Friday, March 4, 2016

FMF - The Found Money Fund

  When I wrote last year about how I managed to pay off the 60 month car loan on my 2013 Chevy Spark within two years I expected the post to be picked up by the many consumer finance websites that dispense advice to people about how to get out of debt. No one picked up the post which I attribute to the simplicity of my method which was to take all the money (which I like to call ‘found money’) I got that wasn’t part of my paycheck and put it towards paying off my car early. I imagine if it was just that easy everyone would be doing it and then who would need all these consumer finance websites that dispense advice to people about how to get out of debt.

  Once I had paid off my car I was determined not to let my found money slip though my fingers. I had a large portion of last year’s tax refund and some extra money from helping support the shoe store software I wrote a decade ago so I decided to open an account with Fidelity and buy stocks with my found money. I decided to call it my Found Money Fund and sometimes refer to it as my FMF which I think could be the title to one or many rap songs with the initials standing for some explicit language.

  Why Fidelity? Years ago I used TD Ameritrade (then called Datek) for some day trading adventures and when I needed to transfer a 401k retirement accounts from my old employer I called them first. TD Ameritrade sent me the forms I that I needed to sign and mail back to them to transfer my retirement account funds. I filled out everything and mailed them back. And I waited. And I waited some more. After hearing nothing from TD Ameritrade for three weeks I called them and was told I mailed back the wrong forms and said they would send me the correct forms to fill out. Silly me – filling out the wrong forms which were the ones THEY sent to ME. I was pretty hot about not having anyone call me so I told TD Ameritrade to save the postage not in exactly those words.

  My employer at the time put our 401k money into a Fidelity managed account so after TD Ameritrade became a non-option I called Fidelity about transferring my old retirement funds. They made it easy and simple and I haven’t regretted using them once (I wrote about how great they are in this post). When I decided to start dabbling in covered call options I got on a Fidelity live chat and the customer support person spent 30 minutes explaining everything I needed to know about the subject and when I had other questions competent help was just a mouse click away.

  Next I needed to research what stocks I wanted to own. While most people research stocks online and study financial reports I did my research with my eyes and ears while taking Daisy and Baxter on walks. On our walks I noticed a lot of people buying cigarettes at the nearby Liquor Depot. Some people buy the bargain brand cigarettes but most have some brand of Marlboro cigarettes even though they cost much more than the bargain brands. I knew then that one of my stocks would be Phillip Morris (PM), the manufacturer of Marlboro. Phillip Morris was spun off of the Altria group in 2008 and has traded anywhere from the mid 30’s to the high 90’s over the last 6 years. Phillip Morris also pays a dividend to stockholders which has increased every year and has gone from .46 in 2008 to 1.02 currently.

  When Kathy and I take Daisy and Baxter to Casey’s General Store on weekend mornings I buy a cup of coffee and we give Daisy and Baxter beef stick treats that we bring with us. We’ve gone to plenty of other convenience stores over the years and I noticed that at all hours of the day or night there is no shortage of people getting cups, cans, or bottles of soda to take with them. Whenever I go to the grocery store I see entire aisles devoted to soda which people stack in and under their shopping carts. Many of the shopping carts have these plastic ringed six packs balanced along the edge of the cart, surrounding boxes of snack cakes and bags of potato chips. I knew I had to own some of a big soda manufacturer so I took a close look at the soft drink stocks Coca-Cola (KO) and Pepsico (PEP). Both are great stocks that have increased their dividend payouts for over 40 years and currently pay around a 3% dividend. I decided to buy Coke because their stock price is around half the price of Pepsi, I like Coke much better than Pepsi, and my informal survey of the bottles and cans strewn around the neighborhood tells me Coke and Sprite are still more popular than Pepsi and Mountain Dew at least among the Marshalltown riff-raff.

  One thing we see whenever we walk is everyone talking or playing with their cell phones. I know these plans cost upwards of $30 a month yet everyone from old people to kids have their cell phones that they are playing with. Even Ernie next door (who I haven’t seen in a while since his latest appearance on Marshall County’s most wanted list) always had a cell phone whenever he returned from one of his incarcerations. This tells me that cell phones are more specifically cell phone networks are big business. Based on research conducted by watching advertisements on television the two biggest telecommunications companies are Verizon (VZ) and AT&T (T). Both seem to be rock solid companies that pay healthy dividends. I chose AT&T because their dividend is a little larger (5% vs. 4%), they have increased their dividend for the last 30 years, and their price is 25% lower than Verizon.

  The 4th stock I picked was mortgage company American Capital Agency Corp (AGNC). AGNC is a mREIT – a mortgage real estate investment trust that buys packages of mortgages and makes money on the difference between the interest rate it pays to borrow the money to buy the mortgages and the money it takes in from the interest on the mortgages. If you think it sounds risky you are right but for that risk AGNC pays a dividend between 12 and 14 percent. AGNC’s mortgages are mostly backed by the U.S. government which owns the printing presses which makes the likelihood of the company going bankrupt less of a factor and let’s face it –all these people buying soda, cigarettes, and cell phone usage probably have a mortgage since they probably can’t afford to pay off their homes. AGNC returns 90% of its income as dividends in order to qualify as a Real Estate Investment Trust which lowers its taxes in ways only accountants and lobbyists can understand.

  So there are my four stocks. What do they all have in common? All four pay healthy dividends and except for AGNC are huge established companies that have almost no chance of going bankrupt and even AGNC is backed by the printing presses of the U.S. Government.

  On March 23rd I bought as many shares as I could with $500 of each stock. I settled on $500 buys as a balancing point between Fidelity’s fixed $7.95 commission and having money sitting in the found money fund doing nothing. The Dow Jones Industrial Average was 18,116. I was immediately down the $31.80 fidelity commission. Then all four stocks went down in price and a week later I was down 75 dollars or 3.75% On April 1st I had another windfall and another buy of PM and AT&T . On April 10th my losses were trimmed to $30 and I received my first dividends of $6 for PM and $4.84 for AGNC. I didn’t really get any cash since I found out from Fidelity that I could have my dividend reinvested into the company with no commission fee so I really received .077 of a share of PM and .224 of a share of AGNC. All year I took the money I received from teaching chess and my shoe store support fees along with any other found money that came my way and have made 12 buys - 3 for each stock. As of last Friday I had paid $95.40 to Fidelity in commissions for 19 shares of PM, 35 of KO, 73 of AGNC, and 43 of T.

Here is the table of my buys showing the Dow Jones Industrial Average, my profit or loss at the time of the stock I was purchasing, and the total profit or loss at the time of my FMF:
DateTransactionDJIAStock +/-FMF +/-
March 23, 2015Buy 6 PM @80.077218,116.04n/an/a
March 23, 2015Buy 12 KO @40.764218,116.04n/an/a
March 23, 2015Buy 22 AGNC @21.918,116.04n/an/a
March 23, 2015Buy 14 T @ 33.3618,116.04n/an/a
April 2, 2015Buy 15 T @ 32.93517,763.24-14.53-62.27
April 2, 2015Buy 7 PM @ 76.4417,763.24-25.99-62.27
May 21, 2015Buy 12 KO @41.204718,285.74-.92100.8
June 11, 2015Buy 24 AGNC @19.77818,039.37-47.728.89
June 22, 2015Buy 6 PM @83.2618,119.7849.5031.81
August 19, 2015Buy 14 T @ 34.226417,348.7346.35103.14
November 3, 2015Buy 27 AGNC @18.1417,918.15-80.34175.94
January 19, 2016Buy 11 KO @41.847516,016.0230.1787.56

  I’m not trying to time the market – when I have enough found money I make a buy of a stock. It doesn’t matter whether the fund is performing well or poorly at any given time since I have confidence in the companies I have picked and faith on the part of humanity to continue to smoke cigarettes, drink soda, use their cell phones, and take out mortgages. My ‘found money fund’ hit its all-time low on August 25th with losses of $259 or almost 5% of my investment. It rebounded to show a $270 profit on October 22nd but was back in the red by mid-November. Even though the Dow Jones average has bounced beteen 15,800 and 17,100 this year my fund caught its second wind in February and set 7 new highs with the peak being a $583 profit on February 25th. Fidelity only shows that I have a profit of $324 because while I’ve collected an extra ¾ share of PM, ½ of KO, 2 shares of T, and 3.8 shares of AGNC by reinvesting dividends Fidelity counts these dividend reinvestments as separate investments with their own profit and loss. I count them as more found money (even though I do have to pay taxes on them). When I have 100 shares of these stocks I will start selling covered call options where I get paid for agreeing to allow a buyer the option to purchase my stock at an agreed upon price in the future and a way to add more capital to the FMF.

  I’ve noticed that these stocks always seem to go up when stock writers caution against owning them and go down when stock writers encourage people to buy them. It makes me think that there are some inside deals going on but it doesn’t really concern me since it is all found money for me anyway and the only reason I’m going to sell is if I have some financial calamity or one of the companies cuts their dividend. These stocks currently average $33 a month in dividends which get reinvested and then the next month or quarter I get dividends off the reinvested dividends which adds a small amount to my monthly return. Maybe $33 doesn’t sound like a lot to you and if it doesn’t please go ahead and send me $33 a month using the 'Donate' link to the right of this post and then I'll believe you when you say $33 a month isn't a lot of money.

  Picking these stocks, buying them, and watching them go up and down has been a lot of fun this past year. I can’t say it has contributed much to my financial security but it has helped my peace of mind. I used to get upset when I saw people fling their cigarettes out the window on the highway or leave soda cans on my yard or have to wait in line behind somebody talking non-stop on their cellphone. Now I just smile if the cans are Coke products, imagine the cigarette butts are from Phillip Morris products, hope the chatterbox in front of me is using an AT&T plan and thank all these people for helping my investments grow.