Let’s Do It!!

Let’s Do It!!

That is what I have to tell myself each day to force myself to buy riskier assets than I really want to hold.

Like many of you I have piled up cash positions that are too high–that means around 30% and I will have a few more percentages coming in when the Kayne Anderson 3.50% issue (KYN-F) money comes in on redemption. New issues being offered are either too low in coupon or simply are not issues that are really in my wheelhouse–i.e. too high of a perceived risk.

So each day I have to force myself into riskier assets. Actually I don’t have to–but I want to–I think it is the right thing to do even though it doesn’t always feel good.

Given that I have 50-60% of my funds in base portfolio positions that I have held for a long time it makes some sense to ‘force’ myself out into risk.

I certainly don’t think that others should move out to riskier assets–each person has their own needs.

Here is what I have forced myself to do in the last week or so.

I bought ($25.43) a full position in TravelCenters 8% baby bonds (TANNL). The issue goes ex on 2/13 for 50 cents. There is a bit of call risk–but there is a 8.25% issue that is callable which would go first and it is likely these won’t be called anyway (although one never, ever knows for sure).

I bought ($25.71) a full position in B Riley 6.75% baby bonds (RILYO). The issue just went ex for 42 cents a few days ago–I bought before the ex date.

This morning I bought ($25.09) a position in UMH Properties 6.37% perpetual (UMH-D). The issue will go ex on 2/14 for 40 cents.

Each of these had other issues that could have been bought, but considering YTC, ex dates etc. these seemed the best for me at this time–other folks may look at things differently.

I won’t likely hold long term on these issues, but would like to realize a 1-2% short term gain before considering selling them.

48 thoughts on “Let’s Do It!!”

  1. Tim
    I haven’t read through all the comments in this thread, but I own preferreds in each of the 3 Reits you are leery of. I find them quite safe, especially UMH, which is among the 6 largest Manufactured Community owners in the USA and of course part of the Landry family concerns. Their latest communities are rather upScale, with pools, dogparks, etc. For those that cannot afford $125K and up , homes , manufactured homes are an excellent alternative. ( Note I have never owned one but have visited a few ). * However, my holdings are not solely relegated to preferred issues, so I am not as conservative as many visitors to this site and have a different perspective on risk. As an example, I am a U.S. citizen but for years my largest holding by far was a Canadian closed end fund.
    Even though I hold products far beyond preferred shares, I have found this site to be very useful and to offer a wealth of knowledge.
    Thanks,
    Howard

  2. Anyone up for a 5% 1-years CD?

    This is only for Canadians or Yanks with an IBKR account.

    BAM.PF.H is priced to yield (stripped) just under 5%, redeemable on Dec 31, 2020. If not redeemed the rate goes to BOC+4.17% (really) with a 5% minimum. If it reset today it would go from a 5% coupon to 5.63%.

    If rates crater, you do no worse than a 5% coupon, and probably get redeemed in 11 months. If the BOC rates is above 0.83% on reset (5%-4.17%), you will get a higher coupon, and may or may not get redeemed.

    The issue is presently “pinned to par” and should stay close to par until the company’s redemption right is either exercised or waived.

    Don’t be chasing this too high. $25.15 or so (stripped) would be my upper limit. I bought shares over the last 2 days but I’m now out.

    QDI, BBB from S&P.

    This is Canadian $, so you know. That’s a + to me, perhaps not to you.

    1. I like reset rates with a minimum. This seems interesting but what is your experience after the rate is reset? Is it likely to drop significantly and not trade at Par? That is my perception, that most reset rates in Canada drop in Par after reset.

      I know, of course, no guarantees just looking for your experience.

      Let me just add 2 cents to the conversation. Tex had documented in Canadian chat how a Schwab customer can get an OTC symbol assigned.

  3. Given the large amount of cash, I have also been “forcing” myself to stretch my previous definitions of risk. I have been trying to convince me of adding some socks, that I have held in the past, but sold last year in the scare of higher rates. I have also been thinking that one should consider the possibility of low interest rates for a significant time in the future.

    I am looking to add to my “risky socks” LIBOR+ or minimum 4% bank preferreds like MS-A or GS-D, trading now around $23 (~4.4% yield). I found some comments about these by mrinprophet and martin g but not much more discussion in the board.

    I am curious what our expert readership think of these? Too risky for socks?

    Known risks among others:
    – uncertainty about LIBOR, but they have the 4% floor.
    – higher rates would drop their price significantly (e.g. see their valuation at the end of 2018), but if regarded as socks, they will continue to pay the floor, or even a bit more if the LIBOR+x% kicks.

    We have all aimed to make >6% with preferreds, but maybe we should drop our expectations and a 5% or even 4.5% should be our new goals?

    1. Daniel–my hurdle has been 7% for years and years and while last year was not a problem (likely for me or anyone else) trying to crack that nut now it going to be tough–even if we have no black swan events which seems like we are due for one.

      1. … “seems like we are due for one.” Scary…. you got my adrenaline up, I will start selling some of the holdings with >10% profit…., but how much longer can we stay in cash?

        BTW: not to sound like a party pooper, but everytime I congratulate myself of my well over 7% returns last year, I remember that my average return in the last TWO years was only half of that (2018 was a close to 0% return). Thus, I am lowering my hurdle for the next year to an “optimistic” 5%, especially with so much cash producing <2%.

        Tim, fantastic website, improving all the time, both with your additions, and also with more and more invaluable comments from your readers, congratualtions!

      2. Tim
        there is a second issue with the search for yield which is that not only are you probably buying lower quality product but if you have too much cash then you may also be buying these lesser issues in higher volumes than you would two years ago. I know that I find that I often buy greater number of shares as I have cash and need to deploy it. Historically I had greater diversity but today can not find enough suitable issues. Just an observation. Like many others, greatly value your making this site available for exchanging experiences. SC

    2. At these high prices I stopped buying them to trade. I see them now as an alternative to other long term fixed income if that’s what you want. 4.4% is better than the other guys pay but too conservative for me.

    3. I have been selling puts on stocks I would like to own at lower levels usually 2 weeks to 3 months out (CSCO, MMM, GLW, JNJ, etc.) and selling covered calls on existing positions (CSCO, T, VZ, PRU, UPS, etc.), mainly all divvy growth issues, to enhance income. Also own quite a bit of preferreds – not much high yield – mostly 4.75-6.00% I keep my cash (currently 45%) in ICSH to squeeze out 2% or so.

      The reason I have so much cash is that I transferred a large chunk of my employer 401(k) to self directed IRA at eTrade back in November and did not deploy at such lofty levels. I have pared my income goal to 5% give or take 1/2% for now. Retirement object is 3.5 years so want to manage risk as much as feasible with trying to earn some type of yield.

      At this point in the economic cycle, I am willing to be patient using my conservative option strategy until the markets correct a bit. If that never happens, then I’ll just keep on keeping on as it were.

  4. I own both MNR-C and UMH-D but think the former is a better value. Here’s my thinking. If you take the 10 year rate at time of IPO and add the value of the BB rated spread from that time, that gives you a benchmark. Then look at what sort of spread to that benchmark you got at issuance. Specifically,

    1. MNR-C -> 10 year rate + BB spread (at IPO date of 9/6/2016) = 4.87
    2. MNR-C coupon’s spread over benchmark at time of IPO = 6.125 – 4.87 = 1.25%

    1. UMH-D -> (IPO Date 1/17/2018) benchmark rate -> 4.5
    2. UMH-D coupon’s spread over benchmark at time of IPO = 1.875

    So, this analysis tells me that if UMH-D and MNR-C both IPOed on the same date, then the difference between their coupons on that date should have been 1.875 – 1.25 = 0.625.

    At today’s prices, the difference in their yields is only about 25 bps. 62.5 bps is what should be expected if UMH’s credit worthiness relative to MNR is the same.

    That said, I like both of these REITs run by the Landy’s. You could argue UMH is actually the better risk as their housing related assets have better fundamentals and are more recession resistant. Housing is a good asset to own in a housing shortage.

  5. A note on TANNL. TA’s CEO was recently fired and replaced by a private equity guy. I’d guess the parent company (run by the infamous Portnoy of RMR/HPT) is going to take this private. There’s really no reason for it to be a public company. The IPO prospectus stated they don’t ever expect to pay a dividend and the company basically exists for the benefit of the parent. They have complete control of the BOD with poison pills, etc.

    That said, the worst that would happen is a delisting of the bonds. The assets and cash flow them are quite good and generated by a recession resistant business that has reasonable levels of leverage. Bonds are money good even in a take private scenario.

    1. Landlord–the family patriach died–that has set off a whole chain of events. Adam Portney is in control now–and I DO believe he is dressing it up for sale. i.e. new CEO, Contract to have IHOP come into their locations, deal to cut the deferred lease payments to the parent etc., etc. For me I probably won’t be around it too long.

      1. I think take private is more likely than take over. There was a takeover offer at 75+ from a few years ago. The BOD rejected it. I’m sure the suitor would be willing if to pay that or a higher price today given the Flying J comp from the Berkshire purchase. If there was any chance of a fair market value buyout, I think TA would be trading a lot higher. I suspect they take private at 20 what likely has a FMV of 100. They control the BOD so they can do that.

        Bonds are money good regardless. You may have to hold through a move to the OTC though.

  6. Chuck I would be interested in knowing the names of any other sites like this one. I need all the help I can get. I certainly am grateful to Tim McP for this site. I relied on the Yield Hunter for a long time and just recently, happily, stumbled on to this new one.

    1. Wendy; Check out “Quantumonline.com”. Also read the saturday issue of Barrons–they have a preferred section. Also if you have an account at Schwab they have a preferred screener section that I use as well.

      1. ChuckP – excellent suggestions for Wendy! Those are probably the top three sources of information I also use when researching preferred stock issues. Barron’s used to publish preferred stocks and baby bonds (a nice one page summary) every week, but a year ago they slimmed down the paper and only publish it once a month now. I normally tear that section out of the paper and use it as a quick reference tool when researching new ideas. The Schwab screener is also a very good tool, but on occasion a few securities just don’t seem to appear in their screener. Also, when you look at common stocks at Schwab, they have a tab you can click on to see if the company has any preferred stocks outstanding.

  7. I am retired and totally in the investment camp. Tried trading in my earlier days and failed miserably, just don’t have the smarts for it 😉

    Preferreds make almost 30% of my holdings and roughly 90% of them are issues that Tim & others discussed or mentioned here. I visit this site at least once a day checking for new ideas, if something peeks my interest I research further or add to a watch list for better entry point. The spreadsheets alone are an awesome consolidated source of information, so what’s not to like!

    Thank you Tim.

    1. Thanks JayR–you are like most of us. I look for ideas anywhere and everywhere–just look at a few more deeply.

  8. I think you are safe holding Umh-preferreds. I own C&D. Take a look at MNR-C, very safe and not callable until 9-‘21.

    1. Yes TimH–of the 3 that is the one I would be comfortable holding. Will check the MNR issue.

      1. Tim(s), Thank You for the sock drawer issues.
        I bought both at 25.09 800 shs each.
        My sock drawer was pretty empty.
        I hold these 2 issues and Verprf, cbklp, slmnp, bprap, fprc and vnoprl.
        lots of Flot as well. Pbct was a late buy due to its drop on friday.
        My returns will be stunted if i hold too much cash.
        So once again , i thank you all

          1. Unfortunately, the original sock drawer candidates have risen significantly in price, no longer offer good yields – and that, along with the ever present call risk, makes them far less attractive than from a year ago.

            IIRC, the originals that we discussed included AILLL, AILLO, CNLPL, CNTHP, CNPWP, CNPWM, UEPEP, PPWLO, IPWLO, and non-Utes such as SLMNP, WFC-L, BAC-L.

            I am still watching for any selling that might occur; most unfortunately missed SBNCM yesterday – but those were quickly snapped up by my fellow Sock Drawer buddies Grid, Camroc & Aarod. Congrats to them!!

            1. Inspy, the funny thing as you well know is “sock drawer” could mean different things to different people based on expectations. We (you and I) generally have viewed it as an issue that one never stresses on payment. But as you noted though one can be guaranteed payment and still exposed to capital losses from “downward pricing adjustments”. That is why I am always countering sock issues with term dated, adjustables, and resets. Nothing is a sure thing though. You cover one risk then you are left exposed with another risk (such as call risk, credit risk, etc. in addition to the duration risk of perpetuals).

              1. Grid, totally in agreement with you. It’s how one perceives the risks at the time of review, whether it be call risk, credit risk, BK risk, div suspension risk, or interest rate increase risk. At least 1, and probably several, will be present at any one time.

                I currently have 40 preferred/BB holdings, watch them regularly to see if any “downward adjustments” occur, and try to take advantage.
                Recently picked up 300 AILLL at $27.25, now wondering if I should flip them or not. My original holding has not been touched.
                Also sold JPM-C at $28.10 recently, having bought way back at $25.25. Will be buying back soon, maybe tomorrow.
                SBCNM was not on my watchlist, hence I missed that one.

      2. We may be getting a short term top in Spx today, a lot of negative divergences. So you may get better prices on preferreds over the next few weeks. Let see how it closes. ATB.

    2. I’m interested in what Tim McPartland says about MNR. I own a lot of shares of the preferred. Company and tenants seem much better than other companies. The preferred use to trade around $26 but then went to around 24 during Dec ’18-Jan’19 and never really took off again. I now hovers around 25.

      1. BarbK–I am not overly familiar with the company. I guess as a preferred holder I wouldn’t have many concerns. Longer term having 50% of your space leased to one company (Fed Ex) seems a bit dicey–really I would think a top priority would be to spread out the tenant base in a larger way–not that Fed Ex is a problem, but who knows what the future holds.

        When I look at their debt it seems reasonable compared to most reits. But glancing at BT’s article they hold shares of other REITs–that is balony in my eyes–folks are NOT investing in them to buy a closed end fund (or at least they shouldn’t be). I doubt anyone thinks this is a great idea.

        I haven’t owned this preferred, but others have suggested it so I might take a position. I would think the pricing would be pegged to $25 plus accrued from this point and trading at 25.08 right now means there may be some opportunity to hold a decent issue at a reasonable price.

        Bottom line is that they could certainly do some things better than they have–i.e. spread the tenant base and get rid of the stock holdings–but as a preferred holder I would be comfortable.

      2. BarbK and Tim, I’m very familiar with MNR and have owned their preferred stock well over 10 years (the old class A and B shares). 80% of their tenants are investment grade and I believe the average lease term is a little over 9 years (I was just researching them a little more last week). Debt level is fairly reasonable and they are a long-term buyer and owner of their properties. They are over-exposed to Federal Express and should probably diversify a little more, but I’m fine with FedEx as a tenant. I’m guessing many of those leases will just be rolled over and they will probably have an investment grade tenant long after I’m deceased.

        The only thing that bothers me about the company is their REIT portfolio. They used to own some quality names and preferreds, but it appears the last couple of years they were reaching for yield and pick a few real losers. For example, I believe they own 4 million shares of CBL with a cost basis of around $9 per share (holdings can be found in their annual report). Clearly, they bought this one for the high-dividend yield a few years ago. CBL now trades right around $1 per share, no dividend and the company has an unrealized loss of about $30 million on this purchase alone. I’d really like to see them liquidate the portfolio and just concentrate on their core real estate holdings.

        With that being said, I’m still fine holding their 6.125% issue in my retirement account and have recommended the security to a few of my relatives.

  9. In reading this website now for just a few weeks it appears that many of you are extremely short term traders and not investors. Don’t get me wrong nothing wrong with that philosophy. I have asked Tim on a couple of occasions to return my email from last saturday, but obviously that is not going to happen. Good Luck to All. I will visit upon occasion but there is another site that lists new issues as well. PS I can “appreciate” why you would want to “get in and get out” of many of these names. They are extremely lowly rated and some very speculative companies for sure. Nothing that I would want to own long term. I have read many many articles on how at some point when the “Tide Turns” (interest rates) these names are going to take a blood bath when they get re rated “SUBSTANTIALLY LOWER”.

    1. Chuck–just looked and found it in the spam filter. I will get back to you sometime today.

      I think you have the wrong impression that most folks are traders–quite the contrary–most folks have sizable ‘base positions’, but excess cash because of low rates and have that money liquid–but are looking to earn something while waiting.

      1. Tim, you are 100% correct I suspect for people I privately correspond with anyways. There really isnt any reason to mention the preferreds that are just sitting continously in ones vault. The only ones that really need to be mentioned are the ones being bought.
        And this may be twisted math, but many of the vault ones I own, I would not buy at todays prices. But hold I will anyways due to various reasons.

        1. Yes Grid–we talk about the trading, but know most of us hold the base positions which get less ‘press’. Actually I am going to add a ‘sock drawer’ section where that can be handled by folks that want that.

          1. My socks are overvalued. I’m tempted to sell them, but then I have no socks. I’ll have to replace them, and all the other socks for sale are overvalued too. I can live without socks for a little while. But I have no idea when the prices will come down.

          2. Tim, that is going to be a PLUS feature!

            But, as times and things evolve, the residents of the sock drawer could well evolve too, and mutate into something entirely different from our original intent.

            My initial criteria for sock drawer residents was similar to Grid’s – strong & stable companies ( like Utes ), ring-fenced, maybe having merged into another outfit or holding company, special conversion features like getting BOD seats, busted convertibles, etc.

            While I still own many of this kind, I find that I, like most others, have to stretch for yield, and find myself getting further into the areas where credit quality, dividend coverage, etc become far less robust.

            So, difficult decisions abound where one must decide to pay up ( and accept a low yield ), or get a higher yield but a weaker security.

            The infrequent occasions where a seller emerges from the fog and dumps a boatload of sock drawer candidates represent a great buying opportunity – if one can move quickly enough. That’s one reason I watch, and watch…..and watch.

        2. GRID-agree with you. One strategy which I’ve been thinking about is trying to buy quality at new offerings. I have an account with one of the larger underwriters so can buy prior to public trading. This normally means I can get the shares at 25 but almost never below. That said, in a rising price market that is ok. I’m sure you probably do the same. best sc

        3. Grid, I like that you used the term ‘vault’ to refer to these kinds of issues. I like it even better than ‘lockbox’, which I began using because ‘sock drawer’ didn’t seem anywhere close to the safety, security, & permanence I’m interested in. 🙂

          P.S. The bid – ask for SBNCM has risen to 15.50 – 20 now that it’s safely tucked away in our vaults. That’s what I’m talkin’ ’bout. 🙂 🙂 🙂

          JMO

          1. Camroc, as you know we never throw away the key to the vault or lock box. Sometimes they Godfather us and “make us an offer we cant refuse”. 🙂

      2. Tim; THANK YOU. To all of your readers, I say “PLEASE” go over to Barrons today and read the article titled “The Corp. Bond Market is becoming a PONZI SCHEME”. I won’t go into all the details but I ask you all to go over a just read it. My pleading is most for if you have novice and inexperienced bond/preferred investors. Many folks think they buy an issue and then they collect the coupons and get fat and sassy. NOT TRUE. These high risk companies not only can default and most are non-cumulative but the article talks about how much “High Yield Debt” has been issued and its a scary number. Tim, thank you again and I look forward to hearing from you. GO CHIEFS!!!!!!!!!!

        1. Chuck, you got make sure one knows the preferred market is wide and varied in and of itself. That includes term, and credit risk profile. For example, I own a couple preferreds that have paid quarterly for 70 plus years. The worry on some isnt payment, but correct price entry point vis a via future interest rate cycle. And that is unknowable but a risk none the less.

    2. I’m a trader of preferred stocks, which is actually a rare strategy. That’s why I like this forum. Nobody else is discussing it beyond the basics. A portion of my investments are buy&hold but I don’t discuss them much because I’m not following them as actively.

    3. Hi Chuck P. I think since you are new, you naively sized us up too quick without all the history that many of us have together. Many of us have multiple million dollar assets and portfolios, have been through a rodeo or two, and have been conversing for a very long time by keeping similar/same names in other blogs/sites. Many of us are very well versed on the Fed, rates, diversification, portfolio management, credit risk, and many others.

      Over time, these become repetitive, and boring written discussions in a market that is always slowly going up and up. With no large swings in the market, and very few opportunities to make money from mis-pricings, we have to have something to talk about. That conversation lately has been small opportunities to flip in, and flap out of trades. It adds spice, opportunities to have some fun, claim some trophies, etc.

      There is usually 40-100 postings per day with comments, ideas, etc. So if you come here infrequently, or upon occasion, it is easy to understand how you can sum up the group incorrectly.

      Welcome, and happy reading, commenting, and trading.

      1. Mr. Lucky, well stated. Its always tough. Take for example the Amtrust debt issues I hold. They just keep slowly climbing the past year. Can it be trusted as along term hold?Anecdotal info supports my current hold status, but one never knows. Keeping it proportional and not getting greedy in terms of shares has probably bolstered my nerve in holding. But tomorrow who knows.

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