Sunday, October 21, 2018

Monday Monday, or hitting the wall

Another season, another post.

We're halfway into the fall academic term. I am  10 1/2 months past full time surgery practice. Time has passed, efforts have been underway for some months now, the season is turning towards winter and I am still looking for the upswing in business. Start-ups are hard work, need plenty of working capital and need to be nurtured like infants, to adulthood. I'm 250k into it, need another 50k at least to get over the hump. The easy money has been spent, now I have to dip into slightly less "ready" reserves.

Simply stated, tap some Roth IRA funds.  Ow, that hurts! I worked really hard to build up meaningful balances in my Roth accounts when they became available. They are not the majority of my retirement holdings, but are the most versatile, in my opinion. However, all other withdrawal of assets come with penalties, or taxes plus penalties for some time into the future, so the Roths are in the spotlight.  I rarely sell an equity once I've bought it. However, I have held onto some positions that have not performed all that well. So, for the first time, I am selling companies that; pay dividends but have not appreciated in value adequately, pay dividends but have lost value for one reason or another, pay dividends below my 3% threshold for core positions and have had substantial capital gains, but are not my core holdings. One has 59 days to reverse a withdrawal of contributions from a Roth IRA, after which one can only contribute at limits prescribed by law. It's highly unlikely that my fortunes will change dramatically in 59 days, so I have to face the equivalent of a 2.5-3% reduction in the value of my retirement assets to mobilize what I need to take me past the new year.

What takes the sting out a bit is that I have resisted pruning the portfolio of laggards in the total return category because what I value most is cash flow created by dividends and dividend reinvestment. Provided there aren't dividend cuts, I'll hold an attractive dividend paying stock even if it is not appreciating to expectations, because I know that the reinvestment produces compounding regardless of what is happening with valuation. So the need to tap into contributions represents an opportunity to weed out the holdings. It means that a smaller corpus will continue to generate dividends and the portfolio will appreciate at a greater rate, even if from a reduced basis.

So, I used my charter life membership access to FASTGraphs and weeded out the most overvalued,  those with the lowest dividend and those whose growth in valuation had stalled or turned negative.
That pruned the portfolio by about 1/3. I have done that in the most recent of my Roth accounts that holds mostly contributions and the lowest fraction of earnings. I double checked the cost basis to assure that I didn't approach the threshold of accessing earnings to avoid penalty. Since I won't be able to replace that cash, I'll need to start contributing, both I and the wife, so we can replace those contributions as soon as possible.

We all know a correction is coming, sooner or later. Generally I just ride them out and wait for recovery. While we're not at the market peak (that was a few weeks back), we're still richly valued and its not a bad time to "take profits", taking care not to dip into earnings.

now it's late, and there are other things to do, so enough said on the first raid on retirement assets. May it never be needed again. ptui!

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