Mapato FAQ

The Statue of Liberty is the icon for freedom. Mapato is the icon for financial freedom.

The mission of Mapato is to ensure the money you have today will still be there and growing for tomorrow through our management knowledge and skills. The philosophy is the patient accumulation and preservation of assets.

 

“What are the strategy parameters and why is it different?”

Dennis Nelson and his team provide 40+ years of trading experience to locate a sector of the economy prime for growth.  He uses a “top down” strategy to identify a sector of the economy he believes is ready to move forward. He then narrows the selection down to specific stocks in that sector or sectors that meet his criteria. 

Typically:

  • Paying high dividends
  • Able to have covered calls written
  • Have growth potential
  • Are financially stable (high cash reserves, low short-term debt)
“Do you write covered calls on every stock?”

No. Covered calls may not be written against a stock if the stock is trending upwards quickly. This allows the stock to appreciate without being called away, enhancing the growth potential.

How does this strategy provide growth potential?”

Occasionally, we may write (sell) covered calls at a strike (target) price, which is higher than our purchase price of the stock. Profits are generated if the stock increases in value. If it reaches our predetermined target price, we sell it to the buyer of the covered call, creating profits from the difference between the price we paid for the stock and our target price.

“Are covered calls risky?”

The calls lower the risk of owning stocks.  For instance, if the value of the stock moves above your sales price, you would be forfeiting that additional appreciation in exchange for predetermined income from the covered call; therefore, reducing your potential for losses by the income generated by the covered call.

“Can you provide an example of how Covered Calls reduce risk?”

As quoted in Smart Money April 2006: “Peter Chocholak has earned 4% on his investment in Intel over a two year period.  That would be unremarkable except for two facts: He hasn’t sold a single share, and Intel’s value has fallen by nearly 1/3 over that period.  Chocholak, a 40-year old systems analyst from Brea, CA, made his money by selling covered calls, an option strategy that a growing number of individual investors are using to improve their returns.”  The income generated from the calls was able, in this case, to offset the decrease in the stock’s value.

“How is this portfolio treated for tax purposes?”

In an individual or revocable trust account most of the dividends are treated as capital gains.  The covered call income is treated as short-term capital gains and, unless you have offsetting losses, it will be taxed at your personal income tax bracket. In a tax-deferred account such as a 401K, IRA, Charitable Trust or Foundation, this strategy is more efficient for tax purposes based on the deferral status.

“How am I charged for this management strategy?”

This is a “fee only” private management strategy. We receive no commissions. Accounts are held at Fidelity Investments where “"The Naples Money Managers"” execute transactions on an institutional level. Fees are charged as a percentage, on a sliding scale based on the amount invested. Transaction fees are charged and received by Fidelity at the advertised rate. “"The Naples Money Managers"” does not receive any part of the transaction costs. 

“Will I get reports other than the normal monthly statements?”

You will receive the normal statements generated by Fidelity Investments, your third party custodian.  In addition, you will receive a report from The Naples Money Managers providing you with your rate of return over a specified period of time.

“What type of income can you expect from this strategy?”

While the dividend environment continually changes we search for stocks that pay dividends, usually from 2% to 4% a year. The dividend may be lower but the strategy is designed to generate additional income by using a covered call that generates a higher than average “premium.”  

The income generated from the covered call is a supplement to the dividend income. Our strategy is designed to generate approximately 6% in total useable income per year regardless of the price fluctuations in the stocks.