Emotion Vs. Reason: Sell, Buy Or Hold - Recent Examples To Consider

Recent selling of MLPs, REITs and mREITs has prices reeling: Is it time to sell, buy or hold? Examples are cited using author's holdings along with accompanying charts. Conclusions: Buy, sell and hold based upon facts rather than emotions. Dividend investors are not well served by following the herd.

These past few weeks have been hard on me as a dividend investor. Many of my stocks have

taken a swoon; especially my REITs, mREITs, MLPs. The question I keep asking myself as I

watch these stocks decline; is it time to bail out of these issues? Even as I write this article today,

the DOW is down 230 points and the Nasdaq is down 65 points. Both have lost over 1% by

11:00 AM 8/12/15. After several weeks of losses this could cause panic for those who are new to

the market and MLP investing as well as those who have been in the market for years. Most of

us have trouble watching our good money float away as the price of our shares decline. We begin

to fear the losses will never end and that emotional reaction prompts us to sell quality issues in

spite of the promise of better returns in the future.

Below one can see the chart of the DOW over the past month:

Source: Yahoo.com

For example TGH or Textainer Group Holdings Ltd is one of my holdings. It is currently selling

for $19.39 per share. It has a 52 week high of $34.38 and a 52 week low of $16.00 with an

annual dividend of $1.88 per share. TGH's chart for the year is below:

Source: Interactive Brokers

The chart shows that the low for the year occurred just a few days ago in August. It actually hit

that low just prior its ex-dividend date. When one looks at the chart, it is obvious that something

caused a great amount of selling for a few days. The volume was 4-5 times normal for this issue.

The company presented its 2nd quarter results on 8/5/15 and net profit was 4% lower than the

same quarter last year. Furthermore the CEO stated,

"We have not seen a traditional peak season and remain cautious about container demand during

the second half of the year. We expect a further slight decline in utilization during the second

half of the year and we do not expect the competitive environment to wane. Given the outlook

for steel prices, ample manufacturing capacity and muted demand, new container prices are not

expected to increase in the near term and are likely to fall further. With low new prices and

increasing quantities of containers being put to disposal, used container prices will also remain

under pressure."

The news led to downgrades by several research firms such Macquarie who moved TGH from

neutral to underperform and Zacks which ranked it a strong sell. Furthermore news stories

lamenting the deterioration of business in China led people to conclude that container use was

going to fall off even more. Investors fearing greater price declines issued sell orders in droves.

This led to the huge rout depicted in the graph above from 8/5 through 8/10. Emotions drove the

price decline and fearful investors sold out in spite of the upcoming dividend. Furthermore there

is still good value in this company as management deals reasonably well with the current decline

in the need for TGH's rentals. The folks who sold their shares at $16.00 to $18.00 during the rout

are probably sorry for their emotional response to the news and recent price declines. Not only

do they miss the dividend payment of $0.47 per share, they also miss the rebound in the stock

price.

Since I recently checked out this company and thought it a worthwhile company to follow and

own, I started out with a 200 share purchase before the quarter figures came out. After the

quarterly report was released, I saw the stock dip considerably and so I purchased 200 more. The

stock continued to fall so it inspired me to check out all the news on the web again about TGH

and saw nothing that I hadn't known earlier and purchased another 200 shares. As I continued to

watch the stock, it continued to fall so I purchased another 600 shares after it dropped another

full point. I was a big loser at this point and it still continued to fall. I began to wonder whether I

grabbed another falling knife at the wrong time and considered selling to minimize any further

losses. I decided to review everything I could find on the web about the company once more and

took heart from these facts from the last quarter:

1. Lease rental income of $128.3 million for the quarter, an increase of 3.8 percent from the prior year quarter;

2. Net income attributable to Textainer Group Holdings Limited common shareholders of $40.3 million for the quarter, or $0.70 per diluted common share;

3. Adjusted net income(1) of $37.7 million for the quarter, or $0.66 per diluted common share; 4. Adjusted EBITDA(1) of $111.0 million for the quarter, an increase of 5.0 percent from the prior

year quarter; 5. Utilization remained at very high levels, averaging 97.3 percent for the quarter and is currently

at 96.6 percent; 6. Continued strong pace of expansion with more than $570 million of capex for lease-out in 2015; 7. Total fleet size of 3.3 million Twenty-Foot Equivalent Units ("TEU"), the largest in the industry, a

year-over-year increase of 7.1 percent; and 8. A quarterly dividend of $0.47 per share was declared.

The company was earning enough to cover the dividend and was not anywhere near to being on

the ropes. Furthermore it has the best competitive position in the industry in which it operates.

After reviewing these facts again, I decided to stay put with my investment. At the average price

that I acquired all 1200 shares the company pays over 9%. I decided that some people were not

making decisions based upon the facts, but purely upon their own emotions while watching the

price of the stock decline. Since that time the price of TGH has recovered somewhat, but I am

still convinced that it has much further to go.

Another company that has moved in a similar way is UAN or CVP Partners LP. Here is a stock

that returns 13.8% at its current price. You can see the price movement of the stock in the chart

below:

I purchased the first 200 shares at about $12.00 a share a few weeks ago. Than when I saw the

stock go down to $11.25 I purchased some more. It didn't stop going down at $11.00 and

continued down to $10.00. After witnessing the further decline, I decided to check the web for

any news on the company. On 8/10/15 CVR announced that it agreed to acquire Rentech

Nitrogen Partners LP for $533 million in cash and stock to create the 2nd largest US producer of

urea ammonium nitrate.

After following up on this news, I determined this was not bad news for the company, but rather

that it could be neutral or good for the ongoing profitability of the enterprise. On the basis of my

investigations, I decided to enter another order for 200 shares at the then current price of $10.45

per share. Instead of just following the crowd I refused to be bullied by my emotions to sell when

everyone else was selling and instead bought some additional shares on the basis of the facts. As

I write this article now which is about 2:00 PM on 8/12/15, the issue is selling for about $11.25

per share. I am convinced that the price of this issue has more to gain as we go into the fall.

I am currently sitting on rather large losses on the following issues as well. With MLPs I have

thousands of dollar losses in AMZA, LGCYO, MLPL, RSO-C and VNRBP. All of these stocks

offer large dividends, but the dividends don't come close to paying for my capital losses. I

decided that I can hold on for the eventual upward movement in oil and gas prices which will

also restore the stock prices to my buying price or above. This could happen relatively quickly if

the fighting in the Middle East were to flare higher. All the issues listed above reside in the

continental US and would likely not be hurt in the event of a Middle East meltdown. Therefore,

if you are an investor in these issues, don't allow your emotions drive you out of holding on for

better prices. Notice also that when it comes to individual issues in the oil business, I have

chosen to invest in cumulative preferred issues meaning that the company must pay all back

preferred dividends prior to paying any dividends on the common stock. Therefore all dividends

including any back dividends will be paid unless the company goes bankrupt. Two of the issues

listed above, AMZA and MLPL, are not individual stocks, but a closed fund and an ETF. Most

of their holdings are energy conveying pipelines and not quite as dependent upon the price of oil

and gas. You can view the charts for all these issues below:

Source: Interactive Brokers

The following mREIT holdings, CYS-B, DX-B, MORL, and NYMTO, have huge capital losses

as well. Just as my individual issues in the oil industry are cumulative preferred stocks, these

investments except for MORL are cumulative preferred stocks as well. They offer greater

dividend safety than the common stock, but have limited capital gains potential when compared

to the common. The prospect of rising interest rates with the Fed continually threatening to raise

rates in the fall has triggered a price tumble for these stocks. I see this as an idle threat that will

not transpire within the foreseeable future. If the Fed does raise rates this fall, the increase will

be so small as to be inconsequential.

MORL is an ETF that offers 2 times leverage on a bundle of mREITs. Lance Brofman has been

bullish on this ETF for over a year. You can read his latest article about MORL here. I agree

with his analysis on both interest rates and the ETF. The mREIT common stock portion of my

portfolio is lodged here. MORL's ups and downs are multiplied by 2; so if mREITs go down, the

ETF will go down 2 times as much. On the other hand if they go up MORL will go up 2 times as

much. This leverage nearly doubles the dividend one receives from the ETF as well. Since most

mREITs are selling below their book values, MORL appears to be a wonderful buy at current

levels and for that reason I have added additional shares over and above what I started with at the

beginning of the month.

The charts for these issues are displayed below:

(Note: NYMTO is new issue and only has several months of trading)

My REIT investments have not done as poorly as the mREITs and MLPs during the recent

retreat. The REITs in my portfolio are DLR-G, HCP, LXP, LXP-C, NRO, OHI, SNH, SRC and

STAG. I am showing either small losses or sometimes small gains in these issues. Some of them

are long term holdings, such as DLR-G and NRO, and the rest are recent buys. The charts for

these issues are shown below:

Most of these charts are beginning to display a price revival. Furthermore the REITs don't show

as much price variation as the mREITs and MLPs; that is the stock price movement between

highs and lows are smaller. For those who worry about price movements, REITs offer more

comfort and would be less worrisome than the other high dividend stocks covered in this article.

These REIT prices have been bludgeoned by the same interest rate fear as the mREITs. I believe

they too will rebound when investors realize that interest rates are not about to rise as quickly or

as much as once thought.

Conclusion:

Don't let your emotions guide your investment decisions and refuse to follow the herd as a

dividend investor. Following the herd may work well for the momentum investor, but it will not

work for the dividend investor. Many investors let emotions determine their buy and sell

decisions to their own economic harm. A dividend investor who makes decisions based upon

emotions rather than economic realities is sure to create capital losses. You can always count on

a continuous buzz going on about the economy as well your holdings. There will be shocking

headlines in the news, announcements from advisory investment firms as well as continuous

price movements in your holdings and the Dow. These news offerings and price movements will

often confound and confuse leading to worry and anxiety. Don't react to these emotions but

rather extract the facts out of this buzz, consider the facts carefully and make good investment

decisions based upon reason rather than emotion.

The investment decisions in this article were offered as examples of my approach to this

continuous buzz. Your stock and fund choices may be different than mine when it comes to

dividend investing, but you will face the same issues of dealing with emotions versus facts.

Choose wisely, consider the facts and try to eliminate emotion as you make investment

decisions. Let the herd stampede, but you stay on the measured course with wise well-reasoned

decisions.