Friday File: Gold, Energy Income and Fallen REITs
by Travis Johnson, Stock Gumshoe | March 24, 2023 4:54 pm
Solving a "Perfect Income Investment" tease, plus some portfolio updates
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Source URL: https://www.stockgumshoe.com/2023/03/friday-file-gold-energy-income-and-fallen-reits/
In my estimation, MLPX/MLPA are attractive income options – I’ve allocated approx 6% of my holdings there.
Speaking preferred thoughts on DBRG-PI since is back down low to mid 17s
I haven’t seen any updates on DBRG that change my mind on that one, and it’s back down to offering a nice yield, still seems reasonable. There’s a lot of pessimism from investors about asset managers these days, but my sense is that the pessimism is overdone in this case. Haven’t bought any more, though.
Travis: as usual, you’re “right on” as far as Marc Lichtenfeld hyping EPD and WPM lately to try to sell his Oxford Income Letter (he’s used EPD in at least three other “special reports” – two in Dec. ’22 and one in Feb. ’23). Oxford Club tries to justify its practice of hyping stocks not in any portfolio by claiming that such stocks are considered to be “an extraordinary value” but may not necessarily fit within the selection guidelines of the existing portfolios. In these cases, they say, the recommendations are to be considered “speculative” and should not be considered part of any of the Club’s portfolios. (I have direct access to everything Oxford Club produces.) It certainly leaves subscribers in a weird position, because they are usually not even sent the “special reports” regarding a service they subscribe directly to, but may see references to the recommended stocks by chance elsewhere.
I wish that were unusual… but quite often the “idea you can sell” and the “highest conviction investment idea” are not the same, and selling always wins.
Travis: Someone in a relatively new company clearly angling to be a major player in the newsletter business (offering an ever increasing number of expensive “services”) recently wrote concerning all the “hype” in his industry: “There’s too much hype for my taste…. However, the simple reason our industry does it this way is because that’s the kind of marketing that works best. That’s the kind of marketing that generates the best response in the marketplace. That’s what draws the greatest level of interest. So, that’s what the financial research industry uses.”
The person noted how “a lot of people” in the business say…”just give the customer what he wants. Don’t try to educate anybody…. Just sell them sugary desserts and stand aside as they choose to be ignorant and travel on the path of self-destruction.”
The person also wrote that they wouldn’t apologize for how their company does marketing, noting that they “won’t apologize for what our customers want.”
All that being one of the greatest nonsensical and self-serving cop-outs I’ve ever seen or heard: the clear implication being that people “want” to be lied to (as you well know, pitches from various companies go beyond exaggerations and misrepresentations to outright lies pretty frequently). Unfortunately, the business is not regulated by the FTC where “truth in advertising” might apply and be enforced. People “want” to be lied to by the newsletter business just like people wanted to be lied to by snake-oil salesmen in the Old West – hoping their purchase would benefit them.
I did, by the way, testify for the SEC in a Baltimore court in a secondary part of the SEC’s successful prosecution of Porter Stansberry and his company in like 2003 or 2004, when he was found guilty of fraud and fined $1.5 million. He lost on appeal all the way up to the Supreme Court. I sent him an e-mail “congratulating” him on losing his case, saying I hoped it would be a “shot across the bow” for the industry to curb its excesses. Actually, I think companies have gotten even more blatant in their use of misrepresentations and outright falsehoods.
That has certainly been the justification for the hyperbole and pushy sales tactics since I’ve been writing about the industry (just hit 16 years this month), “we have to do it this way because that’s what works.”
As you said, a serious copout. You don’t have to choose the marketing that brings in the most money (and misleads), but, as in most walks of life, incentives matter. The part of a business that brings in the money tends to be the part that is fed. If you have a model that gushes cash, you don’t look for a model that might be more stable or honest but is less profitable.
You continue to be right on target with your analysis of the cannabis market and the IIPR situation specifically. They just gave our private company a six month holiday on our rent (the regulatory agency has delayed and delayed and delayed our ability to begin grow operations since the fall.) Which we then have to make up in 2024.
I don’t know if you noticed that AFCG has now “enlarged“ their financing focus beyond the cannabis industry – which cut about 25% off of their share price. I appreciated your guidance several months ago with regards to getting out of these investments and had done so by the time they announced their change in focus.
The companies that can survive this year, and into next in the cannabis market will do well as there will be a whole lot fewer of them. It’s keeping our Board up late working our way through the challenges staring us in the face this year; I am very impressed with our CEOs ability to list every possible risk to the plan – at least he is a realistic person and quite knowledgeable about the local business.
I hope it works out for you and the marketplace finds some balance, bigorangedave — there’s clearly still a lot of demand for pot that’s regulated and legal (and probably higher quality and safer), but it’s been surprising for a lot of the ambitious entrepreneurs who built and raised money in this space over the past decade that it’s not “free money for everyone” with a line out the door for every dispensary. Having a CEO who knows the risks has to be a good start, hope you’re able to start selling and paying the rent soon.
We are going to find out pretty quickly how good his assessment of the risks were; he resigned today. Now we’ll see if the rest of the talent he is hired over the past year is up to the challenge.
Oof, good luck.
Your comment on ‘demand for pot that’s regulated and legal’ reminded me of the days when there was a poisoning scare caused by governments spraying the herbicide Paraquat on clandestine fields.
Today, ‘regulated and legal’ could include some confidence in the absence of being laced with deadly Fentanyl !
With regard to covered calls on NVDA, if one wanted to achieve the same purpose without using options, would it be reasonable to set some Limit sells – and if so, any guesstimates on what levels would be reasonable?
There are many different ways to harvest a little profit, it mostly depends on your preference. It is pretty wildly valued now, but that’s been the case for months, so you could just sell a little bit right now and stop worrying about it, or you could set a stop loss at a very tight level (say, down 5%) and that way if the stock soars another 20% before it dips meaningfully, you might not miss all of that. Or you can use technical analysis to see when the momentum breaks a little, though since NVDA has claimed so aggressively in such a short period of time I’d be reluctant to rely on charts to pick levels.
That makes sense – thank you Travis.
The reason I avoid MPW is that I have been in the medical community for43 years and I see where things are headed: consolidation. In my area there are several huge hospital chains. They are buying doctors. Less than half of doctors now are private. The rest work for hospitals, insurers,or organizations like Kaiser or Kelsey-Seybold. The hospitals want them on their campus. For some bizarre reason (probably due to lobbying) a hospital-based physician is reimbursed by Medicare 6% more than a private doctor across the street for the same service.
The hospitals want to capture doctors not so much for the professional fees, but for all the things they throw off: radiology tests, lab tests, PT, surgeries, etc. They can afford to hire these doctors at a higher salary than the doctors can make in private practice, supply office space, staff, and billing services because if they capture all of that doctor’s business referrals it’s worth millions. Surgeons often throw 9ff more business but they still need primary care docs who produce less business because that’s the usual entry point for health care.
The hospitals have been building and expanding for years at an astonishing rate. It’s become tribal; if you’re a Hospital X doc, you refer to other Hospital X docs.
And the PE guys are out there gobbling up private practices and consolidating them and then hollowing them out. PE is also in the facility business, sometimes buying up struggling hospitals. Usually the hospital’s demise is accelerated by the process of corporate looting and then there’s no hospital for 50 miles.
I used to be a limited partner in a medical office building. A PE group had helped us get started. It went well actually because they didn’t control the property. The doctors were majority unit holders. One day they announced at a meeting that they were divesting. They claimed they were getting out of office space in order to focus on facilities. I think I might have been the only physician in the room that understood what that meant. At first I thought it was the smart money getting out. Then, out of boredom, I pulled out my phone and there was an email from the same company touting it’s new private offering for medical office real estate. I texted it to our CEO and when he read the message he looked at me like “WTF?”.
That’s when I knew they didn’t like THIS particular piece of medical real estate. I bailed out of the partnership a couple of years later. I’ve heard that the business is not doing well. I think management failed to see the implications of all the big hospitals expanding rapidly. Last I heard their plan was to find a buyer. Hope is not a plan.
So how much demand will there be for free-standing office space, free-standing MRI businesses, or free-standing outpatient facilities? Plastic surgery, dermatology, weight loss clinics, holistic medicine clinics, psychiatry, et al can’t replace the mass transition of surgeons and internists to hospital barn-yard animals.
Good perspective, thanks. As investors we want companies that look better and better as we peel back the layers and understand how they work… doesn’t seem to be the situation with MPW, at least to me.
The medical fields are not the only business that is being gobbled up. Dental practices, metrology companies, are all being bought and sold by conglomerates.
Last time I saw my dentist we talked about this but it’s hard to ask questions when half your mouth is numb and someone has their fingers in it. I stuck with medicine because I don’t want to discuss things I don’t have a good handle on.
I was one of the founders of a physician owned hospital and I had a ring side seat of how the big box hospitals lobby to kill upstarts. They also do anticompetitive things like threaten insurance companies with loss of contract if they contract with a new player. They literally killed one such venture in its cradle.
Obama supported killing off physician-owned hospitals. Under his administration the big hospitals got them banned. Fortunately for us we were grandfathered. But you have to protect society from evil doctors and make companies like HCA – which was fined by Medicare for $2 billion in fraudulent charges – safe and secure while they rape and pillage.
NB: Rick Scott was CEO when it happened. Did he go to jail? No. He became governor of Florida and got a gigantic severance package from HCA.
Thank you for your continued thoughts on MPW. Should I have followed Stock Gumshoe and got out awhile back? Seems that way, but I’m fortunate to be in a position where I can handle the risk. Although with the latest round of pessimism and the comments I read above it might be time to think about cutting losses.
Keep up the great work.
They did just agree to sell their properties in Australia, not sure if that’s good or bad news — from the headlines on that deal, it sounds like they more or less broke even on it over four years, and it will probably be good for them to have some extra cash flexibility, but I had the impression that was a relatively safer asset than some of their US hospitals.
Yes, that did seem like a break even move that should probably be considered a positive.
Big news today! Apparently MPT has filed a lawsuit against Viceroy;
https://finance.yahoo.com/news/medical-properties-trust-files-lawsuit-220400574.html
Any input on how claims like that usually pan out? I can’t say I’ve held any other stocks that have come under such a cloud of short (and dubiously claimed) pessimism before.
I don’t remember whether I read the specific short report they’re suing about (there have been several “short attacks” over the past year or two), so I don’t really know what the case is based on, but my guess would be that the lawsuit won’t go too far, the first amendment is still pretty strong, but it will likely deter small fry from publishing short reports. And with the share price this depressed, they might have to push back instead of ignoring shorts — REITs are dependent on being able to issue shares to grow, for the most part, so they need to convince investors that they can right the ship.
“stability and / with precious metals” – bit of an oxymoron is it