Buy? Sell? Hold? Darned Good Question

Should one be buying, selling or simply still just sitting tight?

Great question with no answer – 1 size doesn’t fit all.

My goal for this time is simply to come out of the virus situation with an average portfolio yield somewhat over the 7% area–maybe 7.5%–and to have 80-90% of my cash invested. The primary difference in what I hope to end up with is a portfolio that is much higher in quality overall–loaded up pretty good with utility preferreds and baby bonds of investment grade quality (or a notch under IG) bought at nicely favorable prices.

I will sprinkle in some mREIT preferreds–which in spite of the huge bounces in recent days are still providing 8-12% current yields. And when the time is right a few lodging REIT issues.

Also I have been looking at the regional and community banks today. Seems like Customers Bancorp (CUBI) and Tristate Capital (TSCAP) have some decent issues available at still decent prices.

Also the Affiliated Managers 5.15% convertible trust preferred (AATRL) is giving us another shot at a investment grade issue with a current yield at 8.00%–I just added a little more at $32.75 (it is a $50 issue). This issue trade consistently in the $50/share area through most of this year. As I have mentioned before this one is a true gift.

So I am around 60% invested and will likely move a bit higher–but I really question whether we won’t have another shot at better prices–I though so, but so far I have been wrong–we’ll see. I don’t mind being wrong if I can get that 7-8% portfolio yield with decent quality.

23 thoughts on “Buy? Sell? Hold? Darned Good Question”

  1. Tim, so you like 7%-8% huh? Well lets see how much you really like it, and join me in buying some PW-A. I went back in for 300 today under par. Last time I owned this some bot got ahold of it and drove it up near $30 for a several dollar flip. Anyhow, the common is up 118% past 52 weeks, and up 48% YTD. How many common stocks are up 48% this year? How many reits do you know of that have only 1 person as an employee and the reit consists of a railway line in perpetuity leased by Northfolk Southern and triple leased land rented out for solar farms and now growing weed?
    I dont know why anyone else hasnt thought of this business model, it seems so obvious… Railway tracks, solar panels, and weed go together like butter goes with bread, ha.

    1. Grid, I have not kept up with PW since they changed their name many years ago. It used to own the one rail line that was leased and that was the only asset. Then an investment firm took it over, changed its name, cut the common dividend and supposedly was going to expand into other assets. It stunk to high heaven at the time and I abandoned ship. What am I missing?

      1. Tex, they cut the dividend (and basically the genesis of PW-A) because of a multi year lawsuit against Norfolk Southern basically trying to bust out of the agreement. Many thought they were going to be successful but they lost, and thus had millions in legal fees to pay. They actually are doing very well now. This last little land purchase they got a paid in full 35 yr loan in mid 4% range. You can read their filings as they are very straightforward and pretty simple being how small they are.
        That being said Tex, I have zero interest in the common. I would suggest the weed growers dont have Microsoft type balance sheets, but the land has value. The preferred has been a good old friend to me over the years and always treated me well. As you can see it barely retraced under par, while most preferreds got rocked 20-40% the past few weeks.
        PW-A is past call, the Norfolk rail lease payment more than covers the preferred payment of less than $300k, by over a factor of three.

  2. I don’t like customers but everything got hit so bad a comeback is looking better. Many have gone way past fibonacci retracements.

    We all know the lows. Some mreits pfds hit down 80% or more. From 2 to 10 or 3 to 14 are real numbers. I pussied out and just held. “Do no harm”. But I did swap a bunch.

  3. Hopefully the market comes back down. Many investors capitulated/gave up and sold near the current bottom after riding down so many days. Then not trusting the ride up… are sitting at losses. Calling it a game… some are getting back in for fear of missing out, which also might be a mistake, and causing higher highs as they are paying almost anything to get back in.
    Getting investment grade issues at 3-5 years worth of interest payments was nice to get on the brutal ride down.

  4. AATRL – I first heard this here and had bought some in low $30s. I sold all of it today as I do not trust the IG rating it seems to sport and attract potential buyers here.

    I mean no disrespect to Tim and others here who love it – I do think this site is wonderful and I continue to learn a lot here. However, I cannot get myself to place trust in the IG rating it still seems to have and continue to trade at $30s a steep discount.

    Maybe it is my memory of lots of IG rated mega banks that nearly went insolvent in 2007-2008 and almost sank the world economy with them that makes me skeptical of ratings.

    I prefer to place more faith in wisdom of crowds – ie the price a security is trading? It trading at this big 30%+ discount past so many days means there are many there who think that discount is warranted, so why should we think and have faith in otherwise?

  5. AATRL – I first heard this here and had bought some in low $30s. I sold all of it today as I do not trust the IG rating it seems to sport and attract potential buyers here.

    I mean no disrespect to Tim and others here who love it – I do think this site is wonderful and I continue to learn a lot here. However, I cannot get myself to place trust in the IG rating it still seems to have and continue to trade at $30s a steep discount.

    Maybe it is my memory of lots of IG rated mega banks that nearly went insolvent in 2007-2008 and almost sank the world economy with them that makes me skeptical of ratings.

    I prefer to place more faith in wisdom of crowds – ie the price a security is trading. It trading at 33% discount past so many days means there are many there who think that discount is warranted, so why should I think otherwise!

  6. What a strange few days (and weeks).

    Lessons learned, for me:
    1) when the bears bite for a major news-worthy reason (like a virus), don’t use dry power too quickly — buying a $25 preferred at $20 is nice, but $15 is nicer
    2) watch quality more closely, stay mainly with IG or near-IG
    3) if buying less-than-IG, get smaller positions (my PMT-A and OXLCP are recovering, but they still hurt)
    4) read Tim’s (and others’) comments here more promptly 🙂

    Well, that’s what I’ve taken away from all this…
    Dave

    1. oxlcp is a preferred from oxlc

      oxlc recommended by the HDO clowns over on SA

      HDO portfolio = wealth destruction

  7. I am stunned by the recoveries of certain higher qualities. Im am back barely over all time highs now. I was a net seller today. I dont hold the cash you do Tim, but I got maybe 15% and I in past have always been near 0%. A few weeks ago my yield was over 7% and now its back around closer to 6% on portfolio value. But hey I did buy a 6.5% US utility T&D preferred a couple days ago with Baa2. At a 19% premium to par, past call, lol. I may sell some more tomm. but dont know for sure.

  8. There was some news today that the CDC may announce that more people can return to work soon provided they take their temperature twice a day and wear a facemask. Nothing official yet, but those are the rumors.

    I think we are slowly going to transition to what S. Korea and other countries are doing over the next 30 days with incremental steps to see how things work. That is the endgame anyway. This thing will have to be managed because it is not possible to keep everything shutdown like this forever.

  9. I am selling and still adjusting preferred portfolio. My goal is to end 2020 at 0% gain with any preferreds I have paying around 7%. The percentage in preferreds will be what it is. I am currently at 7% and 68% cash.

    I have no clue why the market is moving so much higher.

    1. I sound like an investor who has lost out on this “rally” with cash up to 68%. Not at all, if my holdings snap back to Feb 2020 levels, I am up 2% for the year.

      There is a saying that Wall Street hates uncertainty. If you still believe that, good luck to you. Wall Street hates something but it sure is not uncertainty.

      I am very happy with my cash levels, would be thrilled with a snap back to Feb. But the markets reaction is quite distressing to me as nothing makes any sense.

      It is what it is.

  10. Great post Tim; Let me just add a couple of viewpoints. 1. Most of the “True Bargains” are now Long Gone. I over the last 10 trading days have been buying like a drunken sailor the super Big “MEGA BANKS”. All my coupons are a minimum of 5.85% all the way up to a 6.875%. When I bought them I had to “Hope & Pray” that they are big enough to withstand the onslaught on this virus, etc. At the time they were trading at $22.50 to maybe $24. TODAY they are all atleast at $25.75 all the way up to $27. I can honestly say I thought this just might happen. I after 45+ years of doing this figured once we get some “Light Thru the Tunnel” that people would return to “rational behavior” and realize these are still really great companies. On a totally different note CNBC just had a guy on from South Carolina who says now people can actually make more money from the stimulus package and their state Unemployment Office that they can make by working a job. He said in South Carolina the average worker can and will get a little over $300 per week from the state unemployment office, and then throw in the $600 from the government for 39 weeks and you end up with $925 per week which is $23.12 per hour!!!!!!!!!! He said he pays his people around $12 to $13 per hour so he says it puts him in a really bad situation. I never gave it much thought before but it does make sense. I have a brother who runs a forklift and makes $15 an hour. I can easily see him being like a pig in fresh S—-T and more content to stay home for 39 weeks!!!!! LOL Hope everyone is doing well. Atleast I now can get toilet paper BUT still cannot find hand sanitary wipes anywhere. One last questions for you students of history—-There seems to be a really “HUGE CONTROVERSY” over as to if the bottom is in or not. What are you’re expert opinions??? My opinion is I think we’ve seen the bottom.

    1. Considering the short-term and long-term damage being done to the economy, with CBO saying unemployment will still be at 9% at the end of 2021, you’d expect the market to be off 50% from the highs. Of course these are not normal times and with the massive/unlimited Fed intervention and the fiscal stimulus maybe we’ve seen the lows. Maybe we retest them? Who knows?

      1. The problem with all the historical knowledge and views is that this time it really is different.

        We have a simultaneous worldwide shutdown of all business activity and all consumer discretionary spending. Couple this with a pandemic and a oil price war in a time of unprecedented debt.

        Anybody who claims with any degree of certainty is guessing just like the rest of us.

        1. Agree that every time is different and still can’t predict where we are with this. While the banks seem to be in way better shape now, and some loans are backed by the government, who can possibly know what a second wave of this could do to the economy? Bank preferreds (and i own a lot) are really strong but if banks got slammed in a separate wave and had to suspend dividends, some of us would be in a world of hurt. With a mix of preferreds, bonds, cash, growth stock and dividend stocks, my lesson learned is quality, IG if possible, cumulative preferreds only (in that arena), dividend stocks like KO that have paid through hard times and others that have the balance sheet to hold up. Growth stocks that will come back in the long run and enough cash to live on for several years. I know what I know and I know what I don’t know. And what I don’t know is a lot!

          1. Franklin, that is very sound, and I try to mirror myself as far as sticking to what you know. The main reason is your mental confidence in what you own will prevent you from the classic investor mistake of buying high and selling low. I know it gave me the confidence to by more and more of issues like SR-A that kept dropping and I even bought at $16.30. I knew there was absolutely nothing wrong with the company at all. And now its around $26, and I have lightened my over bloated load.

        2. Agreed. The range of possible outcomes on COVID is huge. It ranges from the end is in sight to this goes on indefinitely. Makes me recall that Decision Making Under Uncertainty class I took years ago.

          Rather hard to handicap markets in the situation. I’ve upped my cash level and have done a lot of same issuer exchanges but otherwise have not been a net seller.

          1. People say “Dr Copper” (called Dr because supposedly copper has a PhD in economics) predicts the economy, but my experience is that “Dr Lumber” does a better job. I do expect the general markets are trading on expected good news about getting the economy back to work, but I also expect more opportunities in the future as the medium term economic consequences reveal themselves over the next few months. If you missed out on the bargains, make a list, you will likely get a chance to buy again on some “bad news” in the next few weeks.

Leave a Reply

Your email address will not be published. Required fields are marked *