If We can Do it, You can Do it too.

Our guiding principal about investing and financial achievement is quite simple.  It is not what you have in life, it is what you did with what you were given in life.  By given we mean financial assets you had early on or at the start.  Did you inherit some assets of size, did you come into a family business, did you move into some real estate income, or even did you happen to be given an employment position with substantial income at an early point in your working life.  Any of these say you were given a lot in life and if you did not grow these assets and most importantly share your blessing with those of less means then you basically have done nothing more than lived a lifetime of welfare and pleasure.  We are not into the current PC thinking of "giving it back", we are into being good stewards of what you are given and obtain in life.  

We find those that started with nothing and have created good value and lived a purposeful life of some charity to be the most blessed of all.  Seriously only when you had nothing does one appreciate, TRULY appreciate, having something in life to pass on and yes even enjoy some.  Over the years we have met many people such as that and find our friendships with them tend to be the best. 

Some years ago we decided to take about half of our assets and place them in what we call the Dixon Charitable Trust to be passed on to certain Christian charities when we pass on.  We harbor those assets and work hard to push them forward in value in our so called retirement years. They essentially are our trading account.  From time to time we reach into this asset and make a bequest to something immediate, but the main purpose is to use our God given talents to reach for the stars and make the final bequest as much as we can do so.   Christian charitable giving is the highest purpose in life and all the assets in our trust go for that purpose. The blessings of having been given skills to achieve by God makes one obedient to the purpose of using those skills as a steward for God. 

We began with basically nothing financially in life, but did have good parents who instilled Christian values.  We also find it a huge blessing we were raised in a small town. There was a time early on when frankly we did not have a "pot to piss in" as they say in the South.    Over three decades of work and career we used our parent taught savings habits, blessed God given and learned investing skills,  and compound interest to accumulate assets enough to leave work early and go forward with building our charitable trust.  We began this blog some three years ago to educate those with little investing knowledge and to improve the skills of those with some investing knowledge. However the most important aspect of this blog is to push the idea that if we can do it you can do it too. 

The simple values of learning to save just a little of your income regularly and salting it away forever is the start of something big if you continue to do it day by day. Having wealth is a CHOICE not a happening despite what current politicians and others might want you to believe. We tell our children that a well funded life is built each day by getting up going to work and making sure some part of the money you earn that day is salted away as one brick in the wall. After some time and days the bricks begin to build into what can be seen as a wall and an even higher wall as the years go on.  The most wonderful thing about this wall building is from the very start that wall is being aided by compound interest. Compound interest or more precisely compound wealth is how one of no means achieves something of great means. Compounding is like having someone help build that wall for you and as you go on there comes a point where the someones building that wall for you are putting more bricks in the wall than your very own work is putting bricks in the wall. 

The key to all of this is getting started early.  Literally from day one of your work life. Sorta like being able to say one knows where the very first dollar one made is today.   If you do this somewhere down the line you have enough to retire on and in our opinion there is nothing like buying your freedom from work.  Not work per se, but work that you do to enrich others who employ you.  Moving from a point where much of your work skills is going to enrich someone else to where almost all of your work skills is going to enrich you and Christian causes is a truly liberating moment for someone. Work life continues on if one is wise and you find other outlets for your skills and the most enjoyable part of achieving that freedom is of course to be able to pass it on to others. 

When is the best time to begin investing? Today or better yesterday.  We personally believe for most people investing in financial assets such as stocks and bonds are the best choice.  The best part of investing in financial assets and not real estate or business ownership is the freedom from not having to manage and sometimes timely depose of those non financial assets. Furthermore investing in stocks is literally being an owner of business and having others work for you.  THAT is the most important part of gaining any wealth in life the ability to have the labor of others working to make you money. Sometimes you have employed someone like the owners of Google or Apple to work for you and that my readers beats any other ownership of any asset.  Essentially turning the employer/employee relationship with YOU being the employee to a employer/employee with YOU being the employer. Using the 401-k at work and a Roth IRA too are the two best ways to invest. Placing your money in an index fund is the best and easiest way to invest. We suggest if you have a choice for long term investing use the Vanguard 500 Fund,  place your money there each payday and forget about it.  Over many years we have come to the conclusion that managed funds are fools gold, great this year, no so much next year.  Therefore an index fund is best and is frankly cheaper too. The idea is to change some of your personal income to personal WEALTH.  Wealth is freedom giving, wealth gives you options. 

If you are able to max out a 401-k and a Roth IRA do so and frankly most people should try and reach for that max out goal as these two investing vehicles are your best choices for the future. Then if you have access to a Health Savings Account max that out as well.  All three of these are tax advantaged as well. We find it amazing how many people buy into investment frauds thinking there is a quick way to wealth and frankly there are no shortcuts to wealth.  Using a trustworthy well known national investment firm like Vanguard or Fidelity is the wiser choice.  One can plan on around no less than 6.5% to 7.0% compounding of your money over time if placed correctly.  That should achieve a doubling of your money every 10 plus years or so, making three doubles if you work three decades.  Anyone, yes ANYONE, can be a millionaire if that is one's goal and you start early. 

Simply put with a steady investment in a index stock fund and Social Security one can reach a point where your income is protected from inflation and will last forever. 

One final point here there are some managers of money that are blessed to have achieved something like 12% gains over many years, but those people we can count on one hand.  They are few and very far between so do not get fooled.  If is rare that someone hitches a ride with such investors early on so do not risk your life's savings trying doing such. 

              

In praise of Index Funds.

Maybe the smartest move we ever made financially was to move our retirement assets to an index fund.  Frankly we did not wise up early enough and did not catch the full lifetime benefit of doing so.  But as we say read our blog and learn from our mistakes so as to avoid doing it yourself. Anyway this week gave another prime example of why buying managed funds is mostly for fools. 

If you tuned into any financial television this week or read anything business related on the web you have heard the name Alibaba.  Alibaba is basically the Amazon of China with a few twists.  Anyway the IPO of the security happened Friday and some guy named Jack Ma got really really billionaire rich from his business.  Some others like Yahoo got some cash as well since they were early investors. However here is the rub on Alibaba and how it makes clear buying managed mutual funds is not smart. 

Alibaba stock is well not really stock, it is a security based in some Caribbean island where the American depository shares are being held for shareholders.  The real shares are being closed held by people in China and they are the controlling shares.  See China will not allow some businesses in China to be held or controlled by people who are not Chinese.  There is also the concern about just how well they books are kept over there too. Frankly we are not sure if Americans and American mutual funds who bought Alibaba even own anything other than some notes that say something to that effect.  Shareholders in American have no voting rights, no shareholder meetings, no nothing as they say. Take that and consider that almost every managed mutual fund out there bought into the shares Friday and if not Friday will be doing so these next few weeks.  Wonder why? 

Well buying Alibaba makes your fund LOOK smart, makes fund shareholders THINK you are smart, and looks real good when fund reports are sent out.  Honestly we have no idea where the assumed shares are headed.  They started at $70 or and moved up some Friday, but trust me those early shares you could not have bought.  Those shares were for some of the special people who get dibs on buying IPO's and they themselves will wait an SEC approved time and sell them for a quick profit. The point there is the slow rabbits in this stock have already been caught. Mass hysteria is what pushed the shares up in our opinion. But then again we did not buy and will not be buying them. 

We will rest easy and sleep nightly knowing our assets are in safe growing index funds where we ride the economy and steady compound growth. We suggest you do likewise. 

Our opinion on Four Oaks Bank Stock.

About two years ago we posted a piece about Four Oaks Bank holding company.  We noted in the piece we had NO concerns about the safety of customer's money in the bank and that no one needed to worry if they had savings, checking, loans, or any kind of business with FOFN.  Truth is some people do not understand the difference in a bank and a bank holding company.  The bank and it's deposits and customer's business are insured by the FDIC, a bank holding company is the for profit private entity that either makes profits or loses money in operating the bank. So with this past month's huge share sale we believe it is time to revisit that post. 

FOFN is a community bank that as part of normal business activity lent out funds to customers to purchase real estate before the downturn of 2008 and 2009 that got the bank holding company in trouble due to non payment of mortgages.  FOFN had to foreclose on a lot of that real estate and those foreclosures with the depressed real estate prices have taken a toll on the capital of bank holding company and the profits of the bank. The bank also had to settle with the feds regarding some lending practices which cost the bank some additional capital. 

FOFN recently held a large share offering with current shareholders getting the opportunity to buy stock at $1 per share.   One investor, who we will call an angel investor, bought a huge portion of the offering and now owns just under 50% of the outstanding shares.  For all intents and purposes the large investor has control of the bank holding company. 

What is the future of FOFN and where do we believe the share price will go now?  We believe FOFN holding company will survive on it's own due to the recent share offering.   FOFN at it's height was making about $1 per share on just under a 9 million share float and selling in a high twenties price, which was a rich 20 plus PE multiple.  That stock price was earned in a market where small banks stock sold at a premium due to possible buyout value and a booming real estate market which seemed to see real estate values go up forever.  Neither of those market situations are what is happening now and will not in the foreseeable future. 

Let's assume the bank can get back to earning $7 million per year, which is about what it was earning before the financial crisis.  Let's assume the angel investor maybe changes some management and they clean out what is left of the non performing assets.  If so we would expect a premium value in the stock at somewhere near $3.20 per share , or about 15 PE.  If the stock is valued at a normal banking PE of around 12 one can expect a stock price of around $2.50 per share.  Our assumptions are 21 cents per share earnings or $7 million annual earnings divided by now much larger 33 million share float.  Of course if one is holding shares at a $1 cost, having the shares selling at a $3 value is a big gain.  We would expect with large share holdings of a thinly traded stock that selling out of the shares will push share prices down a good bit.  Therefore shareholders could end up holding shares for longer than desired due to the inability to sell out large positions at desired prices. 

If we held the shares we would be gone in the low $2 per share if we bought in at $1 per share.  We were asked by several people if we would have bought the shares at $1.  The answer is no on share purchase, but not because we thought there was not money to be made, but rather our assets would make more elsewhere.  There is not much risk in the shares going forward as we see little downside risk, but frankly the slow rabbits have already been caught in FOFN stock with the current price trading around $1.70.  As for our opinion simply put would we had rather have been in FOFN the last two years or say Facebook, or maybe Apple stock?  Would we rather be in Facebook or Google the next three years instead of FOFN?  The answer for us is easy. 

ACSF .. a small cap worth taking a look at. .

American Capital Senior Floating Loans is not going to make you rich, but it will produce some good long term dividends and make some capital gains for you along the way.  This company is a small cap, just over $100 million in value, business development company with a 8% plus dividend. It is relatively new to the market and has some risks, but we believe could be a good investment for some years out. 

ACSF is as it says a floating loan company as in the rate floats on the loans it produces.  That gives the investor some protection against inflation as loans will be adjusted accordingly with customers if the business environment changes.  That should help put a floor under the stock price.  It is also a new concept to BDC companies.  We also like the lower fee structure of ACSF which is only .80 percent far below most business development companies and that allows more interest income to flow to the shareholder.  We will have to wait and see if ACSF becomes a cheap operator like TCAP one of favorites of course. 

ACSF being new to the market also has meant it is under priced stock wise a good bit. Currently trading around $13 we believe the stock should be trading at around $16, which would make for a nice capital gain to add to the dividend payout. 

We are Small Town Investor can not trade this security due to size restrictions, but this does not keep us from suggesting some due diligence and maybe putting some of your bucks to work here however.

            

Nuveen North Carolina Premium Income Municipal Fund

We have opined on the Nuveen North Carolina Premium Income Municipal Fund, symbol NNC, for some time in blog posts.  It has become our largest long holding by far since about mid-year 2014.  In fact it is now our largest position ever in any security. We will explain our reason for purchase and adding to that purchase for some time now in the paragraphs below. 

Let's state that we believe the most advantaged holdings one can be invested in currently is a strong position in large cap stocks via mutual funds and we highly suggest Vanguard.  MGV and MGV are excellent mega cap funds with VFIAX as a alternative in the mix.  We have explained this idea in our postings on the political economy as this being your investment for capital gains.  NNC offers solid safe current income for the income part of your portfolio. 

NNC is a municipal fund that is tax free for both state and federal taxes.  Our purchase price average would place our yield right at 4.9% , or 7% taxable yield for someone in the 25% bracket.  NNC has bonds issued by numerous government agencies such as for building schools, operating airports, putting in water and sewer lines, and running hospitals.  These bonds are backed by the full taxing power of towns and counties in North Carolina, backed by the ability of those government agencies rate raising power, and lastly by the assets of those towns, counties, and facilities they operate.  That safety is strong and frankly as good as any US government bond out there.  Therefore NNC is as good as buying any government bond. 

NNC invests in BBB rated bonds and up. That means the portfolio is what is known as investment grade.  The fund is closed end in that once the fund was fully sold they do not need to go out and find more bonds when new money comes into the fund since there is never any real new money.  However the fund sells on the market with a bid/sell quote everyday so shares can be bought and sold by anyone at a price making it easy to sell and easy to buy.  That means the bond portfolio which has has a par value at which the bonds would be normally called can sell higher or lower than that par value.  That closed end feature is why we like this fund as we are relived of any worry of seeing the bond portfolio have to sell off bonds before maturity due to redemptions. 

Therefore the selling price is set by market conditions and demand for the fund.  Market conditions since about this time last year has been below par value.  In fact the fund has consistently sold at around 12% to 14% below par value for over one year.  The concerns about rising interest rates and what Congress might do to municipal finances has pushed down the selling price of NNC and pushed up the yield.   We believe those concerns to be overblown by investors and consider NNC to be an excellent buy in today's environment. Frankly with the concern about rising interest rates one only needs to look at mortgage lending in this country now and how rates are being held down due to consumer rejection of rates each time banks try to move them upward. Not only do we see a almost 5% tax free yield, we see some nice capital gains as well eventually.  We personally have achieved a 10% gain in the value of our shares since we began buying them in January of 2014, plus a 4% dividend on the share bought.  14% is not bad for a 9 month holding in a government guaranteed bond. 

Better yet we see additional gains ahead.  The fund has bumped up their dividend 5% this year and there could be some additional dividend increases in the year ahead.   Plus the shares are still selling about 12% below par value.   So that means there is still time to take advantage of some money to be made in NNC.  NNC not only buys bonds, but they also use some leverage in this closed end fund by buying some bonds on the market with low cost short term money boosting their payout and the chances for some additional capital gains.  Yes there is some risk there if rates move up, but this investor does not see any chance of that happening to any extent real soon. 

Finally do your due diligence in this security, but note that NNC has a long track record of over 20 years.   That range has seen almost all market conditions.  In that time NNC has only paid 2 months below 5 cents per share and that being 4.9 cents.   During that time the fund has only once traded this far below par value.   

Closed end municipal bonds funds are in the sweet spot of this cycle now. Capital appreciation, guaranteed income,  and high yield are a combination that is hard to beat. As long as we have a no growth economy with large cap companies preferring profits over growth due to the political economy NNC will do well.   If this fund sells off again we would look to add at least one more purchase in NNC. 

Finding Value in a Fully Valued Stock Market.

We are stock and option traders and our criteria for securities to trade are simply under valued stocks.  When they are easy to find it is like shooting fish in a barrel. When they are difficult to find, like now, the risk of trading and owning stocks goes up and selecting values is paramount.  We trade 13 to 15 securities monthly and keep a list of stocks that counts in the lower 20's for our watch list.  So where are we finding values now? 

First off many stocks on our watch list we really really like, such as O, NNN, and BCE are just too richly valued for us to trade. Excellent companies with a long term future, but with PE's in the upper teens and above so there is downside risk especially in a market downturn.   We look for FORWARD PE's in the single digits to about 12x.  We also look for stocks that are $10 billion in market value and above and lastly want those PE's to be decreasing as the stocks move forward.   Those qualities take out much of the risk in say a 10% correction and provide safety going forward. 

So right now we see numerous values in the large banks and large insurance companies sectors.  PRU and MET are single digit PE's going forward.   Both are strong large cap insurance companies with recovering businesses that are not tied to health insurance long term concerns.  Large banks like JPM, which is our favorite, plus C and maybe BAC offer strong earnings growth going forward.   Insurance companies and banks will prosper nicely with the expectation of increased interest rates the next few years.   Higher rates, even a small move up, will produce significant increases in earnings for these companies with large holdings of loans and securities.    Almost any large insurance company looks good now, but the banks must be sifted through because there remains concerns about the Obama administration still using their profits for a election ATM. That is why JPM looks best right now as it basically past it's ATM moment.  

Some other stocks where we find some value is SO,  this large electric utility is not subject to as much negative regulatory action as other utilities.  SO also offers a depressed price and a good safe dividend.   AAPL, which is the midst of a new product cycle is still fairly priced and with the strong ownership of funds and large holders likely has little downside risk here.  We also like the sheer addiction Appleheads have to purchase any upgrade of this product no matter how small. 

CSCO, a large cap tech stock, is somewhat undervalued as well.  We expect the stock would go nowhere in a market sell off.   BP, which we traded for some time months ago, has now moved back into the upper $40's price wise and is selling a single digit PE for next year.  The oil price sell off has pushed back many of the big oils, but BP is the only one that looks like a buy at this price.  T has backed off in price due to concerns with pricing and competition and we believe has little downside here and lots of coverage for a 5% plus dividend. 

One little gem we found last month is NEWM, a small newspaper company, that we find significantly undervalued.  Yes the stock has some risk but pays about 6% dividend that seems well covered to us.  Since it is market capped at less than $1 billion dollars our fund can not trade it due to internal rules, but that does not mean you home gamers can not take advantage of the opportunity.  

  Lastly we continue to own and have added recently to NNC, a Nuveen North Carolina muni bond fund which is about 12% undervalued.  It pays right at a 5% monthly tax free dividend and eventually will recover it's full value we believe while paying the owner nicely while they wait.  NNC is our largest holding now.