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The 12 Percent Letter

The 12 Percent Letter is an investment advisory newsletter that specializes in dividends. As you know, I am a big proponent of dividends as a source of passive income. If you want to achieve financial freedom you should consider making dividends a key pillar of your plan. They are for me.

Here is the problem I came across in researching dividends: lack of knowledge. There is a ton of information out there. What makes information into knowledge is a framework to makes sense of it all.There are many different investment vehicles and strategies available out there that produce income. They include:

dividend-paying stocks
high-yield sectors such as BDCs, MLPs, REITs
preferred stocks
convertibles
emerging market bonds
selling put and call options

It can be a full-time job to keep track of all the opportunities and evaluate their risk-to-reward potential. And remember, this risk-reward potential keeps changing as markets conditions change!

I have spent a lot of time learning about them, and I have learned a fair bit. But in the end I decided to go with a specialist and subscribe to The 12 Percent Letter.

The 12 Percent Letter

The newsletter is published every month, and each issue comes with one new investment idea. Tom Dyson, the editor, has a detailed write-up about the idea, followed by several specific recommendations. In addition, all recommendations that are currently open are listed and tracked with the current yield and total return since they were recommended - both positive and negative.

For example, the October 2009 issue had a long article about the insurance cycle and made the point that insurance premiums are likely to go up from here. This led Tom to recommend several insurance stocks and bonds issued by financially stable insurance companies.

"Virtual Banks"

Another investment idea I came across in The 12 Percent Letter was the so-called "virtual bank". These are residential mortgage REITs who make money on the spread short-term and long-term interest rates. Annaly Capital Management (NLY)is the oldest player in this niche, with American Capital Agency (AGNC) and Hatteras Financial Corp. (HTS) as recent entrants. These are highly leveraged plays and buying them at the right point in the interest-rate cycle is the key to making money - outsized dividends in addition to capital gains. The 12 Percent Letter does that for you. Just one such timely recommendation can pay for years of subscription!

Trailing Stops

Another selling point for me is the systematic use of trailing stops used by all newsletters published by Stansberry & Associates Investment Research as a matter of policy. I have learned through painful personal experience that you need to protect your principal when your investment thesis does not work out the way you thought it would. The 12% Letter uses a 25% Trailing Stop on all recommended positions. This is very useful and forces you to protect yourself when things go wrong.

Highly Recommended!

I look forward to getting the issue of The 12 Percent Letter every month. There is always something new to understand and perhaps to act upon. I urge you to check it out for yourself. It has the potential to accelerate your progress towards financial freedom.

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