Monday, September 26, 2016

Side Gig and Thoughts on Wells Fargo

Hi everyone,

I wanted to apologize for taking some time off from writing.  Things are very crazy in my life right now, and unfortunately the blog has been the lower hanging fruit that had to be put on pause for a bit. That said, I wanted to put out a few quick notes:

First, I took on a second job (a side gig, if you will), which should help boost income (at least a little), and to be honest, it is much more profitable than blogging, which was really only a few dollars per month!...Hence the lack of articles lately.  We'll see how things go over these next few months, but I anticipate that writing will be lighter up until the new year, when I will once again have more free time and can return to bi-weekly articles.  Until then, I still will publish the following:

* Monthly Passive Income Reports (September will be published in a few days. Very interesting, and frustrating month!)

*Monthly Income/Expenses Reports

*Q3 Review

* Yearly Review

*2017 Goals

*Perhaps one or two additional articles

Please stay with me through this brief transition!

Secondly, I wanted to offer my thoughts on what has happened with Wells Fargo recently.  As many of you know, I initiated a position in the stock at $48.50, watched it go up to 50, only to have some very negative news about opening fake customer accounts to boost their cross-selling of products hit the headlines and greatly hurt the stock. Then, a few days later there was even some Congressional pressure for the CEO to step down.  The stock is now trading around $45.  Here's my take:

Though I like Wells Fargo, I like it less now, but I still think the valuation is attractive.  Here me out for how that can make sense.  "Clearly recent headlines surrounding retail banking sales practices at WFC are a black eye for a company with a great long-term fundamental track record; however, we think the market's extraction of ~$25B in WFC market value related to a $2.6M revenue loss to be excessive," said one analyst at Baird.  I agree.  It is a complete overreaction; as the numbers themselves prove it.  You have to multiply 2.6M times almost 10,000 to get 25B.  That seems harsh.

Still, I find it frustrating that as an investor with no knowledge of these practices going on, that I now have to wait for the stock to recover at least to $48.50 for me to exit without a loss.  That is frustrating, and to be honest, a bit unfair.

Or is it?

I decided to enter into a sole position (i.e. a single stock) and therefore I assume all "specific risk", or diversifiable risk, in the company that I choose.  I happened to choose WFC slightly before somewhat of a scandal.

And herein lies the point of why I prefer mutual funds for the majority of my holdings.  With a market index fund, I can diversify away all risk (such as a Wells Fargo retail banking scandal) and only have systematic risk remaining.

Sure I like WFC and think it offers a healthy return at current prices.

But is there another scandal going on that hasn't been found out yet?  Could this happen to ANY company and eventually cause the dividend to be cut or decreased?

The answer is yes.

Diversify your income streams is my takeaway lesson thus far in this trade.  Sometimes firm-specific risk is greater than what it seems.

Thanks for reading,

Passive Income Dude


  1. Great Article, I too jumped in WFC around the same price. I still feel WFC will rebound after the dust settles. Too good of a company. Interest Rates will rise in the coming months into 2017 . All institutions will start making more profits. WFC will be a buying opportunity once it bottoms out. Wish you well, Best Regards, Joe

    1. Hi Joe, thanks for the comment. I tend to agree that the interest rate increase should benefit banks, but now that may only bring us to even. :/ It is crazy to see other countries now offering corporates at negative interest rates...not only government debt at negative rates now.

  2. I got in a little earlier, but I, too, am underwater right now. I think the "scandal" is blown out of proportion. While it reeks of mismanagement and poor control of an incentive scheme, I don't anticipate long term damage. In time, I believe the quality of WFC will shine through.

    1. Ferdi, I hope you're right! There is so much uncertainty now. :)