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phil
June 15th, 2017 at 11:18 am

Long-Term Portfolio Review (LTP) Part 1:  $1.4 MILLION!  That's up $900,000 (180%) from our $500,000 start back on 11/26/13 so a bit over 3 years to get that far but the main point I want to make is this is getting easier, not harder, as time goes on because our mature positions, like the Butterfly Portfolio, simply crank out gains from premiums we sell and dividends we collect.  They've long ago been paid for as we're back to $1,073,540 in CASH!!!, which is twice as much as we started with.  

If you are new at PSW, I would strongly encourage you to go back to our first cash-out review (which summarized all of our trades at the time, after 6 months) and then go forward a year to see how slowly we add things.  Generally we'd sell one or two puts a month and, if the position got cheaper – we'd set up a bullish spread to go with them (assuming we still liked them).  

At the time we had AAPL, ABX, BRCM, BTU, CAKE, CAT, CLF, DBA, DE, EBAY, EGLE, FCX, GLL, HK, HOV, INTC, IRBT, LGF, LULU, MSFT, NLY, RIG, RRD, SHLD, SLW, SPY, T, TASR and TWTR and we were up 19% in 6 months and were worried about a correction (as usual).  Not too different than what we do now with a lot of the same stocks – it's the discipline that's important to develop, not the positions.  The Man Who Planted Trees tells you everything you need to know about running a long-term portfolio!  

Step one in building a portfolio is, of course, identifying stocks you want to buy (and once you buy your first one, all the rest need to balance with it!).  Step 2 is NOT BUYING THE STOCK.  That's one people seem to have trouble with.  Why would you buy the stock when you can sell a put and give yourself a discount?  60% of the time, that's how we initiate a position in the LTP.   Even when we we do start with a spread, we keep it small so we can easily double down – TWICE – if the stock gets 20% or 40% cheaper.

If you start with a 20% discount ($100 becomes $80) and then you don't add more unless it's down at least 20% ($80 + $64)/2  = $72 avg on 2x = $144) and then you don't add more unless it's down at least another 20% ($72 + 50)/2 = $61 avg on 4x = $244) you end up with 4x at close to 1/2 of what you would have paid ($400) if you jumped right in at full price.  That's why we're THRILLED when a stock we like gets cheaper – even if we're already "stuck" with shares.  



• ABX – Loose leg of spread below, we will deal with it later. 
• AGNC – On track.
• ATVI – On track. 
• BBBY – Here's one that got cheaper but still $36.27 and our net is $35.50 so we're still good but I do like BBBY and, rather than commit to more puts, let's just add a bull call spread while they are cheap like 10 2019 $30 ($8.50)/$40 ($3.85) bull call spreads at $4.65 ($4,650) and those pay $10,000 if all goes well and we already collected $4,500 from the short calls so our net cash outlay is now $150 with $9,850 upside potential and we're already $6,270 in the money.  See why I like it when things get cheaper?  Great for a new trade, of course.



• BRK.B – I WISH these would lose money so we could buy more cheaply!   On track.  
• CMG – On track.
• DIN – New, good for a new trade.  
• DNKN – On track.
• ESRX – Good for a new trade.  
• GOGO – We cashed GOGO on 5/31, I forgot it was in the LTP too – will be fixed.  



• INFN – On track. 
• KATE – No point in these anymore, let's buy them back and clear a slot.  
• M – I still like them, good for a new trade.  (not enough to add a spread, though).  
• MON – On track.  China starting to buy from them – huge.  
• NLY – We were hoping they'd get cheaper but they didn't.  Our consolation prize is $8,250 for not owning them.  On track. 
• RH – On track 
• SBUX – On track. 
• SEE – On track
• SKT – Good for a new trade
• SKX – On track
• SPWR – On track.
• TGT – On track
• TLRD – Good for a new trade
• TWX – On track
• VZ – Good for a new trade
• WATT – Good for a new trade.  

We have 25 short puts and, if they all expire worthless, we'll keep/profit about $90,000 – NOT including the profits we've already made (maybe $40,000).  This is that tree-planting part, every month we find something to sell for about $4,000 and some will become positions and most will simply end up turning into cash, which we use to buy more positions.  After 2 years, we have 24-36 in progress at any given time and it's $50,000+ in bonus profits each year, which is 10% of our original principle.  

It's a totally passive way to make money, very low-maintenance and your worst case is owning good stocks at great discounts, which then drops them down to one of the trades below…

• ARR – It went up and up and up and we never had a chance to sell the puts.  We'll end up getting called away at $22.50 but, until then, we get the monthly dividends.  



• CM – They have finally come back down and we can sell 5 of the Dec $80 puts for $5 to net in for $75 because we REALLY would like to own more of this stock (especially since we're losing ARR) and their 0.95 quarterly dividend.  
• FCX – Very simply, if we have a bull call spread in the LTP is probably because we're waiting for a pullback to sell puts.  We have one here so let's sell 15 of the 2019 $12 puts for $2.25 as we'd be happy to double down on those if FCX tests $9 again.



• IBM – Let's sell 5 of the 2019 $135 puts for $9.50.  Thrilled to own that stock at net $125.50!  
• OIH – Not confident in these enough to sell puts.  If oil doesn't recover next month, we may have to take a loss on the spread and get out.  
• CG – On track
• CLNS – On track
• FNF – On track
• GCI – On track
• GME – Good for a new trade
• GNC – Good for a new trade.  
• HOV – On track.



HOV doesn't pay a dividend but, when it was $1.47, it made more sense to buy the stock than pay a premium for a long call in a bull call spread.  The rest of the ones above pay lovely, lovely dividends of about $6,000/qtr and there's another $24,000/yr (5%) that just rains into our pockets and will rain into the pockets of your children and your grandchildren and your great grandchildren.   Dividend stocks should become more and more of your portfolio as it matures (and as you do) – you should always be looking for good ones to add.  

Think about what we're accomplishing.  In 3 years we have 6 positions throwing off $24,000 and in 6 years we'll be getting $48,000 and in 12 years $96,000 and in 24 years $192,000 – all from our $500,000 initial investment and dividends tend to grow with inflation so $192,000 a year then is the same buying power you wish you had now.  

Slow, consistent investing with clear goals in mind – that's all it takes to build wealth sensibly and reliably!