austin Powers fan: Why make billions when we can make millions?
I am not clear how these tail-risk hedges work. The article from The Felder Report talked about some of the options expiring, some not expiring. It all sounds complicated for someone who already has a job doing something else. I know they can lose money during the good times and make money during bad times. Frankly, that is one reason I am leery of them. I remember back in 2007 or maybe early 2008, when things were starting to look shaky, Bloomberg Markets magazine had an article about David Tice, who at the time managed the Prudent Bear fund. The next month, the magazine published a letter from a reader about the article that said something like: This guy lost money for five or six years; he makes money one year, and now he thinks he is a genius.
I am leery of stock market bears and the hyperinflationistas. They keep predicting disaster all the time, and when it finally happens they want everyone to think they are geniuses. Yet they never acknowledge they are wrong more often than they are right.
Can an individual investor like me even get a tail-risk hedge? Can I do it without getting taken to the cleaners? And who is the counterparty? Are there multiple counterparties? What if the world ends, and the counterparty doesn’t have the money to pay up? If CALPERS did not walk away from a $1 billion dollar payday, where was that money going to come from?
There is one ETF called Cambria Tail Risk ETF (page on ETFDB.com, page on ETF.com, page at Cambria Funds) which according to ETF.com, invests 1% of its holdings in “out of the money put options on the S&P 500 Index”. Ron DeLegge’s ETF Premium monthly income trade uses covered calls. TAIL appears to be the ONLY tail-risk ETF out there.
Here is a table with the year-to-date amounts, the monthly amounts, and the three- and twelve-month moving averages for each March from 2012 through 2020:
Here are the securities and the income amounts for March, 2020:
- Vanguard Total Bond Market ETF: $167.25
- Vanguard Total International Bond ETF: $9.50
- Vanguard Utilities ETF: $186.77
- RLI Corp: $23.62
- SPDR S&P Dividend ETF: $682.41
- SPDR Dow Jones REIT ETF: $179.94
- SPDR S&P Global Dividend ETF: $596.84
- Brokerage Money Market: $3.77
- Brokerage Treasury Account: $13.16
Big Jim knows that he will need a plan that can work in good times and bad.