Inside The Bedokian’s Portfolio: Mainstreet Capital

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.

In this post, I shall talk about one of the dividend generating company: Mainstreet Capital (ticker: MAIN).

 

Business Development Company

 

Mainstreet Capital is classified as a business development company, or BDC for short. BDCs are organisations that invest in small and medium, as well as distressed, companies by providing funding and managerial support. To avoid being taxed, BDCs have to distribute at least 90% of their income to shareholders, similar to real estate investment trusts (REITs). This explains why their dividend yields are higher than the rest.

 

BDCs are a unique feature in the United States, and not all BDCs are publicly traded. There are similarities between BDCs and venture capital/private equity firms, with the latter two open to only accredited and institutional investors. This means a retail investor can have venture capital/private equity play by getting listed BDCs.

 

Why Mainstreet Capital

 

If you were to look around the publicly traded BDCs, some were more or less similar to one another in terms of profile, portfolio and sector exposure. Mainstreet Capital is no different than the others, but I prefer their massive diversification in terms of regions across the United States, and different sectors and industries ranging from IT services to construction and engineering.

 

With the exception of 2020, the period between 2018 and 2022 had seen a year-on-year (YoY) growth of between 4% and 51% in Mainstreet Capital’s total investment income, and a YoY growth between 2% and 56% in its distributable net income. The slump of 2020 was not so significant for the investment and distributable net incomes, which were -9% and -11% respectively. Excluding interest costs, Mainstreet Capital is aiming to keep total operating expenses of average assets at 2% or lower.

 

Since late 2007, Mainstreet Capital’s monthly dividends were increasing slowly and steadily. Despite the periods of the Great Financial Crisis of 2008/2009 and the COVID pandemic slump in 2020/2021, the dividend payouts remained minimally constant throughout.

 

Bear in mind that conventional value investing principles may not hold for Mainstreet Capital. It has high gearing, which is common for BDCs since they are in the business of funding private enterprises, so for this case profitability and cash flow are the more important variables to look at.

 

What’s Next

The small and medium enterprise sector is relatively large in the United States, given its industrial and entrepreneurial might that powers the capitalistic economy. Investing into companies of this sector would have huge potential of returns, especially some, if not most, of these are usually seen as supporting the larger, listed/unlisted organisations as sub-contractors. Investing into Mainstreet Capital could ride on the advantages of the potential of small and medium companies.

 

Disclosure

 

Bought MAIN at:

 

USD 36.80 at Feb 2018

USD 38.40 at Oct 2018

USD 36.50 at Oct 2018

USD 40.50 at May 2019

USD 28.50 at Mar 2020

USD 20.30 at Mar 2020

USD 41.30 at Sep 2021

 

Disclaimer

 

Reference:

 

https://www.investopedia.com/terms/b/bdc.asp

The Investing Playbook

The world of financial markets is often unpredictable as the weather, yet among the seemingly random events that occur within it, the markets also tend to behave in a somewhat organized manner (I cannot use the term “predictable” as it would sound like an oxymoron, but then again, the markets are already a form of oxymoronic oxymoron). Calling it an organized chaos, or chaotic organization, would be an understatement. 

I had mentioned a few times in my posts that the markets and the economy in general are run by many moving parts, which in turn are guided by many factors and variables that we can think of (yes, the weather included). Over time, these things would settle onto some sort of pattern, which we can (more or less) guesstimate (I am avoiding the word “predicting” here) what is going to come next.

 

With these patterns, investors sort of came out with their own versions of the investing playbook, or something along that line. It may exist in physical in the form of a scribbled journal or a typed-out manuscript in a Word document on one’s computer, and intangible in the form of spoken words during a discussion or stored within the neurons of one’s brain. The common thing about the playbook is that it is constantly evolving with new inputs after lessons are learnt and feedback obtained from recent experiences.

 

When compared together, the contents of each investor’s playbook will differ with one another, and ranging from almost similar to complete opposite. What works for one may not work for the other, but somehow they still bring in the dough for the authors, some or most of the time.

 

It is good to know the trains of thoughts of other investors (and traders) so that we could learn for the betterment of our investing (and/or trading) selves. You may want to incorporate ideas and concepts that align with your philosophy and methodology, and for those which are against yours, you could either try to amalgamate to suit your needs, or abandon if it is too adverse. No matter the alignment of the others’ playbooks, their common aim is to serve the owner and the eventual readers (and listeners) in their investing/trading journeys.

Apple’s WWDC: The Bedokian’s Take

As Apple product users and shareholders, occasions such as the Worldwide Developer Conference (WWDC) and other Apple Events tend to excite us. However, as we had known for the past years, Apple had turned from revolutionary to evolutionary in their product and service offerings. Unlike the period when Jobs was at the helm, where surprises (and secrets) were galore, the current Apple is kind of predictable during their announcements.

Besides the upcoming new operating systems expected sometime in 3Q 2023 and the new souped up Macbook Air, Mac Studio and Mac Pro, the current WWDC’s piece de resistance is the Vision Pro, which is somewhat expected but still packed a mild surprise to Apple pundits and fans. With its launch, Apple is now treading into the area of virtual (VR) and augmented reality (AR), yet this is not really the true story in my opinion.

 

Many observers noted that VR and AR were nothing new, and some claimed that Apple was WOLS (slow in internet speak) into the market; there were a few devices around, such as Meta’s Oculus and Microsoft’s Hololens, and not forgetting Google Glass, whose support for the Enterprise edition would cease by September 2023. 

 

However, knowing Apple (and their products and services), this is not a standalone product: this is meant to be amalgamated into the whole ecosystem that Apple was and still is building for the users. The presentation video showed that the Vision Pro could be used in conjunction with a Mac, and Disney’s streaming service Disney Plus can be watched on Vision Pro. The potential of the former two: the expansion of the ecosystem with more products, and services, respectively, is huge, and there is no lack of Apple super users and fans who would willingly be part of the entire Apple environmental system. Despite the dominance of Microsoft in the desktop and laptop space, Apple is comfortable being second fiddle, for Windows is an indispensable computing tool, but Apple is the world for its users.

 

The intangible brand power of Apple still holds firm, regardless of the price that was tagged to its products. Although some products are really meant for the professionals (e.g., Mac Pro desktop), for the rest, utility, style and the logo still dominate. This spells good news for the investor, and the past four years saw an increase of Apple’s net income and free cash flow, signs of a company with healthy stable growth.

 

Disclosure

 

The Bedokian is vested in Apple and Alphabet directly.

 

Disclaimer

Having A Ride Of Our Lives

If you had been following very closely to the markets (especially the U.S.’s), you would have probably experienced a metaphorical roller coaster ride, mainly due to the debt ceiling issue that the U.S. government was grappling about, not to mention the various finance and business news channels blasting about it daily. What we had been hearing were things like “markets selling due to debt ceiling concerns” or “markets rebound on resolution of debt ceiling”, or along those lines, and trust me if you had read enough of these, your heart would have experienced the same level of adrenaline rush that was felt as if you were on the Cylon ride in Universal Studios Singapore.

If you are a trader, yes, having those feelings described above would be completely understandable as the positions that you take are short term in nature, perhaps lasting minutes, hours, days or weeks.

 

However, if you are an investor, with a runway of 10 years or more, the past month’s tumultuous ride is nothing but a small blimp in the overall scheme of things. In fact, 1 month out of 10 years is just 1/12 x 10 = 0.83%, and this percentage will go smaller if you increase your runway by 15, 20, 25 or even 30 years (the latter being the typical employment duration for most ordinary folks like you and me). So, if 0.83% of your investment span had experienced the rush, I am not sure if your heart can take it for the remaining 99.17% of the time.

 

Whether you are an active or passive investor, let us not occupy ourselves with the feelings of highs and lows, and instead take the news in our stride and focus on the longer term. Provided you had chosen the correct investment philosophy and methodology, which includes diversification across different asset classes, regions/countries, sectors/industries and companies, and do proper rebalancing according to your age and/or your risk appetite, everything will be fine when the time comes.

 

Keep calm and stay invested.