A Gentle, Yet Persistent Sell-off

Todays near 3% loss on the S&P500 felt pretty darned calm. After opening lower it just kept drifting lower and lower–no panic, just lower.

All of our utility and CEF preferreds and baby bonds remained essentially flat today, while almost all of our junkier issues lost a percent or two–but we are not deep into the less than investment grade issues yet so happy to see them move lower.

I didn’t do any investing today–I hold a modest position in Proshares Ultrashort ETF (SDS) and actually had an overall tiny gain today–a few steak dinners. At this point I am only concerned with ‘hedging’ the junk issues I hold–the utes and CEF issues have been pretty rock solid.

The selloff today and yesterday were essentially what I have wrongly been looking for the last couple of weeks. I hope that there is a realization that the economic damage being done to the economy will be long lasting–no need for investors to panic–just slowly sell off.

I will continue website work this weekend–which I do to a small degree everyday–adding more data and making corrections (never ending it seems) to spreadsheets and individual security pages–not going to spend much time searching for ‘buys’–plenty of time for that during the week.

46 thoughts on “A Gentle, Yet Persistent Sell-off”

  1. Nothing happening in the Sandbox, so I’ll ask again here- Is no one fed up with the crazy price and daily action reporting of AATRL? It is screwing up my portfolio reports on a daily basis.
    TDA is completely screwy- in the Watch lists (but correct on the Stock Profile page) :
    Price: 40.30 Chg$: 3.2083 NOT the actual 30¢

    Schwab on Fri a few in after close: $40.30 Chg: $4.3558
    @6:57 pm: $40.30Chg $1.1475
    and just now: $37.0917 !!! Chg: $1.1475
    I emailed Schwab- they said talk to tech. Guess I’ll have to. This thing throws off my portfolio by about -$300 to-$1600 each day- like money is stolen each day. TDA being owned by Schwab probably is the connection- but the source?
    Any idea why, or is everyone ok with it?

    1. Same thing, on two different platforms. One platform shows the closing price in my portfolio as $37.09. Then when I click on the symbol, it comes up as $40.30. I just make the adjustment mentally. I see it as a minor annoyance and have no idea what causes the problem.

      1. Agreed — AATRL figures, especially Chg%, is always off, in TD Ameritrade and in Googlefinance. I’ve learned to ignore it. I’ve assumed it is an issue that is beyond what an individual brokerage can fix. That said, I’ll be content with its +30(?)% gain (so far)…

    2. Merrill Edge has the same problem.

      Between that, and people offering unrealistic prices on some options I hold and it makes it hard to tell how well my portfolio has done on a given day.

    3. Gary, same with Fido, I ignore it, like Dave in Texas, it’s buried in my sock drawer. As for the rest of the market, like the man said, “it’s a hard rain is gonna fall.”

    1. From Mohamed A. El-Erian, president-elect of Queens’ College, Cambridge, etc., etc.

      “We are also going to see a lot of entanglement of the public sector in the private sector during this crisis management stage. It goes from bailouts to the Federal Reserve involved in the lower parts of the capital structure like parts of high yield, and therefore taking on more credit and default risk….
      So, the result will literally be a spaghetti bowl of public-private entanglements that has to be sorted out over time. ”

      So, these economic actions will **literally** turn into a “spaghetti bowl of public-private entanglements”….

      I might suggest to Professor El-Erian that if he eats his spaghetti by twirling it around his fork, he will find these sorts of problems much easier to solve. That has been my personal experience.

  2. Post here and hope Maverick shows up. he has been saying he’s looking at commons currently as they offer better deals than preferred’s.
    Hoping he would be willing to share some of the ones he owns or has been looking at.
    Read a few articles over on SA today and most of the authors or commentators mentioned they thought the drop in the market was a over due pull back. People taking their profits going into the weekend. I also read today on Yahoo and MSN that said people were spooked by posts by the president blaming China for the virus and possibility of retaliation.
    Personally I think the market drop was maybe a combination of both.
    Reading reports of ships waiting to get unloaded at west coast ports and new vehicles over flowing storage lots so that they are looking as leasing space at military base, college parking lots and sport stadiums is un-nerving.
    As for common stocks if people had read my prior posts, WY suspended dividends while I expected some reduction being a building supply company and a REIT and late in the market cycle I didn’t think they would do this. Prior to being a REIT even in the great recession they cut it, but I don’t think they eliminated it. WHR is chugging along which confirmed my thoughts, the CEO said he expects a U shaped recovery and they only did a minor adjustment to expected future earning projections. With imports lagging from Korea, and Europe I think they will continue to do well.
    I have been trying to collect a group of stocks in pharma and health, but so far have only GSK. I did have GILD but sold today, something told me there was too much hype for their drug with only a 30% efficiency I also broke my own rule of not buying anything over 40.. a share as price movement doesn’t reward you as much as say a 30.00 stock.
    I did come out with 5.00 a share profit on 200 shares.
    I may revisit the stock as with all the hype it may be a buy and flip stock like Grid plays with.

    1. Tim, while your working on the website this weekend, add a way to send in a donation to help support the site. Thanks for your work.

        1. I agree. I use QOL and make a voluntary contribution there. If there were a way to do so here, I would do the same.

    2. charles
      stay away from GILD. They have strong science but as you concluded they have a lot of hyp. What you want are stocks not impacted too badly by elective surgery and strong pipelines i.e. BMY, ABBot and Sanofi for starters. See which you like. There are others as well. good luck SC

      1. SC,
        I agree, on GILD. Mr. O’day has his work cut out for him and may be 1 to 2 years to turn this bio tech around. But price movement has been good for a buy and flip. Just don’t get caught, I agree with folks you make a decent profit don’t complain if it goes higher.
        Been looking at all 3 you mention and champagne tastes on a beer budget just not enough funds to go around. Like a kid in the candy store.
        Two more as a comparison. Are CAH and MCK
        The latter is differently out of my price but big in medical supplies and around since 1833
        Even made money in the depression. The other, has increased its dividend for 30 plus years. This shut down hasn’t affected either one.

        1. Charles-
          had a big holding in celg which is now BMY so that I do not want to overload on the healthcare. That said, I think it is one of the safer corners to be in along with large tech. Right now am not big on funds but if I were would look to blackrock’s BME as a place to be. They sell covered calls so it is really a covered call fund in a healthcare wrapper but still good value . Same can be said for BST which is the same model using tech.
          I don’t know the two you mentioned well as I’ve been more active in the
          biotech side of healthcare. Cutting down now though. Another which has held up and done very well is Amgn.
          Good luck on your picks. best sc

    3. Charles

      I know most of the discussion here is about preferreds but since you asked, I will post this list of commons which includes some recent buys as well as some adds to longer term holds. Note that since I bought some of these, they have rallied hard so they are not the same level of bargain as they were. I would advise anyone to do your own research on these if you believe they may be suitable for you

      Buys in the past week or so:

      PRU – purchased on 4/21 at $51.75 when it was yielding over 8%. Insurance stalwart who’s preferreds are rated BBB+

      FRT – A realty trust, but the one with a fortress balance sheet, 52 years of consecutive dividend growth, one of the few REITS with A rated debt. I started purchasing on 4/27 at $71.69 when it was yielding close to 6% with half a position and have added a little bit more each succeeding day as it has moved higher

      GPC – Another one where the price ran away from me quicker than expected. I had owned this previously but sold it back in January over $100. Bought back in on 4/27 at $71.69 at a half position and added a little more in subsequent days. GPC is a “Dividend King” with 64 straight years of increasing its dividend payout

      EMN – bought on 4/21 at $52.94. This has the typical cyclical nature of a basic materials/chemicals company. But also has a good yield with a strong dividend safety rating thanks in part to the relatively low payout ratio and BBB credit rating.

      There is one other very small cap but it doesn’t trade in volume and has run up since my initial purchase – and I still haven’t been able to finish my position in it

      Buys in the past month

      AVB – Bought this apartment reit back on 3/26 at $139.43. I always wanted to own some of this but prices were too high in the past. My belief is that since it focuses on the higher end market, it will have less unpaid rent issues during the pandemic than others

      AVGO – also bought on 3/26 at $219.81 when it was yielding about 6%. It was either this Chip leader or CSCO to get some solid tech exposure. It is still yielding 5% after a big drop yesterday due to Apple’s earning report

      DFS – first purchase on 3/23 at $26.96 and three subsequent purchases at $31 and change in April. Up 40% from my purchases, the valuation for Discover was way out of sync with that of Visa and Mastercard

      Canadian Banks – take your pick of the big 5 – BMO, CM, RY, BNS, TD. BMO has been a 10+ year hold for me and I added more in the crash. CM was a new position added

      KO – Coke finally reached a valuation level I was comfortable with. Not my strongest conviction buy but I think it presents value

      GD – I have owned LMT for over 10 years and was happy to add another defense contractor- dividend aristocrat. It is out of favor because of its Gulfstream business segment but the defense side is strong

      I also have added to some positions I have held long term. Some of these took decent hits during the crash but I have owned some of these for 10 or more years and am comfortable with them so I added more when things looked the bleakest:

      Reits:
      O – a Dividend Aristocrat with a monthly dividend
      WPC – another very strong triple net company

      BDCs – I know a lot of people are scared away from BDCs but I am comfortable with these, which I have owned
      ARCC – owned for 10 years
      MAIN, NEWT, TSLX – all are among the strongest / safest BDCs that I have owned since 2018

      Those are the adds I can think of in the past month. I have other long term common stocks in the boring old names like JNJ, KMB, PEP, MCD, LEG, LMT and others

      1. Bought DFS and the Canadian banks myself, along with some utilities like PPL when it was down. Hard to beat 6-7% from a utility or credit card company.

        Sold DFS and the some of the utilities when they were back up with an eye towards reentering soon. Sold puts at good prices on a lot of these things in case we retry some lows. Also have some insurance companies I got when they were down.

        I have an overcomplicated portfolio and am a little younger than some here so have more stock exposure. That means I am still down on the year but am positioning to be well ahead once the market recovers down the road.

        I sure have a lot higher quality preferred portfolio now, that is for sure. Wish I had been brave enough to buy more but I did better than 2008 by a long shot.

      2. Careful with DFS, they’re exposed to a significant amount of subprime lending. I anticipate many cardholders will default. They already had the highest delinquency rate before the pandemic.

        Same applies for COF.

      3. Mav, Great list though have to confess to being one of those scared away from BDCs. Same feeling as swimming far offshore in the ocean at night.

        Holding a few of these and on the ones with multiples – took the CSCO path, and of the 5 CNs it’s BMO and RY. All are LT holds. Also recently added MMM and smaller positions in each BP, XOM and RDS.B (a homemade mini-fund).

        Key on a lot of these I think is the inflation protection they offer. Not a big deal now, but suspect that will once again become an inexorable force – maybe within a few years.

        For all, will add incremantally if they fall below current basis.

        1. Alpha,

          Thanks. Yeah, BDCs are not for everyone. But I feel comfortable taking some on some risk with the better BDCs just because of how I set up my portfolio whereby most of my other holdings have a lower risk profile

          I have been debating on MMM. The major oil companies worry me some. I used to invest a lot in oil patch stocks over 10 years ago and have seen numerous boom / bust cycles. It is probably a good move long term but the short term give me pause for now. Good luck with them

      4. Thanks Maverick for the list.
        Just for the groups you have here I think it shows how to spread the risk around.
        Defense, technology, consumer related etc.
        Makes me think Of GP when I first started with them in late 70’s had chemical, short lines, oil & gas, timberlands, distribution, industrial and consumer paper divisions. When one segment was down another made up for it. Then in 90’s new management divested a lot of this. Went from biggest international paper products and building materials company to what it is today.
        For defense I kind of like NOC, had a summer job with them in High School and back then well run company.

        1. No problem Charles, you are welcome. Yes, I have always like diversification – both among industries and holdings. And while I do hold a few things like BDCs and Mortgage Reit Preferreds some would consider too risky, I have a number of holdings in more conservative issues. I didn’t mention utilities as I was not buying their common – but I own a number of utility common stocks as well.

          I didn’t like the real quick rise in the market the last 10 days so not surprised with the pullback. One reason I have been legging into any new positions.

  3. Don’t buy Ultrashort if you still have money in cash. Buy a 1x short and put more money in it to make up for the lack of leverage. Performs better if the market doesn’t go straight down.

    1. Martin, I have considered using short fund positions either for gain or portfolio protection. But in reality it provides no protection for my portfolio, so I doubt I ever do it. Outside of the deleveraging craziness last month, my preferreds typically doesn’t follow what the market does daily. This past week was a great week for my preferreds. About everything was up even though market was down. The way things are going this could wind up yet being another very good year.

      1. I’ve never used short funds to make money. I sold off over 50% of my portfolio and now I want to continue trading without putting too much money at risk so I bought a couple bear funds as a hedge. But now I’m trading them too, imagine that.
        My point was that 1x bear funds perform better than leveraged funds in an up-and-down cycle. So I don’t believe in buying a leveraged fund if you have plenty of cash left over, just buy the 1x with more money.

        1. I dont mean to imply its a bad idea. In fact I wrote it down to “think about it”. I may need to get to more cash like you, though sitting about 15%. My cores are pretty much topped out. I got them ranging all the way over 20% above “par” past call. Still some odd craziness to exploit. Bought PCG-A on late volume crashing dump of 12k on Thursday at $25.50, then very next day on strong volume again, it jumps back over $27. Odd stuff. Same with EP-C, I swore it off but jumped back in yesterday in $44s on golf course after it dropped bigly the day before… Only stinker is UMH-B down about 30 cents since I bought a couple days ago. Why do I keep banging my head against the wall with this dump trailor court outfit that loves to trade in money losing reits as a side hobby.
          At least its only a couple hundred shares. I guess its just a disease I can only manage, but not cure.

          1. Still a good time to trade, bad time to hold. We’re in agreement about that.
            I like the idea of affordable housing because a lot of people might be downsizing. But UMH managemnt is terrible. I bought for dividend capture, sold some and got stuck with some of it capsizing. The downside of div capture. In general I try to avoid bad stocks for that reason.

            1. It was shear luck I got out of UMH-D. I sold right after the div around $24.70. Felt like a loser holding it 3 weeks for a dime at most. Who could have ever guessed the crash that came shortly after I sold…Certainly not me. But here I go, like a fool giving them a second chance to get me this time.

              1. Last week I was looking through the REIT preferreds with an III rating of B or higher. I was a little surprised to see the UMH preferreds in that category even though their coupons are pretty high. I’m not very familiar with the parent company UMH, but was wondering why they deserve the higher B rating.

                1. Its a subjective rating. One mans trash is another’s treasure. In fairness they appear to have liquidity though I am not a huge fan of their debt to ebitda and the types of property they peddle. But the company has been a long term survivor if nothing else to line the pockets of the Landys.
                  But their love affair with their horrible stock picking skills will never end. Look at their concocted manner they want to redeem UMH-B in Oct….

                  Samuel Landy
                  Well, the first thing I’m trying to do is get a loan against the securities portfolio. I think we only owe $0 3 million against that now and it’s over 100 million. And I’d like to borrow $50 million against that. And then I need another $45 million, I can pay off the preferred and we have $260 million in parks fee and clear. We have $350 million homes free and clear. So I think we’ll be able to pay of the 8% preferred on October 20th and we look forward to doing it.
                  Rob Stevenson
                  Okay. So just to be clear. The plan is either to use leverage on the securities portfolio rather than the equity from the securities portfolio to fund that?
                  Samuel Landy
                  Yes. I don’t see selling stocks yielding 7% to pay off an 8% preferred. I’d rather borrow the money at 2% or 3% and pay off an 8% preferred.

                  Things could go the hell in a hand basket and this might not be pulled off. So I wouldnt dump the tank of dollars on this being a short lived preferred.

                  1. Thanks for the feedback. I own a little MNR common which I buy using their DRIP program. You get a 5% discount on up to $1,000 a month. I see that the MNR preferred only has a C rating, but I guess UMH has a stronger balance sheet.

                    1. Mozart and Grid – actually MNR has a much stronger balance sheet, and I own some of the preferreds, but not the common stock. Did my limited analysis on both companies about two weeks ago – they both have about 40% or so debt to cost basis on the properties, but adding in the preferreds (as I consider the preferreds to be quasi-debt) then UMH has about 85% debt to original cost basis and MNR only has about 60%. This is just my limited calculation, as UMH has owned their properties for many years. One of the real problems for the company is their securities portfolio, if you look at their SEC filings. Many of these securities are very high risk and they should have sold out the holdings several years ago and just focused on real estate operations.

                    2. Lou, My understanding is they both have the raunchy portfolio stash. Like you I think MNR is a safer income play despite its over reliance on Fed Ex and their sites built specifically for Fed Ex. I have owned MNR-C before and even A and B back in the day, but not currently. But not scared of it certainly.

                  2. Grid – I’ll have to look at the earnings call transcript for UMH, but think we both agree they should have sold off the securities portfolio a long time ago. While I know they want to get rid of the 8% preferred issue, borrowing at 3% against the securities issue means they effectively go on “margin” – and their bumbled portfolio can easily lose 20% or more in the next year.

                    1. Lou, They just said that last conference call. They wont let go of them. Its a disease they cant rid themselves of.

                    2. Grid -I’ll read the transcript in the next couple of days, but you are right – they are just addicted to the keeping this portfolio alive, which I do not understand. Reading their 12/31/2019 financials this evening and they have a nice 90% loss on their CBL common shares. Their VER common shares will also be trashed this next quarter, just to name two of their holdings.

                      Sadly, if the company had just stuck to mobile homes and net lease properties with MNR, they probably would have been fine.

              1. I dumped my umh-b. Even though they declared the upcoming dividend, my thought is with the $600 ending (though likely to be extended or tweaked) this clientele is going to be hit hard, hence I’m out.

                1. Eoz, Dont blame you. But management had the financing basically secured to redeem this in Oct. they stated in last conference call. I was a buyer a couple weeks ago to net out a short duration 46 cent capture holding 3 months until redemption. Anything can happen but they have been honest about their previous MNR preferred redemptions and followed through as planned. But, like you, I have no interest in C or D. I got lucky on D getting out a few days before March Madness and wont go there again.

      2. If seeking a general hedge (not trying to time a market drop with a short fund), OTM puts on SPY have been very cheap. Rolling a notional ~$900K position has been costing about $700/week (rolling 2 weeks out, 20%-25% OTM).

        That’s 4% annualized cost (assuming constant greeks) but I don’t keep hedges continuously in place. But since asset correlations are 100% in a sell-off, I’ve added some defense for the stuff I’m still holding.

        1. Just curious Qniform – on your SPY hedging strategy, just to clarify based on what you said, sounds like you are looking at the 2100-2300 range on the S&P. So right now SPY 220 with a May 18 expiration are selling for .27

          What is your timeframe in rolling them over (ie when are you selling the May 11 to buy May 18, etc)

          I have hedged just a little with SPY puts but of longer duration – out til the end of June so just curious on the mechanics of your strategy. Thanks.

          1. Yes – 220-230 has been the recent strike range. I’ve been hedged 1-3 weeks out and rolling them weekly with a GTC net debit of .14c – .17c per contract to maintain a 1-2 weeks hedge. Longer durations do cost more and don’t really improve the hedge IMO.

            In the past couple days the IV has been increasing (e.g. that .27 ask) – an indication on Friday that this week may be increasingly exciting.

  4. Count me in too. Great site run by a hard working super guy and supported by lots of very knowledgeable investors that are more than willing to share their expertise. Much appreciated.

  5. Tim- I always look forward to your comments and thoughts. Thank you for your dedication and for your hard work. I’m very fortunate to have found this community investment site. You and the main contributors are very much appreciated.

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