Monday, October 28, 2013

Adding ARCP to our portfolio.

We will be adding to our portfolio this week with a REIT named American Realty Capital Properties.  This now little REIT will be getting bigger, a lot bigger, soon with the buyout of Cole Properties which it has been pursuing for some time.  ARCP will then become the biggest player in the triple net leasing space. 

Triple net leasing, which basically means the renter is responsible for all expenses at a property, is the fastest growing part of the real estate investment market.  Several more companies fall into this category, including NNN and O which we currently trade.  We like this line of business because much of the rental space is in small retail such as gas stations, and small strip centers.  These are the most popular of shopping venues now and tend to have the longest rentals.  In fact the average leases of ARCP will be over 11 years when the merger is complete.  Over 90% of that with grade A leases. 

Add in that the merger will actually be positive to the debt load of ARCP currently and be accretive to earnings.  The payout rate after the merger at current pricing will be about 7.5% and it is a monthly dividend.  

ARCP has been growing lately adding deals that improve it's cash flow and size making the firm a stronger player in this market.  I would expect some more consolidation in this space as the only way to compete here is to get bigger. But right now ARCP will soon be top dog even without a long history like NNN and O.  But I would expect it to 5 years down the line to be considered a blue chip like the other two  

So now it would seem to be a good bet for long term appreciation, a nice dividend, and some safety due to the leases it currently owns.  We will be trading this stock at $12.50, but frankly wonder if we will see it again at this price. Any pullback below $13 would make for a good buy.  

Note that REIT's dividends are not taxed at the lower federal rate since REIT do not pay taxes at the federal level. However at 7% plus even taxed it looks good and if you are in the lower two brackets you have zero tax liability.
           

Monday, October 21, 2013

Trading Portfolio October 21, 2013

Our current trading portfolio.  Not necessarily for long term holding as we trade options.  However our strike prices would make good entry points. 

AFL...still has a single digit PE and presents a good value.  We trade for a $52.50, but expect we will need to move this strike price up a bit.  The duck continues to sell insurance. 

BCE...Canadian telecommunications company that has improved prospects since Verizon will no longer be entering the Canadian market.  We trade at $40. 

BP.. We continue to believe the single digit PE makes this stock priced right here at $40. The lawsuits will continue to ease as we move forward. 

HFC...Again a single digit PE presents value and we trade this stock at $35 which gives us plenty of room in case Obama does something to blow up the oil market.  Oil refinery company. 

JCP....A big mistake and we own it at $10.  We will try to trade our way of this stock and erase some of the loss and then exit the security for good. 

JNK...New to our portfolio, but one we have followed for a long time.  We like it at $40 and with the economy slowing and the threat of rate increases pushed off for awhile this stock should be a good trade.  JNK is a junk bond ETF that pays a monthly 6% plus dividend. 

JPM...Big money center bank we trade at $45.  All the bad PR will lift eventually and this stock will take off from the current single digit PE. 

LO...Our strike price has been $37.50 but this stock has moved up a good bit and now might be out of our trade zone.  We believe it might be overvalued now. 

NNN...Safe safe and safe at $30. Great blue chip REIT. 

NOV...This stock also might have moved up past our trade price of $62.50 and might be dropped.  Supplies oil drilling equipment to oil companies. 

O...We continue to like this blue chip REIT and trade it at $35. Monthly dividend and a shareholder friendly company. 

SHLD...We like the options on this stock but trade it with lots of room just in case we are wrong.  $37 strike price.  We believe this is a real estate play and not a retail play. 

SO...We have added this stock back to our portfolio since it has sold off so much.  Strike price $40. Good utility company that has been under the gun of the EPA and we believe it is oversold. 

T...Safe telecommunications stock we trade at $33. Blue chip stock if there ever was one. 

VZ...This telecommunications stock might have moved up too far to continue to be traded at $45.   We find the recent buyout of Vodafone to be a positive.
             

Monday, October 14, 2013

How to hire good salespeople.

Over the years I must have hired or managed a couple hundred people or more.  That is what happens when you where employed by 7 publications over a long three decade plus career.  Much of that time was spent in management of advertising sales people and as happens with sales staff there is a lot of movement in and out of the office.  Much of that I am proud to say was staff moving up and onward to better opportunities.  Of course I did some firing too, but that was likely less than a dozen overall. 

The need for good staff that could talk to small business people and converse with large corporate advertisers kept me on my toes when replacing people leaving employment.  Through the years that I interviewed prospects I refined my approach and frankly believe I got better at the task.  The need to get better became more critical in the late 1980's when the people showing up for jobs frankly got less qualified and more in need of skill training due to the declining quality of public schools.  I am not saying anything here that anyone who hired people before and after that time will tell you if they are honest. 

So as I got better and refined my hiring skills there came a point where my interviewing skills got to the point I could pick good staff almost every time I hired for a position. In fact I got so good I bragged about it, and as they say it ain't bragging if you can back it up with results.  Since I was very successful over the years in sales and retired early due to those good hires I say it is a fact. Good sales managers hire good staff, give them the tools to sell, and gets the hell out of the way. Only thing left is for the manager to clear out red tape making sales easier and to resolve disputes among staff and if are not resolving disputes over who's sale it is or who's terrritory it is then you have one lousy staff.  

Being able to pick the good ones from the not so good ones has two strong advantages.  One, you are spared the expense and trouble of firing them and the loss of sales revenue that comes with that issue. Two, and maybe just as important, you spare yourself and the person being hired the future issues of not being placed in a position that fits their long term future and harms your status as manager. 

My interviews at the end took less than 20 minutes max and afterward I could weed out the good ones quickly.  If you hire people now I expect you are asking how did I do it and just what was the plan.  Well after some serious considerations of not giving away the secrets and hard won approach without just compensation I have decided to go public for free.  It also has not hurt that in the last year or so I have been doing some consultation work with a couple of newspapers and realize it could not hurt to spread the experience and skill sets. 

First off when hiring anyone in sales the key is not to look for skills or experience.   You need to look not for aptitude, but for attitude.  Yes, I know they need to have some smarts, but if given a choice I would rather have someone who has the right mindset and not the right mind. Honestly I have hired some people who some people thought were dumb as they come, but day after day they brought in sale after sale and I certainly did not mind that and praised them to the hilt for their results.  If I can find the person with a good attitude then I can teach them the finer points of sales. After all if someone can sell the product they can be taught how to haul it in so to speak.  Any manager will tell you if the salesperson is getting the big sales, cleaning up after them so to speak is not an issue. 

Three things you are looking for in the person.  One, first and foremost, is ego drive.  Without a stout ego they will quickly become dejected and emotionally down after some nos, which they will most certainly get their share of,  and that will be noticed by the person they are trying to sell to and kill the sale before it starts.  That ego drive amounts to the absolute driven internal go  that says I can do it and I can do it better than anyone else so get out of the way and let me do it.

Second thing you look for is empathy.  The sales person with empathy will follow up a sale with someone with the desire to make sure that the sale produced results for the person. They will work hard to make sure the sales money is well spent and there is value for the customer.  They are not afraid to follow up since they honestly believe there product is worth the price.  The sold to person will sense that empathy and form a bond with the salesperson that should result in continued sales for the salesperson. 

Lastly and not least is the ability to get along with the rest of your staff.  I said rest of your staff and not other people.   Being able to get along with the rest of your staff means they will not hinder or impede the sales of other staffers and be able to work as a team when needed. 

Of course the question here is how on earth do I find people with those qualities, but maybe more specifically how do I weed out the ones with those qualities from the ones without those qualities.  Well I have refined the interview questions down to only six that will net you those results and as I said the interview can be done in 20 minutes or less. 

Question Number One...What motivates you.....You are looking for answers such as "money" or "recognition", not " it feels good', or " makes me happy".  You are searching for ego drive here so the more brass balls you find in the answer the better. None of that touchy feel answer stuff. 

Number Two...Why do you want this position...Again you are looking for "money", or " this is a position that makes me proud", not " I like to work with other people", or ' your company is known to treat people nice'.  Again some ego drive they want the job because they want to do something for themselves and make some sales for you.  Note these first two questions should give at least similar answers if not the applicant is trying to fudge some here.  Trying to make you happy with their answers. 

Number Three...Describe your best boss and your worst boss ...You are looking for answers such as "treats his staff fairly", or " pushes us to do better", or even "knows how to teach and how to not scold in public".   For worst boss you are looking similar answers but the opposite side of the best boss.   From time to time you will get answers such as they were sexual predators or stole from the company so use some followup questions to steer them to what you are looking for in traits not what the boss did that was out of line.  The deal here is a good boss for them has BOTH ego and empathy and the interviewee sensed that even though they do not know what they were sensing. 

Number Four...Tell me about your proudest achievement ...Answers here need to be some sales record or big sale or I just kicked someone else's butt in sales as again you are looking for ego drive the most important attitude for the job. Now young people will sometimes come across as cocky when they have nothing to be cocky about and that is ok because as we said we are looking for ego.  A good sales manger can train and redirect that ego drive to some good sales. 

Number Five...Tell me your best personal traits and your worst personal traits. I love these questions and they are maybe the best of the interview in finding out what you are looking for in a employee. Note this is question number five and is placed here for a reason.  The interviewee is likely some frustrated and mentally tired here since the interview is not going as they were expecting or planned for and usually by now have given up the fight to answer questions as they think you want to hear and thus you get some good results.  Best traits of course are ego drive and empathy type answers as noted above and you can weed them out as they talk.  As for worst traits, if they can not answer this one and frankly many can not and more importantly are afraid to do so I generally would not hire them.   If they do answer that means they can brutally honest with you about themselves and likely can work well with others since they can sense how they come across to others.   There is the concern here that you will hear something like " I drink too much", etc. that will give you pause and likely drop them quickly from your list and consider that a gift from not having to fire them later. 


Number Six...Sell yourself to me in three minutes or less...This one is a good one since if they can sell themselves to me in the three minutes I give them,  then they can likely sell my product once trained in the product we are selling.  Also give them three minutes and trust me here almost no one can last that long in a sales pitch and that is just fine.  If they last the three minutes you might consider this person too talkative to be someone who will get along with your sales prospects.  Again no empathy as in thinking to themselves how am I coming across to the person I am trying to sell the product. 

Now trust me on this one no one who you interview will be prepared to answer questions like these.  They are ready to tell you about their prior jobs, prior experience, skill sets they have, etc. and being unprepared you get some honest answers.  There are obvious trip ups here where if they are trying to think on the go and fudge some answers it will not work. 

Tally up the answers on your interview sheet and you will find those with the traits I suggested are needed for good salespeople.  In fact maybe any new employee if you like.  Now if you try this and succeed as I know you will since this advice was free email me as a thank you and ask me about my favorite charity as payment.  See not completely free if you have empathy for the person passing on this info. You do have empathy don't you? 

Thursday, October 10, 2013

Bulletproof no more.

Those of you who drink or have drunk alcohol a bit too much sometimes you understand the idea behind this posting.  No we do not drink to excess, if fact we indulge in almost no alcohol.  But the reference here is when many people drink too much they get the idea that they have become bulletproof.  The thinking that they can say anything or do anything and nothing bad can happen to them.  In drinking and in trading that is not good thinking and can lead to some very bad outcomes.  

So for about 5 months our trading has been well bulletproof, no mistakes, no losses, no bad decisions, and lots of profits.  Sure enough about a month ago we bought some JC Penney puts at $10 and figured it was a quick buck in a stock that had been hit hard. Our personal opinion was and still is that JCP will survive.  We rode what was a half position for us for about one month and decided our bulletproof status meant we could dive in for another half position for a full $100k buy in JCP.  

Sure enough we have discovered once again we are not bulletproof.   In the last week or so lots of bad PR has pushed JCP below $10 and now below $8.   Ouch we are sitting a fat loss and because of the way options work are stuck in the position since the cost of getting out is likely to be more than just having the buy the stock as an assignment later this month.  The second half of the position expires in November so we got to wait until then to unwind this bad trade.  Lots of time to let this stupidity sink in we suppose. 

There is frankly no telling what the final verdict will be and if the worst happens could lose the whole position.  But since both these options expire before the end of the year and the lucrative holiday shopping season for JCP is upon us we will assume for the moment we will get out with our pants on, but full of holes. 

Here is the lesson and after three decades of trading we have once again been taught the lesson with a loss.  This market is not a good market for trading and the best approach is to trade with super solid securities such as VZ, T, NNN, O, and other such stocks that have great balance sheets and investors run to when full of fear. Not much downside if we make a bad trade and easy to get out of if we do.  Yes, the profits are not as great, but solid profits are good profits and big losses such as JCP here take time to be made back. 

There will be times again to do run and gun trading, but not now and certainly not with stocks such as JCP. 



                

Tuesday, October 8, 2013

Big Education in Johnston County

My mama, and I bet your mama, taught you that when someone gives you a gift that you say "thank you".  Certainly not to go out and talk about the person behind their back with something like "yeah the gift was nice, but they should have given us more"  That is precisely what is going on with the "Stand up for Students Johnston County" rally at the Johnston County Court House this week.  Why do I call it a rally, or more honestly a political rally?  Well here is the visitor list, former Democratic Rep. Bob Etheridge, current Democratic Superintendent of Schools June Atkinson and several other Big Education big wigs, all liberal democratic leaning.  One of the people there is strongly anti-charter school as well. Not a Republican in the bunch and certainly not some of the local legislators or commissioners who have helped with funding the local school system. Seriously Mr. Etheridge seems to think the state can not live without his continued "wisdom" and does not realize his time on stage is up. Statesmen bridge the gap between two sides in a quiet dignified manner and has the trust of both sides. Elder statesman Mr. Etheridge is not. 

The sad thing is that two Johnston County officials have decided to attend.  Johnston County Superintendent Ed Croom and Johnston Community College President David Johnston.  Now I like both of these men, but so help me can they not see this is a political rally best left to politicians?  Both I bet are smarter than me and certainly more accomplished and that means if I can see this they should be able to do so too. 

Let's set the stage here.  The Johnston County Commissioners just added a nice teacher supplement to the local teachers pay that local taxpayers will be pay from now until forever each year.   We are headed into a bond issue that includes $57 million to build public schools and buy some technology in this county and $7 million to build some infrastructure at Johnston Community College.  Guys I go to tone deafness here.  Are you so eat up with your ivory tower jobs you do not see how this comes across to the taxpayers of Johnston County?  How about thanks for the pay raise, but kiss my butt because it was not enough.  Add in the taxpayers you are flipping off will be voters for the bond issue shortly and you can not get more lousy timing. 

Maybe Mr Croom forgot but the Johnston County Public Schools just got a black eye from being tone deaf for not inviting the Neuse Charter Schools seniors to their college fair.  I mean he and the SSS principal passed off responsibility to each other and then to the fair administrator when they realized it did not look good.   Surely that lesson woke up some of the highly paid minds in the administration building down on US 70 East, but apparently not.  

Personally as a voter and taxpayer I just might decide to vote against the bond and work to get others to do so as well if these gentlemen do not come to grips with the situation here and stay home.  With the expected small turnout of voters it would not take many to vote NO to put an end to this bond issue either.  Might be time for some real elder Johnston County statesman or stateswoman to come forward and counsel our two school leaders here.  Any adults out there?  Either that are our two education leaders in Johnston County might want to come down with 24 hour viruses or maybe need to schedule a haircut about the time the event is going on.