This must be jobs week – yesterday we had ADP jobs creation numbers which came in soft to forecast. Today we have the weekly 1st time unemployment claims–and also ‘continuing claims’ being released. Tomorrow we have November jobs creation, unemployment rates etc from the BLS. Not long ago these numbers were not given such heavy weight in investors minds–now that has changed as the Fed (Powell in particular) keeps calling out employment as a key indicator of how interest rates are affecting the economy. Equity futures are very quiet right now—virtually unchanged as has been the cases for weeks and weeks—we’ll see how long this trend continues.
I was irritated yesterday as Hennessy Advisors 4.875% jumped to $25 – up 60 cents from where I just sold most of my shares. I should have had a good-til-cancelled sell order in on the balance of my shares as I am a seller at $25. I will be out of the balance of my shares today if someone wants then so badly. Also goes to show one really can’t catch the lows nor the highs–in particular on thinly traded issues, but no use being greedy.
I am starting to focus some time on the BDC baby bonds–mainly because I don’t have any better ideas. With numerous issues available with 8% coupons (plus or minus a little) and relatively short maturity dates these issues kind of fill my needs. I own a Saratoga issue as well as the Capital Southwest issue, but we have issues from Gladstone Capital, Whitehorse Finance and now Midcap Financial all of which are in my wheelhouse. My biggest concern is that we will see lots more bankruptcys in the mid market companys as higher interest rates start to bite in 2024 via the floating rate loans that the BDCs make–but whether this comes to fruition who knows. I guess one simply has to stay diversified.
Well let’s get on to jobs, jobs, jobs!!
Tim, may I ask you something? I know your getting close to going out to pasture and hanging up the day job. Your investing style doesn’t seem to have changed as you just sold the Hennessy for a nice profit, so I assume your looking more for growth in your pot of gold. But at some point we want the investments in the bank to be able to throw off enough income to live off of comfortably. Buying some of the notes and preferred this past year should have yielded some really nice income, Why not keep the yield locked in, as at some point it may be hard to find something to replace these investments with these high yields?
Right now for example all I see are junkier and higher risk issues to buy to get the same income from something safer I bought months ago.
Charles–now that is a good question. Yes I am looking for some growth in brokerage accounts (of which there are 5 now). The brokerage accounts amount to almost exactly 50% of our funds. The other 50% is tied up in fixed income – a huge chunk (our biggest singular account) at 4.50%, which while seeming too little has been great when we have modest or no inflation–funds have been building in this account for maybe 10-15 years (we add $10,000 new money each year). On top of the fixed income part we have 2 pensions from General Mills, 2 social security checks and now 2 jobs (although my wife works from 60-80% full time depending on the week). To say our cash flow is good right now would be an understatement—I take zero dollars out of my appraisal business because our I don’t need it. We do have a very small mortgage on the house at 3.5%–but that is our only debt. The bottom line is that the various brokerage accounts and fixed income accounts – may or may not ever be used–one can’t say never because who knows what tradgdy can hit.
I look for 7% year in and year out (brokerage accounts)- and anyway I can get that I will do. In the case of Hennessy – I captured a large part of the ‘yield to maturity’ money (i.e. a large capital gain–i.e. it had a great YTM at $22.xx but now obviously much less and I captured the gains that gave it a the great ytm). Others that I own–most of the utility issues, asset managers etc have been mostly untouched (not sold).
The other factor that rules my investing to some degree is a wife who pays attention to the account BALANCES – not the income part (obviously related, but to her it is simply green/red).
I know this doesn’t answer your questions in total–but I could go on and on and on.
I have nothing but time. Go on as much as you’d like. This is very interesting to me as “younger” investor.
lukkyseven–lol–unfortunately at this moment I am working at my day job so time is precious this afternoon. Maybe I will do more when I have a chance. Let’s just say that if you have a wife that watches (or for some maybe it is a husband) things are different than if I was a single person – I have to answer to her to some degree.
now that you shared you were a miller, things make more sense. After all, millers are really accountants in disguise.
The Dusty Brotherhood are a fun group of people.
re: “one can’t say never because who knows what tradgdy can hit”
Yes. As you get older, the big egg-sucking tragedy that looms over us Americans is the need for long-term care. The cost of that for any extended time can take your breath (and hard-won savings) away.
Good point Camroc,
I really need to do something about that.
Hard to find a good policy as an individual (easier as an employee of a company that offers it as a benefit, I think).
My dad had a long term policy from his time working for the feds. He complained about paying for it for years, but kept it anyway. He recovered every nickel he paid for it (over decades) in something like the first 3 months when he needed it .
camroc–yes we went though that with the mother in law $8,000 a month (and that was maybe 10 years ago) for her level of care. Didn’t take long to get all her funds.
We just finished up with one elderly parent in assisted living. It was 8500/month at a decent place. This was in Raleigh area.
doug—for assisted living?–yikes.
$8500/mth sounds about right. We put our father-in-law in assisted living a couple years ago (in Phoenix area) and that was about what he paid. Rather than buying long term care, he planned for and used the proceeds from selling his house to pay the insurance costs. Those proceeds would have roughly covered 3 yrs (he lasted less than 1).
Yes, long term care is expensive, often catastrophically so. The younger you are when you buy a policy, the lower annual the cost.
23 years ago, I bought a 10-pay Long Term Care Insurance policy with a 5% COLA. The daily benefit has more than tripled since then. After 9 years I owned the policy outright and they can never charge me another penny whereas with a standard policy owners, the annual premium can be raised every year.
When I did this (I don’t know what’s available today), there were qualified and non-qualified policies. That distinction applied to the ability to deduct part of the premium on your taxes at age 55 or older. Since most of that benefit was lost to me, a non qualified policy was more desirable.
Qualified policies require that you have 2 out of the 6 ADLs in order to collect (inability to transfer, bathe, toilet, feed yourself, etc.) whereas a non-Q only requires one. If disabled, they’ll send me a check for the full daily amount until I recover or die. No case manager or restrictions. For me, worth the money, assuring that my quality of life won’t diminish due to lack of money.
All insurance is a waste of money until you need it. This was expensive and I hope that I never need to make a claim but if I need this insurance and if given the chance, I’ll go out on my terms at home.
Thanks for your input theo. Looks like you are a wise person–although I am sure it was painful paying for it initially.
Hi Charles M,
I’m an income investor who is interested in building an income stream to live off of comfortably like you mentioned. I have some investments with a high “yield to cost” of 12% that now have high capital gains and their current yield dropped down to 6.5%. I did a study to see whether I should sell or keep them. It seems strange to think of selling when I have a 12% yield locked in but I found if I sell them at their 6.5% current yield and reinvest the money (including the capital gain) in another investment with a current yield greater than 6.5%, I end up with a higher income stream. So I’m selling preferreds/baby bonds that have high gains and are near or above $25/share and reinvesting. I assumed no tax implications since this is in my IRA.
TomO–thanks for your input–it does seem hard to justify sometimes, but locking down the capital gain is definitely one benefit–then there is some level of reinvestment risk I suppose, but I have a number of issues in that 6-7% that I would be more than happy with.
Tim, This what I like about this site, hearing from others. TomO has a good point. If selling and collecting the capitol gains and moving into a similar or higher quality preferred produces similar or higher income it makes sense.
Tim – One thing to keep in mind regarding SAR and who knows which other BDCs as well, is that some of them do issue or have issued debentures that are excluded from the 1940 Act asset coverage ratio calculations…. I’m not quite sure how well known that is but I discovered it in my long standing attempts to figure out where NEWT stands regarding their asset coverage ratio since they haven’t disclosed what theirs is since 12/31/22…. For example, regarding SAR, this statement from p 18 of the SAJ prospectus – https://www.sec.gov/Archives/edgar/data/1377936/000121390022065284/f424b21022_saratoga.htm.
Additionally, because the SBA-guaranteed debentures are excluded from the calculation of our asset ratio coverage for purpose of compliance with the 1940 Act under the terms of our SEC exemptive relief, we may have a ratio of total assets to borrowings (including the SBA-guaranteed debentures [totaling $242.7 million]) greater than 150% and our asset coverage ratio may not fully reflect the risks relating to our outstanding debt and capitalization. For example, our asset coverage ratio as of August 31, 2022 was 184.2%. However, including SBA-guaranteed debentures, our total assets to total borrowings would be 153.2% as of August 31, 2022.
BTW, I am long small amounts of SAJ and SAT
2wr–thanks–yes I was aware of the small business loans being excluded from the leverage calcs—makes it all the more difficult to analyze these folks. If I move I will keep positions small and diversify.
2wr-
NEWT is now a holding bank- so it’s different, right?
Yes, NEWT is now a BHC, that’s true… However, the BDC language regarding asset coverage ratios under the 1940 Act remain in tact for NEWTZ and NEWTL as long as they remain outstanding…… That should also mean that it remains as a restriction on NEWT as a BHC UNTIL Z and L are redeemed…. There is language to be quoted in various recent documents such as 10ks and 10qs verifying that, but that hasn’t stop NEWT from not disclosing where they stand regarding the asset coverage ratio other than giving the dodged response that says nothing more than “we are in compliance.”
2whiteroses,
No doubt you are a expert on NEWT. Have you considered contacting the SEC : https://www.sec.gov/about/divisions-offices/division-investment-management/contact
I would think they would / should verify the compliance issue and also determine if the ratio should be released for a public trading security?
No doubt, many would appreciate your doing so. If you care to paste the information send to the SEC, I am others can also contact.
Thanks, TNT. I really have no idea how to proceed nor do I feel that I know for sure they are doing something they believe is outside of what’s allowed of them. I do see where your link does provide a simple help@sec.gov email address for the Office of Investor Education and Advocacy, so maybe an email there would at least afford an avenue to find someone with expertise to let me know if everything NEWT is doing or not doing is according to Hoyle. Thanks for the suggestion.