Anyone who purchased CLM at 7/share in Dec 2022 and sold at 8.84/share made a 26% capital gain with a perfect 21% yield on cost or a total return of 34%
That was an outperformance of SPY in 2023.
It doesn't matter if the price is higher or lower every year, it's about paying attention to the premium to nav.
When the premium to nav is 10% or less,CLM/CRF are buying opportunities
When the premium to nav is 30%+,its time to to exit most or all of one's position. This may mean giving up the top at a 35 to 60% premium,but that's all of the speculation needed in the easiest,brainless trade in cef land.
Cornerstone takes speculation out of the market.The guesswork is determining how high the premium will expand after it hits 30%.
Obviously, this statement only applies to those who understand how CLM behaves.
Recently,anyone who sold at a 30% premium to nav at 8.84/share and bought back near the nav at 6.25/share increased his or her share count by 41% and locked in a 20.8% yield on cost after the distribution cut for 2024.
My average price is 6.77,which is not the bottom,but close enough,locking in a 19% yield on cost for 2024. If CLM just hits a top of 7.80/share in 2024,that's a 15% capital gain excluding distributions. A top at $7.80 would be 11.8% less than the top in 2023,in line with the 11.6 % distribution cut,just like the 2023 $8.84 top was 37% less than the $14 top in 2022,in line with the 2022 40% distribution cut.
I don't want you to misunderstand me, I can make 20% -25%in about a week trading TQQQ,
I would only only put my entire portfolio in UPRO/SPXL and TQQQ under the most oversold conditions. However,it should be noted that a 51% cash 25% SPXL 7% TQQQ 17%(insert investment of choice) has the same effect as being fully invested in SPY, with a beta close to 1 with the S&P.
CLM is only a lousy investment for an investor that thinks he or she can buy and hold it forever. There is a formula. Buy when premium is 10% or less,sell when premium is 30%+,reinvest every distribution at the nav(or market price,whichever is lower). Rinse and repeat
Also,paying attention to insider and institutional transactions is helpful in determining when to enter and exit.
Whether there is a distribution cut or increase,you can lock in a nearly 19 to 21% yield if you trade it.
High yielders must be traded. They are not buy and holds. Also,this is a managed distribution,not a dividend. I'm not sure why people call it that when it's right in the prospectus that it should not be confused with yield,fund performance,or income.
It requires very low margin maintenance and as previously mentioned,less speculation than most investments.
I have a feeling market manipulation will get CLM down to a perfect 21%forward yield in December 2023. At that time,I'm ready to buy in further bulk. I margin CLM in one account and typically get excellent results as the distributions reduce the leverage on a monthly basis.
Aside from margin interest,unless distributions include capital gains,the large ROC distributions are tax friendly.
One could easily say SPY was a terrible investment if he or she bought at the 2021 top. I hate to admit this,but yes-pricing and timing matter .
I trade mainly leveraged etns and 3x leveraged index funds. It's nice to have a simple 15 to 25% capital gain dummy trade that requires little brainwork to generate cash flow. Once you recognize CLM for what it is; once you understand it's an asset that requires trading acumen, it can easily outperform SPY,like it did for anyone who bought at 7/share in 2022 or anyone who purchased for under 7/share during the 2022 rights offering or recently when market manipulation evaporated the premium significantly. I don't think it was a mere coincidence that one of the principals of the firm sold 40k shares at 8.72 or the premium reduced significantly when Sit&Associates reduced their stake by over 40%.
I don't do rights offerings but I've certainly learned how to "game" CLM. Having said that, I would say it is not a stock for a retired elderly person unless he or she understands technical analysis and understands the Cornerstone formula and pays attention to the expansion and contraction of the premium to nav. CLM can make or break you At one point my average price was the low of 6.25, but I purchased additional shares at a 10% premium because I know a 10% premium is still a buying opportunity in CLM. With a 15% allocation in an account that is levered up,using about 27% of total equity for a number of trades,that represents a very small overall percentage of my portfolio,which consists of 2 accounts.
Having said that, for the individual with trading acumen,you can have your cake and eat it,too with CLM. Everyone knows CLM overdistributes.
There are much worse investment products out there now generating 50 to 77% yields in which ignorant people are putting their social security in these so-called investments and paying taxes on distributions(options premiums) as their principal continues to erode 40%+
Despite the fact that I've warned a number of people about Yieldmax and KLIP and nav erosion-and the difficulty of turning a synthetic covered call strategy into a share price, the "dividend/income strategy" has become a cult-like following. If I wanted to withdraw from my principal and see it erode over time,I certainly wouldn't want to pay taxes on the withdrawals
Overall, I am a swing trader-when a stock has topped out, it's time to cut loose-dividend or no dividend/distribution.
There is now a generation of people who now think that a 20% yield is too small if he/she wants to retire. I recently chatted with an individual who said they couldn't retire with a 20% yield. I told the individual he may want to reconsider his retirement plan. The general rule of thumb, if it's too good to be true, it usually implodes or is too good to be true.
CLM and CRF are quite docile compared to these riskier "synthetic covered call etfs" in which the fund manager has no intention of taking assignment of the stock on an atm short put position but rather uses a strategy of constantly taking losses until TSLA(insert growth stock here) turns bullish. When I criticized the Yieldmax strategy on a forum, I was told Yieldmax was for a "different" type of investor. Apparently,people don't mind being down 40%+ as long as they get their "dividend" (even though it's an options premium)
Stocks are not bonds yet I find people tell me they didn't buy this or that for capital appreciation but for the "dividend"
Personally, I dislike tumbling 40k in 3 weeks over a much smaller monthly distribution,but to each their own.
Having said that CLM/CRF are not for everyone. I use them as tools to reduce leverage as part of a greater,much more complex strategy. Simply put, as distributions pay down my margin balance, I get to retain more margined stock.
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