On Aug 13, I exited the policy I sold on KLA Corp $KLAC ( ▼ 2.7% ).

I initially received $93.67 on Aug 10, when the stock was $193.47.

I agreed to insure the buyer against losses below $160. My floor was $155.

Three days later, KLA Corp increased to $209.44 and the policy became less valuable. I was able to buy it back for $45.32 and net $48.35.

I risked $406.33 for this deal. My return was 11.9% in 3 days. Better than the 3% I get from my savings account. A good deal in my opinion.

I ratcheted up my risk exposure on this deal so I could get a higher premium. Instead of doing my usual $250-wide spread, I did a $500-wide spread this time. I still managed my risk, though. Good cushion (17.30%), no earnings during the policy window, good length on the policy (39 days), planned exit of 14-21 days before expiration or 50% of premium.

Sometimes I get tempted to let the policy expire so I can keep the entire premium, but I can’t get greedy. Greed kills. Trying to be too smart kills. I don’t have time for regrets. Let me stick to the plan and exit once I collect ~50% of the premium or 14-21 days left on the policy.

I will use the $48.35 premium to buy an undervalued dividend-paying company in the restaurant, packaged food & beverage, or retail REIT space. I need to be careful what companies I buy because the wrong company will stop my cash flow.

I used the premium from one of my past policies to buy Papa John’s $PZZA ( ▼ 0.7% ) when they paid $1.84 in dividends and yielded 5.62%. They eliminated their dividend on August 6, so now the premium I invested is not producing any cash.

Now, I need the stock to appreciate before I can see a return on my money. Something I don’t like doing. With General Mills $GIS ( ▲ 0.75% ) yielding 7.27% and Wendy's $WEN ( ▼ 0.12% ) yielding 4.12%, the money I invested from the insurance business is moving. The velocity of money continues. My Papa John’s money is at a standstill right now.

I must make sure that the companies I buy can maintain their dividends in adverse situations, or in a worst-case scenario, they only cut the dividend by 50%. I underwrote a 50% dividend cut for Papa John’s, but they went further with a 100% cut.

I saw a Bill Ackman interview where he discussed his investment in General Growth Properties. When the company went bankrupt in 2009, the board quickly assumed shareholders would get wiped out. Thank God Bill Ackman was there because he made them realize that the asset value of General Growth Properties exceeded their liabilities and shareholders did not need to get wiped out. He was right, and a plan was formed to save shareholders’ capital.

Bill Ackman discusses General Growth Properties investment.

His story was a reminder of how little companies value shareholders. I need to adopt the mindset of a real estate buyer when buying stocks. It’s caveat emptor, and the seller is not on the buyer’s side. The relationship is not cooperative, but adversarial. The seller will say and do anything necessary to sell their property, and after the sale, if an issue arises, the seller will disappear.

In the stock market, there are two sellers. The investor selling me their shares and the company’s leadership team selling me on the value of their company. The executives will do everything to naturally and artificially prop up their company’s stock price, and if things go bad, they will prioritize self-preservation and put shareholders last.

Tell it like it is and not how it might be.

I am not in a cooperative relationship with companies or the market. It’s adversarial, it’s buyer beware, it’s guard your chin, it’s learn or get taken advantage of.

Learn the industries and underwrite the deals properly.

Remember to pray for the Bronx and its success.

“By the blessing of the upright a city is exalted, but by the mouth of the wicked it is overthrown.”
Proverbs 11:11 ESV

Matthew 5: The Beatitudes is inspired by Matthew 5 of the Bible. Visit Making It Straight to watch films based on the Bible and to purchase resources to help evangelize.