I am curious what everyone is up to – generally speaking. Are you buying? Booking some profits? Or simply mainly holding?
I have noticed a couple ‘schools of thought’–1 school is that prices of preferreds and baby bonds have risen ‘too far, too fast’ and some profit taking is in order with the hope of rebuying at lower prices. The other schools is simply more of a ‘buy and hold’ strategy–watch currents investments and collect the ‘spoils’.
My own method now is to try to trim around the edges a bit and buy the top quality I can with proceeds of the trimming. Of course the top quality issues have risen quite a bit in the last month or two and thus are no longer ‘raging’ bargains. This leaves me in a bit of a conundrum thus the trimming is pretty minor. I have historically been a bad market timer and once I exit I don’t get the cash reinvested in a timely fashion thus hurting my dividend and interest flow–of course the negative of having too much cash is cushioned by the fact that we now receive a relatively generous bit of interest in money market funds.
I did trim the Eagle Point Credit 6.50% term preferred (ECCC) on Friday–I had a bit more than a full position and with the net asset values (per common share) of the specialty finance company’s getting hammered pretty good recently I want to observe their coverage ratios a bit in the potential coming recession. These company’s have been excellent at raising new money through common share sales and thus the coverage ratios have held up–but if we get a true recession will they be able to raise cash in an adequate fashion to maintain coverages?
I now have around 6% cash in our accounts so not too harmful to cash flows–but should I be raising cash and looking for a better opportunity?
81 thoughts on “Buying? Selling? Or Just Hanging Around”
I am giving myself the liar of the year award. On this thread I boldly claimed that PSA-N with its hefty 3.875% coupon would NOT trade back to par $25 this year, next year and/or maybe in our lifetimes. That prediction was 100% wrong! Today at the open, there was a slight problem when the NYSE and all of the other exchanges opened at 9:30:00 Eastern. I posted about that on the sandbox page. I show that four $25 face preferreds at a minimum traded crazy high. Here are the issues with yesterdays (1/23) close, today’s high and the delta between the two:
PSA-N, 17.99, 25.18, 7.19
RTLPO, 22.12, 24.45, 2.33
USB-Q, 18.2, 23.16, 4.96
WFC-D, 19.21, 24.96, 5.75
I have left out the three SOHO preferreds which traded way up due to reinstating dividend payments. PSA-N traded 700 shares exactly at the 9:30:00 open. Hopefully an III’er was the seller. It ended up closing at 18.00 up a penny for the day. I do not see that any of these high trades were busted, but they might be later. I have seen many trades like these in the past that were not busted, but those always were on a single ticker on a given day. . . The forecasting business is humbling. . .
Thanks Tex for keeping up on these trades of the day.
I haven’t looked at my accounts today to see if some buys or sells filled.
Hopefully have a couple surprises waiting when I get home.
Think I’m going to look again at my holdings to see if I am overweight in anything and lock in some profits. Also taking into account if Ex-div date is coming up or has already paid.
OK, I did not lie! After I wrote this, they busted the PSA-N 25.18 trade. They also busted several trades @ 22.66, but let one @ 22.46 stand. The 22.46 trade was 24.85% above yesterdays close, whereas the busted 22.66 trades were 25.95% above. I thought the Clearly Erroneous Execution bust rule was 30%, so I do not understand why the 25.95% trades were busted. It looks like they used 25% instead. Last time I remember this many trades being busted was the REAL Flash crash on 5/6/2010.
We can thank the inter-connectivity of the markets for events like this. It could NEVER have occurred back when issues were traded on the NYSE floor. The specialist in charge of that particular stock would have immediately halted all trading and the stock would not have “opened” until he got the price straightened out. The technical challenge today is to get approximately 50 different trading venues in perfect time synchronization. If they are out of sync by say 10 milliseconds, you can get flash crash type trades, particularly on illiquids like preferreds. Like I mentioned in the first post, you do see this from time to time, but never on this many issues on the same day.
Back to forecasting PSA-N will not trade back to $25 in 2023 and maybe not in our lifetimes. Saved by a late penalty flag that was thrown.
very funny Tex. will be having a MaiTai in the next few hours. first toast will be to you. the wife knows “Tex” which will make it all the more meaningful.
Tex, nothing happened in my accounts although I noticed DCP-C hit a low of 24.04 but quickly recovered. Who knows if it was related?
None of those trades you mentioned were busted, they all stood.
MCG, I am showing that the trades on PSA-N and WFC-D were busted, but the trades on RTLPO and USB-Q were left standing.
You are looking at it incorrectly. The trades were taken down, and reposted with the extreme price indicator (H, or PV if using bbg)
Every trade in WFC-D and PSA-N has two entries for that reason but end of day, the trades stood.
Thanks MCG, so the trades stand but it looks like they removed them from the consolidated tape? NYSE today does not show the PSA-N 25.18 trade?
For those securities that did not conduct an opening auction and entered an LULD pause before 9:30:45 AM, the Exchange determined to re-mark trades preceding the LULD pause as aberrant (i.e., Price Variation Trade (Sale Condition H)) on the consolidated tape to eliminate those executions from the calculation of the day’s High or Low price. The consolidated tape adjustments were processed after the close, resulting in approximately 1,369 trades in 84 symbols being so marked.
Here’s what I don’t understand. Who had a standing bid for PSA-N at $25.xx? I guess someone could have punched in a market order after hours… figuring it would fill at the open at something lower than the previous day’s close? Otherwise, if someone wanted these, why not just buy them in the open market for $18?
Or, is there some other way this trade would have executed?
>Who had a standing bid for PSA-N at $25.xx?
I think you’ve got this backwards, someone would have a standing offer at 25.xx and a marketable order would come in and take them out. So the question is who entered a marketable order to buy.
>I guess someone could have punched in a market order after hours…
You can’t punch in market orders after hours, but this trade happened after the market opened.
>Otherwise, if someone wanted these, why not just buy them in the open market for $18?
Clearly, there wasn’t any offered at 18 at the time of the execution 🙂
Mark, my guess is that the bid was a MOO (Market on Open) order which is placed without a limit. The NYSE has an electronic auction every day at the open. An algorithm lakes at all of the market buys and market sells, then determines a single price to fill them at. This auction algorithm is what the NYSE is blaming for their problem. When the algo did not work, that is why you had crazy fills, but way high and way low. Normally this auction is a very smooth process. This is essentially what the SEC is proposing to put the “internalizers” aka payment for order flow folks like Citadel and Virtu out of business. There would be a new auction say every one second all day long that determines the fill prices.
As for the order side, the PSA-N seller @ 25.18, two most likely possibilities:
1) “I bought it at 25.18 and am not selling it until it gets back there” order
2) A short seller with a standing order
Thanks for the replies. Yes, I understand the offer side of the equation.
So, essentially this was a market order that went bad. (for the purchaser, that is…..)
I’ve placed market orders for 5 and 10 share trades and typically get significant price improvement from the asking price. But I always have a butt clenching moment as I hit the send button. I guess I’m glad I wasn’t playing that game the other day….. 🙂
it was definitely not a MOO order as the auction didn’t run. All auction orders MOO or LOO were canceled back to the participant.
I bought/added off and on in ’22- mostly starter positions- picked up most in OCT/NOV.
Have a broad assortment- F-2-F, fixeds, resets 3mo+L & 5yr treas, some term, baby bonds — in financials, Ins., Utes, REITS, CEF, BDC, LNG shippers, and several ‘broken types. Those and several dying dogs and prior legacy types I am hoping have a bit of cardiac recovery at some point.
The plan at this point is to keep holding for income ( not needed), and buy as my starters bought earlier start pricing lower than in OCT, as well as others at lower prices.
Started in Oct with about 56% cash- with divs and after taking my RMD, am up 4% this month, and am at 46% cash. Looking for a fairly deep market sell-off with all the crap going on.
Im Betwixt and between at moment.
Did some significant buying in 2021 of fairly decent quality but relatively low yielders (BHFAN, EP-C, EFSCP etc) which all got absolutely smashed last yr (like the Bills yesterday).
But continued to nibble away at some similar issues during 2022 (PSA-L, GL-D, DTG etc) which are now all way up.
So my overall acct is a perplexing mixture of deep red and very healthy green.
But the dividends keep rolling in. Havent sold a thing…
Still have around 30% cash on sideline and trying to decide between a) Keeping it in a 4.25% MM acct..I do worry about how safe these are in a crunch though…any thoughts? b) getting slightly more than that (4.6% ish..maybe more after Feb 1) in a bunch of 1-2 yr CD”s..c) putting it in a hard asset like a Condo/real estate.
I guess Im giving my self the next couple of months to see which way the wind blows…
PS Actually should have put it all on Bengals to win SB… + 2200 at start of yr
Sounds like mine Adrian—about 50% of my holdings are in the green with the balance some red (although a long ways up from the lows). You have plenty of dry powder I see collecting a reasonable mm rate.
I’ve been lazy 2wr, avoiding the TOS or ATP platforms. Tried each for a while and though they are slick, seemed not to add value for my approach as much of what we do is on our own spreadsheets/platform. (got XIRR? hahaha). TD has the Level 2 on the base site and do use those book-ends frequently to ferret out the dark ask prices. Now the preferred party is winding down a bit, will be spending more time w/equity reits/options though it takes a bit more time. That’s driven off our own platform too so the base TD and Fido work. You doing a lot of Treasury? IBonds maxed and we’ve got the standard 1 yr ladder set up, though I’m still seeing them as a potential one-way trap into reinvestment risk a year down the road. On the other hand, not holding them necessarily for their yield alone.
It’s tough to call what you do “lazy,” A… I’d say I’m using the lazier approach by relying on TOS or ATP instead of learning how to build a spreadsheet after all these years.. Yes, I confess, I haven’t a clue….. and nope, not going there on XIRR LOL!
Yes, I’ve been doing the Treasury thing and have maxed out IBonds although I juxtaposed 2 numbers in the bank account when setting up my wife’s account so I didn’t get to gift IBonds to me from her last year and are still in the process of getting that fixed…. Finding a medallion provider wasn’t fun… Over all, given the rise in short term interest rates, I’m far too conservative in my approach to have not been to the Treasury trough quite frequently recently or to have partaken much in the recent bonanza afforded those willing to trade in and out of perpetual preferreds… that’s why I’ve not participated in this buying/selling/just hanging around thread. I’m far too inflexible in approach to believe what I do overall is worth sharing and I’ve got the mundane performance numbers in practically any interest rate environment to prove it..
I guess I am the only bear in the den.
I did buy a group of preferred stocks in Q4, but that took my cash position from 100% to 95%.
I just have a bad feeling about this market, the idea that the Fed is in control of things, and after a decent interval, will ease up on rates, and the markets will soar again to unbelievable heights.
The debt situation in the US also looks very bad, but I respect that this bleeds into politics, and political comments are not allowed, thank goodness.
The war in Ukraine also weighs heavily on me. I don’t see a “party on” market when wars and rumors of war are by their nature inflationary.
It all smells like bear market rally to me. Fundamental issues remain unspoken, much less effectively addressed.
Therefore, I find a 10-year Treasury at 3.47 to be absurd, and a sell, and everything tied to it a sell. I also expect the fight over the debt ceiling to be corrosive, destructive, and deeply cynical.
I hope I am wrong for the sake of the country, but I won’t put money at risk here.
RE: deficit debate. Over at a “civilian” news site that I visit, many commenters are talking of selling all their stocks and cashing out to avoid the expected default crash. One was going into money market funds for safety until things blew over.
I pointed out that the default options (sorry about the pun, but that’s what they are called) for money market funds at many big brokerages are Treasury / US Government backed MM funds (which might not be receiving interest payments) and that MMs can break the buck, leaving him open to the risk of getting out at 0.98 or 0.99 on his 1.00 during a financial panic if he’s in a rush to find an exit.
Or leaving him waiting on line if withdrawals are restricted in the event of a 2008 style “run on the MM bank.” “Full speed ahead and let the Devil take the hindmost” – English proverb, 1608, popular during the 2008/9 crash. Not predictin’, just sayin’
Bear, The way that references is “let everyone flee and the devil take the last stragglers”
Are we in for another crash? Is perceived hiding places actually safe? In investing I think we need to look at the companies we hold.
In 2008-2009 I was in bond funds when the market froze. I didn’t need the money so no panicked selling. My company 401K was actually up a little while later. My mistake then was not re-entering the market in 2010-2011 being shell shocked by those around me who had lost 50%
I think most who flee to the sidelines are going to be the ones who will fear returning to the market. While others will be the hawk or owl who are waiting to sweep in to pick off what others sold in panic.
This time I know I maybe one of the ones who lose 50% but as long as the dividends come in I will sit tight and not being 100% invested I can always pick up some deals
I am in the bear den with you.
I sold all my equities in April of last year. I am waiting for the recession to bite, and for falling equities to and take preferreds with them. Most of my cash in in 3 month CDs, and about 10-20% are short equities when the bear market rallies reverse.
I missed the chance to get in on Preferreds in 2020 and will not miss it this go around. The “guaranteed” income is great.
After this recession when fiscal stimulus is absent, and Fed QT, I am not confident that well see strong consistent apprecition in equities, as in the prior 15 years. Preferreds help manage that risk with a steady income stream. Thus my change is investment straegy.
I like the optimism of a softlanding, but my bones will not let me buy into it. A softlanding will take the perfect storm and as Powell said, “Luck”.
In past recessions unemployment has gone up substantialy. With blunt tools of FFR and QT the Fed cannot guide UE to .7% not alone 1% in UE increases. Moreover, I believe that the Fed want higher unemployment so that when the economy rebounds there is slack in labor keeping wage grow in check. The recipe for a moderate to deep recession.
Clearly equity, bonds and fed fund rates futures are betting against the Fed. And to be fair both the Feds and Markets have gotten it wrong in the past. This time my money is with the Feds. When the markets bet against the Fed, the Fed will have to raise rates higher for longer, which makes a deep recession more likely.
To repeat what Powell said in November “It is better to over tighten (recession), and then quickly pivot to lower rates to stimulate a weak economy, that not ecough tighenting and then tighten again as inflation flares back up.
Personally I would much rather have a softlanding as many people are hurt with recessions and inflation. Monetary policies are rarely flways fair.
Charles said: “I have been through a few drops in the market and it always recovers.”
Charles, we can stipulate that US equities have always recovered to make new highs. Sometimes like in 1966, it took 16 years to 1982, but they did make new highs. It was just a question if you could hold out that long. Plus 1,000 Dow in 1966 was worth about 333 due to inflation when the Dow climbed back to 1,000 in 1982.
It very well may be true for preferreds, but if it does, how long will it take? Let’s compare the lay of the land on 12/31/21 to today (1/20/23)
US 3 month .06% to 4.70%
US 10 year 1.51 to 3.48%
Canary preferreds, low coupon yield, IG rated= -25.0%
All preferreds= -15.9%
Assuming for a second that the canary preferred yields are strongly correlated to either the UST 3 month or the UST 10 year, the question is when/if we will get back to those interest rates?
Everybody gets their guess as to when that will happen. My highest probability forecast is that it will NOT be in 2023, hence canary preferreds will not recover their current 25% loss. Maybe it is 2024 or 2025. Or maybe it is way out because inflation does not fall back down to the 2.0% target. And if the Fed decides that the target inflation is now 3.0%, it could be way, way out beyond our ability to meaningfully forecast it. If and it is a big if, the canaries might not hit a new high in our lifetimes. Far from a certainty, but not impossible.
Stated differently what will a $25 face, 3.875%, IG rated issue like PSA-N which is down -28.6%, be worth IF interest rates do NOT fall back to the same level as 12/31/21?
Tex, Thank you for your post. Much appreciate your always-valuable and generous insights.
You referenced PSA-N being -28.6% since 12/21 and of questionable merit going-forward. It’s probably important for us to reconcile the worth of issues based not just on potential exit-price but also the entry/aquisition-price. Just a view from the other side of that equation.
PSA-N along with the G, H, N, O, P and S issues and their stellar split A-rating have been acquisition targets of ours for quite some time; most of them for years. When the time finally arrived, the PSA clan quickly became among the best opportunities we have seen in many years and our ladder of long-standing bids began executing. Every morning at market open, the phone started pinging like a vegas casino buying the PSAa as well as many other preferreds offering similar opportunity. The buying pace became fast and furious as the cascading price drops plowed through bid after bid on the drive to the nadir. The momentum was aided greatly by the leverage of the low-coupons, the relentless doom narrative against them and panicked sellers.
Our basis in every one of the issues provides a YOC in excess of 6%, the highest being 6.51%. They are split rated A/BBB+. The PSA-N holding as of close last Friday was UP 14.95%, before dividends, from our $15.65 basis and it’s not the best performer of the group.
Maybe counter-intuitively, the low coupon of these issues are highly valued as they provide for a low probability of being called, so that we may maintain the collective 6.39% YOC on an issues requiring little to no babysitting.
Selling none, though an added perk…on the outside chance any are called, the average cap gain (in the group) will exceed 40%.
Alpha, I have zero issue with anyone buying PSA-N today, as long as they do not expect it to go back to ~ 25.00 anytime soon. That was the whole point I was trying to make regarding Charles “it always recovers” comment. Collectively PSA-N investors have lost 28.6% of their principal ($71 million) since it IPO’ed in 2020. Some have profited, but in aggregate this is a substantial loss in principal. My best guess is that PSA-N is not likely to rise to ~ 25.00 in 2023 and with a small chance not in our lifetimes. Stated differently if you bought it at the $25.00 IPO price and will only sell it when it gets back there, you will be waiting years and maybe decades. Obviously this is akin to forecasting interest rates and lord knows where they will be in 1 year, 5 years or 10 years, so I might be 100% wrong on this timing. . .
Tex, simply put, perpetuals that were issued at record low interest rates, cant nor should have any expectation ever for a return to par, unless record low interest rates return. A long time can be a long time. UEPEN was issued in very low rate environment in 1940s and still has never returned to par 80 years later. Although some of the 1940s IG perpetuals were lower yielding than the “canaries” of today, the interest rate environment wasnt as low. The bygone era lower perpetual yields were propugated from a higher tax era which preferreds tax status benefitted from.
Considering the US national debt levels, I just find it hard to believe that rates will be maintained at this level in perpetuity. The amount of money that will need to be used just to make interest payments will become an economic issue in and of itself, assuming that isn’t already the case. I just have a hard time believing that comparing past events to today’s events is meaningful when the national debt has increased ~$25 trillion dollars since 2003.
Debt issues aside, todays interest rates arent really even near historical normal levels, let alone too high. Especially on the long end. Having interest rates too low also has its consequences in and of itself (misallocation of capital, sector bubbles, etc.). Plus one can still get declining govt yields and higher preferred yields if credit spreads widen….So if it aint one thing its another, who knows.
Tex I always like hearing from you and the times when you play the Devil’s advocate it makes people think.
For yourself and your point in life how are you approaching this and possible stormy seas ahead?
Tex, Thank you for your thoughtful response. It’s clear you are concerned for those who may have made ill-time investments with blind faith that the market will save them. We know in our friend Charles case he’s evidenced an adeptness at navigating in and out of issues to mitigate that one-way carnage.
PSA-N’s decline from the apex price (it actually traded north of 26 for a bit) could also apply to more recent activity in AMZN, MSFT, TSLA, MMM or even the S&P index itself, which has been wildly over-valued for years. None are destined to be forever failures; they need to be managed from the entry/acquisition side.
The observation is that PSA and low coupons have been demonized maybe a bit too much here, more recently precisely at the time when they were among the very best preferreds available.
Staying constructive, even for those who made ill-timed buys of PSA-N, AMZN, MSFT, MMM – or any other issue, it seems an emphasis on the entry side of the buy/sell equation is useful, rather than on a linear outcome depending on a miracle recovery.
Take the case of a golfer at Cowboy’s Golf Club buying PSA-N at $25/3.875% on their phone before teeing off on 9, then knocked out for 12-months by an errant golf ball while putting for birdie. Being a true IIIer, upon regaining consciousness, they breifly smile and wave at the family, ask if the put went in, then immediately launch for the phone to check on holdings.
Seeing PSA-N at $17.99, and recognizing the still stellar ratings, the next step is to simply buy more. In one single equal trade, the basis drops from $25/share to $21.50, and the overall yield jumps from 3.875% to 4.630%. Not making the cover of Barron’s, but still a well-managed entry side of the equation. As long as the market price remains below the basis – they keep periodically buying and buying, even if solely through dividend reinvestment – and the basis/yield and potential outcome continues to improve with each and every purchase.
You know all of this of course. My push here is for the many who read here who may not know, to recognize the positive, miracle-free outcome potentials in otherwise dire situations through management of the entry/acqusition side of the equation.
Patience, time and staying in quality issues in which you can continue to invest are key. If you liked it at $25, you’ll love it at $17.99.
Tex, When SCE-L was in the mid to high 17’s I was buying. It’s rated BB+ and is speculative and a bond for SCE is rated A- and pays less than the discounted preferred. I owned UZD that is a bond and rated BB. I sold it. Lets just say I was getting 7% YTW on the UZD and only 6% YTW on the SCE-L
The way I am looking at it is I moved up in the quality of the company I am holding. If I have to hold for ten years, I feel comfortable I will be collecting the dividend on the SCE-L
When I was a kid in the early 70’s paying a quarter a gallon to buy gas to mow peoples lawns and gas jumped up it was inflationary but it never went back to a quarter. The cost became the new normal. I honestly don’t expect rates to go back to what they were.
I have had some pretty good gains to start the new year so I have been selectively selling. My goal for the past several months has been to upgrade my holdings to Bonds with a maturity in the next 10 years. As interest rates have come up I have also bought a ladder of CDs and treasury bonds over the next two years, hoping that when they come to maturity something more attractive to buy might be available. I have avoided the floaters because I do not believe the country can afford to have interest rates high for much longer Unless they offer a really good spread when it starts to float.
I went to zero cash late last year buying up “raging” bargains. I’ve sold nearly all these because I don’t want to continually be holding volatile perpetual issues. I only want to swoop in and pick up bargains when opportunities arise and exit with a good profit as soon as possible. Although it may turn out I sold way too early, my Dad once said “you’ll never go broke taking profits.” I’m very happy to have redeployed much of the proceeds into AIC, SAJ, CR-K, CR-J, CTA-A, TRINL, TANNL, CHSCL, CHSCN, EP-C and a 9/23 Ecopetrol bond just bought below par for which I received a tender offer at 103.
As with Tim, I’m not very good at market timing and so prefer to stay fully invested or close to it. I’m an income investor and don’t pay much attention to market pricing of what I own, except for occasional reviews looking for trading opportunities to improve income.
Besides preferreds I also own a bunch of bonds, and last year I was selling near-term bonds (1 or 2 years to maturity) for cash to buy sold-off preferreds with a higher yield. I’m still keeping an eye on that now, but things have settled down and I’m not doing much trading except for reinvesting interest/dividend/called/matured income.
I’ve been swapping some perpetuals and loading up on bonds — investments with a maturity date which will be far less volatile if the market tumbles again. BDC bonds are still attractive, on the bond market many investment grade names offer 7% yeild-to-maturities with 4 to 6 year maturity dates, like Main Street Capital, Hercules Capital, Oak Tree, Owl Rock Capital and exchange traded issues like Saratoga Capital. Still in the history of BDC’s not a single bondholder has ever lost money.
Tim…One way to take the timing decision out of swapping the junk for quality issues would be to chart the one that you want to sell and the one you want to buy (on big charts, just put one ticker under “compare to”), and look at the spread over any time frame you wish to. If the spread is favorable, swap it right then and forget the timing decision, it would have been good timing during the time frame(s) you studied at least. Tomorrow, who knows?
lucky–will look at that technique.
Could not resist taking some profits. Sold half my shares of a few tickers that had good capital gains (T-A, ALL-H, SOJC). Intent is to use the gains to offset some commons I hold at a loss that I want to get out of my portfolio. Hoping prices retreat a pct or two so I can go back and repurchase. I just have to be patient.
Holding and happy for now – I’m not a good short-term trader (questionable long-term trader, but look really smart so far this year!). I have a hard time calling tops, but love a good crisis to troll bottoms, and think ’22 offered a great opp to move the portfolio to higher-grade issues. I’m still working and generating cash for more investments and would love another round of good entry points, but skeptical that we’ll get to ’22 lows on fixed income.
I’m thinking this quarter may a good entry point on QQQ commons (I don’t post this stuff on this forum). I do believe in tech to juice the portfolio but would like to time wave valley (hoping for bad earnings). Energy did really well for me last year – had some great entry points on ET & CEQP prefs and EPD common.
So, I was down overall for ’22, but already made back 80% of that with much better quality for the future (I hope!).
Thanks to all for the banter, and hope my contributions help the cause.
Tim..Just buying and buying never saw these prices, so low and so below par,, made over 12% in equity alone, + 5-7% return.. Ty.. Georges
I am judiciously selling and taking profits. Trying to improve my cash position from 12% to 20% in anticipation of buying opportunities in the first half of 2023.
Hi Tim, I bought very large volumes of preferreds (both term dated and perpetual), investment grade bonds (corporate and municipal) in the 4th quarter of last year after sitting on an oversized cash position in quarters 2 and 3. Since I am still quite close with many institutional and private portfolio Money Managers that I use to work or be associated with, I get many of my ideas/tips from these friends. I am truly thankful for their guidance as I am not watching each position each day (though I do put in price alerts) and they are kind enough to reach out to me when they are taking profits or buying more of a position they recommended to me. About 2 weeks ago I heavily unloaded about 72%+/- of all my larger profits from these prior trades as the debt markets have nicely rallied against the Fed’s aggressive action. Anything that was not maturity date specific (within 5 years) or within the next 6 months going to interest rate float much higher I took profits on. The exception is my municipal bond ladder, oils/energy and many older equity ETF’s that I am using as a solid base for my entire portfolio. I have been buying some larger equity positions in beaten down tech and some utilities under their 50 day moving averages as well. I truly have been extremely fortunate in my trading the last few years and have avoided some of the disasters that I have seen post here and elsewhere especially with delisted and rogue securities. Remember, the SEC works for the good of the larger institutions/multi-national banks/algorithms and NOT to help the individual investor or the rules about delisting and daily trading (and many other checks and balances) would be quite different (and honest). I am quite happy to take advantage of being able to wait in a 4.25%+ money market fund; until there are short term drops or arbitrage opportunities that come about. Further, I truly appreciate your thoughtfulness and web site to share ideas. I have referred dozens of friends, family and colleagues to III and their feedback has been outstanding.
In Latin we say tu optimus omnium, I am Azure
read all the comments very informative. l’m in a blend of all these strategies, with emphasis on lower coupon “IG” for the long haul, still have plenty of cash mm ,insured bank desposits, short term treasuries. Collecting interest waiting waiting for next black swan, war, recession,debt crisis, pandemic , fed screw up? Tex,grid, alpha maverick, seem to on this side of the boat, amen
Mike, having some diversified income assets helps to make a solid all around portfolio in my book. People just need to read these posts through the eyes of what they want though. Some people want preferreds for their stash to provide good income at a solid entry point and then just hold. For those who managed to bought into the sell off last fall, and are buy and holders, they should ignore most of this. They got their good entry point and good quality and good yields. Nothing a lot more needs to be done.
Grid, pretty much hear what your saying. My little accounts are never going to be enough to support us, but a combination of all income allows me to have a core position and do trading across the accounts. We are coming up on the 3rd anniversary of Covid March a recent time when the market crashed.
Different time then. I decided to buy for income and quit trying for growth. I wasn’t interested IG so the hotel REITS , MLP’s etc all crashed.
YES I sold at a loss, But instead of sitting out on the sidelines I bought utes, banks etc. a lot of what was talked about here. My account not only recovered, but it increased as the economy recovered.
I hear what Azure an Tex are saying, lock in profits, maybe keep a core position and wait for the next shock whatever it may be.
But on the other hand, I have been through a few drops in the market and it always recovers. The last couple quarters have allowed me to pick up a diversified portfolio of about 44 holdings in my wife’s account (not all different companies)
The past week I sold 3 or 4 low grade stocks and locked in a profit and dividend. Looking at the last 2 or 3 drops in the market (last June, August, Oct.?) I decided I wanted better quality and not just income in case we have another drop.
I agree with others here and I have also been looking at some holdings I may be overweight in because I bought tranches as prices fell last year that I should trim. This may shock a few here, but my wife’s account is still at 50% cash in MM, short term and ultra short term treasury funds. Several accounts are 100% cash and one account is about 15%
Short story, Guess I am spoiled I think prices are too high. I am overall sitting tight with low ball bids waiting for a drop and not worried about my accounts.
Grid – this
“People just need to read these posts through the eyes of what they want though. ”
is very true and I hope people don’t gloss over it. Everyone has different goals, needs, risk tolerance, etc. So there is never one universal answer for everyone. Everyone’s strategies will differ based on their comfort level and goals. Whether it is taking advantage of trading in and out of different issues or generating income from buy and holders at good entry points there is no one perfect solution for everyone. Know your lane and stick to it, adjusting as your goals, etc change
Hanging around. Current list of preferreds is:
UBP/H RITM/D MS/L JPM/K FRC/H EQH/A BAC/N ASB/F ALL/H ACG/O
My guess is should see further price appreciation in the next 6 – 12 months.
Mainly holding. I made opportunistic buys the last half of 2022 and put the remaining free cash (above what I normally keep as a cash balance in my trading accounts as I always like some cushion for opportunities that pop up) to work in December.
In January, have sold in my taxable account one issue and bought two (one I was not expecting to as it was a long outstanding GTC order I forgot about that filled late last week on an illiquid). In my rollover IRA, which has more positions, I have sold 3 issues (1 of which I purposely waited til January to sell) and bought 1 and may buy another next week.
Basically it has been a very boring month in terms of transactions, especially compared to the last number of months of 2022 primarily because I spent a lot of time in 2022 acquiring strong issues I intend to hold for income going forward (like Alpha – a combination of FTF, term-dated, and a handful of low-coupons strong IG that were yielding on cost around 5.7% to 6.1% to reduce call probability,
With Bitcoin recovering SI-A – may recover FROM $12 to $15 pending dividend announcement shortly. They got bailout by Federal Home-Loan bank when they had a run on the bank , dividend maybe suspended . I have a small position . ARBKL – UK Bitcoin Miner’s Baby bond recovered from 0.75 cents to $5. Will probably keep going up if Bitcoin rally back up
Got fully invested last December . Mostly individual Preferreds and 20% in long term IG corporates and some 2 & 20 years treasuries / few Farm Bank’s agencies in Taxable account . Up about 7% for the year . Friday raised 10% cash ( sold Allstate issues except ALL-B ) , FNB-E and trimmed some MReit high risk preferreds from CHMI , MITT, IVR, ACR , GPMT . I warmed up to equities . Decided to move 5% into Convertible Bond CEFs fallen 50% from the top and trading with 10-13% discount ., distributing from 7-13% , BCV , AIO , NCV . Those are high risk, but could be explosive to ths upside
I am torn. I have really been trying to build income producers to hold for a long while. I bought aggressively in Q3 and Q4. I thought I had more time to buy. I am surprised that rates have retraced this soon. It feels like rates should go back up, but something tells me they won’t. I still have way too much cash in spite of my buying. I’ve parked my cash at 4% for the time being. We might get another shot if Washington misplays this debt crisis issue. If not, I’m going to need an alternate plan.
Tim, Selling nothing, limited/selective buying, waiting for the next “event”.
Bought at full throttle price-point by price-point during selloff and focused on highest IG, with a mix of perpetual, FTF and term-dated, even low-coupons to reduce call probability, in no particular order.
Up 8.17% YTD 2023 though selling nothing as only bought keepers, are focused on income and averse to reinvestment risk.
Hope you’re digging out from that last MN blizzard!
Nice start to the year, Alpha! Im about half of that. I was checking, but my brokerage takes some kind of perverse satisfaction in pricing some of my bonds in a ridiculous manner. I own one I bought at $97.9 and last purchase was $98.60 and they price them as worth $90 in my account….Huh? Another I bought near par, they were offering at $110 Friday and say mine are worth $89 and change. Seriously? A couple other odd ones like that so they are artificially dragging my returns down.
Not deterred from these hosings I bought some more 2025 New Mexico Public Svc Friday so Im sure they are eager to write those down also to give me another bogus beat down. So my returns would be better if not for “fake news” bond pricing. Whatever, Im owning them until maturity so I will pick up some undeserved bonus returns at some point between now and maturity. I have some cash just raised and thinking about buying some of Texas’s one year CDs or TBills. They are still up around 4.6% for the one year variety. Have
some 30 day CDs maturing that will be rolled back into them for another 30 days.
Grid…I believe Fido prices bonds at the bid, rather than the last price, so you are generally “losing” a few percent as soon as you hit the buy button, at least on that platform.
I think that is a fair point, Lucky, as most I own largely fit that criteria and are reasonably tight to the bond thieving spreads. Those dont irk me. But some are just outright criminal. One crazy example is an IG Empire District Electric bond I own. I bought around a 6.7% YTM. Vanguard the other day was willing to sell them at like a 4.9% YTM and offering to buy at over 7%. That is nuts. Makes me wonder if 2WR reactivated his bond trading credentials and came out of retirement to try to fleece me and line his own pocket, ha.
Another example I see that is fun. I will see a very low “inter dealer wholesale” trade shuffle on FINRA, and then magically these bonds suddenly appear on the trading platform offering 20% higher than the inter dealer trade.
Although I could use some new pocket liners these days, that ain’t the case Grid, lol……… I think you realize that what you see at Vanguard, is not an example of what Vanguard itself is trying to do to you…. They most likely are neither the bidder nor the offerer of what you are seeing… They are merely aggregating the best bid and the best offers that are out there and presenting the facts to you. I don’t know if Vanguard acts as principal or agent, but if as principal, they show a marked up price from what they actually see, but theoretically the visible markup is within company specific, published, guidelines. That being said, what you see going on in the inter dealer wholesale trade shuffle and reported marked up prices out of line with those interdealer levels is most likely a result of what can happen outside of the realm of the trader… Assuming, maybe badly, that the process hasn’t changed much but reporting has since my days back in time of the Roman Empire, when you see an abnormal markup reported, it’s most likely done not at the trading desk but at the hands of the remaining cadre of commissioned retail brokers who have carte blanche over their captured accounts…. I know, for example for a few years I worked for a firm with a big retail presence and although I was running the trading desk for our firm’s institutional clients, my offerings would go out to the retail reps as well… They’d see the same offering price as the institutional clients but so many of the reps only interest was “what’s in it for me?” And they had no qualms in marking the offering up unconscionably because they could and their clients would never know how out of line their executed price was. That always rubbed me the wrong way but I had no control over it and for the most part, the firm always supported the retail salesman’s action. That’s what I think you see today when you see reported trades far above the inter-dealer prices. Today all trades are reported, so there are fewer of these outliers now, and that’s a good thing, but imho, it’s more frequently than not the result of actions taken outside of the hands of the traders who are actually a part of that inter dealer wholesale network of reporting…
As a caveat, this is based on my experience from ancient times, so I could be off base today.. I don’t know… Also, aren’t most of the valuations Vanguard uses, especially those on your illiquids that trade once a decade, provided to Vanguard by independent bond pricing services, not derived by Vanguard itself? Much of that pricing service is based on a theoretical grid (not you, Grid) to which they map, be it accurately or not, the specific issue without any info about the individual bond’s once in a decade trade history.. How else could they possibly attempt to provide prices for the universe of all bonds?
Yes, I agree. I am aware that Vanguard isnt the thief, they are just the cash register recording the sale. And TDs prices are no better typically. Its just I dont know all the ins and outs under bellies of the system to describe, so I am just referencing what is going on at the end of the line sale.
You put bonds like these on the exchange and the pricing would change instantly. In fact it would be the opposite of what you mentioned. Using screening tools it was easily determinable the ~ 5% YTM sell price wasnt out of line, it was the “bid price” ridiculously out of line. You dont think someone would offer to buy 10 year IG ute senior unsecured debt for under 7.5% in a minute if it wasnt exchange traded like the stock market platform is? When 10 yearish single B rated PGE is running 5.8%? Somebody is trying to fleece and there is little recourse in a closed system like they are holding onto.
But you know this has been a long running gripe of mine and nothing will change. Like in my old days long ago, I could go to bar and hook up with a preferred for a one night stand and be pleased with that. But bond buying? I know full well I am buying the diamond ring and reserving the church before I buy as its a long term marriage commitment.
But Grid, how does what you describe differ from the “stink bids” we all put in in hopes that we might someday get lucky and rip off an unknowing, unlucky seller? If all that’s showing is a “stink bid,” what should be reported as the market value? And why should the stink bidder move his bid up?
Because very few can! I have 3 accounts and cant put a stink bid in anywhere. I would suggest most cant. Competition is being restricted. Its still largely take it or leave it on both ends. And we know who the “both ends” are.
Grid, As you know, TD or it’s transfer agents are nicking us a few basis points on every trade compared to say FIDO. Interesting that FIDO also pays a decent MM rate for cash. Will be interesting to see what happens with the TD/Schwab merger.
Ooooooooh, shudder, A… I disagree about the merger being interesting… Coming from the TD side, I personally am not looking forward to it at all… the only good thing to come out of it so far has been access to the Scwhab money market funds. I think they;re going to be staggering the transition of accounts, aren’t they? I’m hoping I’m in final group…
2WR, Yes I hear you. Being completely transparent, not a big fan of tweaking things that do not need tweaking. I like the ABC123 primative nature of the TD base website and have found Schwab’s to be a bit less Apple-esqe. Kudos to FIDO – they just keep getting better.
Mostly just don’t want any new nonsense with trade-ability of issues or require mother-may-I permissions.
You know, that’s the ironic thing, A, about Fido…. Who’d a thunked it that they would be getting better when it wasn’t that long ago all we could do was complain about their Nanny State mentality… . I agree with you, though… They are getting better in a surprisingly quick way….. Now all they need to do is buy ThinkOrSwim from TDA and I’ll be all in.. I do like their access to fixed income pages via the News and Research option on Active Trader Pro, and their agent approach to fixed income trades, and their slightly different view of Level II info for additional input, but I still default to TOS as my go to trading platform.
Grid, Of course it goes the other way too. After being on the radar for a few years we finally acquired a PPWLM starter. A few days later some poor soul paid $50/share higher, then the issue didn’t trade for a few weeks, so we had an entertaining $12,500 line item gain for a bit. Fun to see it as long as we don’t lean back rolling and smoking a cigar and start thumbing our suspenders.
“Up 8.17% YTD 2023.” Fantastic Alpha! Blows away my 2.6%. I’m still plenty ok with my “puny” ytd gain, but am really happy with last year’s 3.8% gain since the average blended portfolio lost over 15%.
GRJoel, Thank you – maybe some luck involved and certainly have to lay kudos on the collective knowledge of our posting-partners here. Congrats on your 2.6%! In any market, that kind of a gain in 3 weeks is a winner as I’m sure your dad would agree, and good luck on the new buys!
GRJoel–nothing wrong with your gains–I am about 3.5% ytd and I am ecstatic!!
Sold a few things on the way up but not a lot, waiting to see if there is more room to roam. Continue trading between issues which I always do whether the underlying prices go up or down.
I sold my CTBB shares. I had over a year of dividends worth of gain and in my opinion they were my lowest quality holding. I have the same situation with SCE-L but I feel comfortable holding that one. Probably take the CTBB money and put it in the Schwab 4.27% MM add to my RMD fund I will have to withdraw before Dec.31st.
Sell in January and go away, Chapter 2? One week ago on 1/14, I asked whether preferred investors should sell now and invest in CD’s/MM funds/UST’s for the rest of 2023. You would be guaranteed of at least a 9%+ total return for the year. Same question this week.
The largest preferred ETF is PFF which started trading in 2007, so we have 15 years of data to look at. Year to date 2023, PFF has a total return including dividends = 7.92%. You could take that to the bank plus add on 4.08% in CD’s to GUARANTEE a 12.0% total return for the year.
Compare that to PFF’s historical returns. How many years out of 15 has PFF beaten 12.0%? The answer is ONE year, 2009, which had a +25.6% total return. On this simple metric, you had 14/15= 93.3% chance of doing worse by holding PFF for the complete year. PFF lost money on 7/15 years.
I had another study planned on this which might have spread more light, but ran out of time.
That’s me Tex, sold more thru the week, Cash up to 23%; ytd up 8.56%, some of the issues sold are back on watch list, others not so much, tightening risk. Capital preservation = rule #1 for me even in these inflation-volatile times. Trading around a core in conviction names is working well, mostly non-pfd/bb’s though. Sold a lot of pfd as noted earlier in my 1/19 post here. Bea
Fabulous YTD Bea!
I have been fully invested the past few months. Have done very little trading and have been pretty happy collecting the income. I have been reinvesting income at lower prices as it arrives in my account. The upturn in prices of income issues the past 3 weeks has been significant. I still have quite a few more losers than gainers, however the income stream is what is most important to me.
Same here. I still have opportunities to lower my average cost when cash becomes available. I have also been adding some issues that have maturity dates and getting away from perpetual issues when I can.
Same here, Gary. I’m mainly holding and any new money is going into LNG. My thesis is that western economies are physically addicted to energy and there is no replacement for hydrocarbons available in my investment time horizon. But various well-funded political groups are working to constrain production. This puts hydrocarbon suppliers into a position similar to that of the tobacco companies since 1970 and a look at the financial world of Altria is useful: 1) existing market participants enjoy additional barriers to entry, 2) addiction to the product provides pricing power to improve fundamentals and 3) attempts to financially shun the companies improves the risk-reward equation for the financiers who will work with them.
Well put Steve, and I agree with your concept. Doing away with fossil fuels really is a “pipe” dream.
I have a lot of pipelines and ships in my portfolio.
If you’re a fan of LNG, I suggest you give a good look at the midsteam pipeline outfits as they are going to do great in this environment.
Any suggestions as to which you favor? Value your suggestions for further research. tia sc