Live by the Sword and Die by the Sword

2 weeks ago I wrote about Seeking Alpha being a business–not a service that should be used for anything more than an occasional ‘idea’. I follow some folks over there and will take any good idea I can find.

Unfortunately what we are seeing now is that all the folks that were ‘experts’, are now dogs–BUT still everyday they are writing articles on what to now buy. 1 of the most popular groups ‘pounded the table’ on an issue a while ago that is now liquidating with a massive loss–I’m talking a 80-90% loss. These experts will find, before the year is out, that when you lose 50% of your capital that it will take them years and years to gain it back–even with the dividends that some are so insistent is all they care about.

Anyway this is how investors are lost to future investing–they lose 50% of their stash–so the buy high and sell low, then back to cash for the next decade or so. Sad.

So today the futures are way down–we should expect that given the gains yesterday–unfortunately the elevator down goes much faster than going up. While we had gains yesterday we will likely lose all that gain plus more today.

Again we watch–if this continues, at some point all babies (so far it has just been some babies) will go out with the bath water–even ‘A’ CEF preferreds–I want to be there when that happens.

42 thoughts on “Live by the Sword and Die by the Sword”

  1. A few years ago, SA was probably a decent site and I have written about a half dozen articles there in the past two years. However, it has really gone downhill in the past two years – especially when some of these “experts” started offering newsletters at prices over $500 annually (SA keeps about 25% of the subscription price so they have every reason to promote these authors). While it is fine to get an occasional idea over there, I always prefer to do my own research and use the SEC website several times per week to check out company financials. Company presentations always look to “rosy” for me – so I look at the financial statements and cash flow.

    One of the most tragic examples over there is a very popular author that has been pushing SKT since it was in the mid 30’s. SKT is a REIT, but unlike a solid company like PSA, they own outlet malls and their Top 20 tenants are clothing retailers. Today the stock is trading at a little over $9 per share. Also, as the authors are paid to write and promote their newsletter – they just continue to post bullish articles on a daily basis promoting what stock to purchase.

    Clearly I’ve made some investment mistakes over the past year, and went into some common stocks because I thought preferreds were trading just too high and would not pay $27 per share for some of those. I’ve taken a nice loss on those – and it certainly is a loss whether or not I have sold the shares.

    1. kaptain lou, SKT was the first thing that came to mind when SA was mentioned. I observed the same thing,

      1. C. Malcolm – unfortunately, the business model on SA is profitable for people if they write more articles ($35 per article plus 1.3 cents per view) and to sell more of their newsletters at $520 per year. In contrast, I get the Forbes/Fridson Income Securities Investor and pay $195 per year, or I can get two years for $345. They actually set up four model portfolios, track them during the year and then publish their year-end results.

        For the writers on SA, it is been really easy for them over the past 10 years, as we have been in a bull market. My cat could have probably picked a portfolio and performed just fine too over the past couple of years. Now that we are in “correction” mode , I’m not sure what those authors will do. They rarely publish anything on fixed income, bonds or preferreds (this stuff is boring and won’t generate many page views), but I do expect they will just continue with glowing articles on stocks and give their daily recommendations over the next few weeks, even though the market correction is probably not finished.

        1. Kaptain, At least your warning shot snarks get through. 3/4 of mine are blocked after sending warning posts like these below….Here were a couple of last two that put me on review…This was a year and a half ago…Hopefully a few listened..I know a few did because they PM’d me…From Moron’s 2X Leveraged MLP reco from late 2018..Oh, and that issue MLPQ was folded up yesterday after about an 80% loss from reco.
          The mistake wouldnt be at selling. It would be at buying any of these wallet sapping picks to begin with. 2x levered notes, low rent mall reits, stressed MLPs…You roll around with the dogs, you get fleas.
          20 Dec 2018, 10:02 PM Edit/Delete
          Phil, when people “table pound” and “load up” recomending 2x leveraged funds, is just shameful terminology. A skull and cross bones warning should be posted above the article. Read anything from Buffett to Munger, to SEC fines levied to brokerages for selling leveraged products without proper understanding by client stating the risk of these types of issues. Its a playground most should not be in without proper guidance, individual or sector. (BTW, individual risk is mitigated, by not sector risk, compounded by the leverage).
          Then throw in horrible recent previous picks that collapsed and him disappearing from the articles, or misleading “we were right” “victory lap articles” on CBL off a short term bounce off a low. All while way under way buying from $8 down and not bringing that up in article. Then it even craters below the last reco now where all are way under water, and he disappears.
          If you want to call it pot shots, that is your perogative. I would call it other things.
          24 Nov 2018, 09:36 PM Edit/DeleteReply 2 Like

          1. Grid – yes, for now my “warnings” to other investors are still getting through but who knows when I will get blocked as certain publishers there are cleared favored. The MLPQ was a terrible recommendation – there is enough risk in the market without using leverage, especially 2x. The CBL recommendation was alarming as well, as the shares were recommended at around $10 and they rode that one down the whole way to about $2. It’s difficult for investors to recover from an 80% loss.

            When reading these “advisors” I always asked myself this question: if these people were so good with investments, why is their source of compensation writing articles for $35 each? (Based on the time it takes me to write an article, I’m doing it just for fun and probably don’t make minimum wage). REAL advisors that run mutual funds for Fidelity, Vanguard, T. Rowe Price, etc are well paid and have health insurance and a pension plan.

            1. Kaptain, If they were at least real men (Im specifically referring to Moron’s outfit) and owned their trades, and better explained risk (maybe they cant as they exhibit symptoms of being born with limited cranial capacity), I wouldnt get on my ranting soap box so much.

              1. Greetings gentlemen! I have only been a reader on the site but I am a full time day trader and am up to date on every recommendation from Rida. One addition I can make to your observations – I have seen plenty of times when he recommends something illiquid (NGHCN, PBC for example) and there is a huge volume for the day and the ask keeps revolving and revolving. Funny coincidence I should say.

  2. Much of the declines we are seeing in many issues of preferred and baby bonds are really liquidity driven, not based on fundamentals. Some baby bonds even in the best of markets have only a few 100 shares on bid. A sell order for 2,000 shares can have a 2% move in the issue. Remember this. No BDC went bankrupt in 2008-2009 — not a single one even came close. NLY and AGNC are not going bankrupt, in fact the interest rate tumble probably helps the business. No one can predict the next market move, but the price drops do not suddenly mean the business is about to go insolvent. The vast vast majority of our fixed income issuers will survive. The best move now is to stay the course. It won’t take much volume on buy side to move the prices quickly back up to par. Unless there is strong reason to believe your holding is at risk of insolvency, continue to hold. This will pass. The best bargains I believe now are in the high quality BDCs (Fidus, Saratoga, THL Credit) that have a long track record of low non-accruals and steady asset coverage, usually at least 2x.

    1. Well said Larry … I’ve got a few preferreds and baby bonds that have dropped dramatically on very small volume. Their liquidity is simply very thin.

    2. Larry said: “No BDC went bankrupt in 2008-2009 — not a single one even came close.”

      Larry, I disagree with you on the point. Allied Capital (ALD) essentially went bankrupt and was sold for pennies on the dollar. One of their portfolio BDC’s, Ciena Capital, DID go bankrupt. ALD was the largest BDC going to the GFC, so it was strongly representative of the industry. ALD was the subject of a book by David Einhorn “Fooling Some of the people All of the Time” which alleged they were over marking some of their holdings.

      Could it happen again? Absolutely yes, because the BDC holds illiquid, non-traded paper representing their investments in portfolio companies. It is not like you can check the price on your Bloomberg terminal. I am not saying it will happen again, but there is a precedent for BDC’s going belly up.

      1. Allied Capital did not come close to bankruptcy. At all. Ciena Capital was not a “portfolio BDC” but one of many portfolio companies that Allied invested in. I actually went back to the 2010 10-K with the 2009 financial data, it was sold soon after. At year end 2009 asset were $2.67 billion against $1.47 billion in liabilities, for 1.82x asset coverage. But the equity value was decimated, which precipitated the sale in a period of extreme market distress. At year end 2008 asset coverage was similar at 1.85x. What happened during 2009 is that NAV plunged from $9.62/share to $6.66 (Allied still traded at $5/share when sale was closed, so again, not close to CH11), with net equity value dropping by $500 million. Debt holders were never in peril — even with the plunge the remaining portfolio at end of 2009 would have had to drop by ANOTHER 45% for assets to equal debt 1:1. The quarterly asset coverage requirement of BDCs naturally keeps the coverage in line. Look at Medley Capital today, perhaps the worst BDC in history with a great track record of destroying shareholder value. Even today their asset coverage is 2.7x net of cash, as it is now effectively self liquidating. I have seen several reputable research reports stating no BDC has ever gone bankrupt (at least in the public universe that is followed).

        1. Larry – Medley Capital is “self liquidating?” How generous of you… lol. All attempts by the Taubes to gently milk that cow for all it’s worth (to them, not for other shareholders) are still ongoing, aren’t they? 😉

          1. Agree with your comment on Taubes. What I am saying is that all cash flow coming in is repaying debt and basically the fund is liquidating. It’s not a positive thing for shareholders, as the business is essentially finished. But the debtholders are sitting just fine with plenty of asset coverage, and net debt of $130 million against $350 million in assets (net of cash) — assets that have already been heavily written down.

  3. Are any of you interested in the preferreds from AGNC or NLY? With yields now around 7%, even if they fall somewhat further, they still offer a good return.

    1. I own them and sitting on big losses despite making a few bucks on short term trades along the way, Those with low floating rate are falling the most. shifted half of my NLY preferred money to NLY-D. I’ve been hopping between AGNC preferreds though they’re getting less predictable,

  4. The big boys continue to hold onto their long SPY put positions so the market will go lower or be held down around here until this bear position clears. I wish it would just go down into bear territory and get it over with.

    1. Max
      Its one of my biggest holdings. Think its simply being dragged down by the common which has gone from 72 to 45.
      I am staying firmly put, in fact may well nibble some more.
      Not un-precedented for EPR-G. it was down at 20.38 in Dec 2018 and spent a lot of prev 2 yrs sub par. 6.8% yield at moment. Callable Oct 22.

    2. Epr prg is following the common down. It was one the best moves I made before the complete down turn. Bought it in dec18/jan19. Sold two weeks ago for a 20something percent gain and the 5% dividend. Now if only I had down the same with more of my holdings. One good sell sure as heck hasn’t stopped the hemorage. I didn’t even look at my portfolio today. I can tell it’s just blood. As I was getting tired of sitting on so much cash. Welp, lesson learned. I’m sure most of my preferreds will come back to par someday

  5. There are some good “macro” authors on Seeking Alpha but so many snake oil salesman to be sure. “Heisenberg” is a really interesting read. It’s the “Time to buy ….” articles I avoid.

  6. re: 1 of the most popular groups ‘pounded

    I am a subscriber to the largest SA group (soon to cancel!) Everything was going great last year as the markets spiked higher. But I feel they do not understand the gravity of this situation, as they continue issuing BUY posts-seemingly on an hourly basis. (As Goldman says they see further declines of 15% lol)
    A new post just now said that we will see the bottom shortly. A while back, they issued strong buys on oil. ouch.
    I have NOT followed their direction since February, instead selling a lot of positions. Now down about 5%.
    My major regret is NOT using SH et al and shorting. Should have known better.
    btw I am an income investor using preferred, baby bonds, et.

    1. R—just so you realize that when the waters are rising everyone is an ‘expert’ and performs well–when times get tough they are dogs. The inability to comprehend the macro history and fess up to total ignorance is a real problem for these folks. Of course we all do dumb things–I sold Golar 8.75% preferred for a $6/share loss this morning–but I can admit my stupid mistaken moves.

      1. Tim, you are able to admit the mistake, I am still wondering if I will sell. Have the odds of GMLPP not providing the dividend dropped enough to warrant a nearly 50% haircut? When is a drop a panic over-reaction and when is it justified? And what is likely to restore confidence?

    2. R,
      2 of the best decisions I ever made in my investing career have been to 1. Stop watching Mad Money, and 2. Limit my time on SA to maybe 1/2hr per week at a max. It used to be a good place to hang out, years ago – as you may know. Now it’s just click bait garbage for the most part, IMO.

  7. I agree with you about Seeking Alpha. I use it for possible ideas that I then do the due diligence on myself. It is scary when I read some of the analysis that is done on companies and then people follow it blindly – asking when they should buy and sell. In particular, not many of the contributors know how to properly analyze and assess the balance sheet. If you can’t do the due diligence on a company yourself you should be invested in funds or ETF’s. Just my two cents. Happy Investing.

    1. I don’t know, I would argue that Seeking Alpha is completely useless. Like watching CNBC.

      Only for entertainment/comedic value and not for actual investing.

      1. By and large I turn CNBC off—and then I say “Alexa, play Pet Sounds’–much more productive (unless my wife is in the office–in which case she requires something different as she is not a beach boys fan).

      1. we already did with several leveraged MLP vehicles in this energy collapse – both some CEFs and some ETNs either were forced to delever (selling at the bottom) or are in liquidation now.

  8. I wonder if the Administration’s plan to provide low-interest loans to domestic energy companies will save some of them such that the CORR-A, CEQP-, etc. will rebound?

  9. Tim; This is a perfect time for me to ask you and others for your 3 best “Sock Drawer” ideas. The market opens in 10 minutes and I have found the first 60 to 90 minutes on days like this is when you usually (not always) get the best prices.

    1. Chuck P–this is what I replied to ‘dan’ yesterday.

      dan–I don’t have time right now, but here are a few–

      Ty-P Tricontinenal 5% perpetual ($50 issue). https://innovativeincomeinvestor.com/security/tri-continental-corp-2-50-cumulative-preferred-stock/

      ECF-A Ellswworth Growth and Income (a CEF) 5.25% perpetual.https://innovativeincomeinvestor.com/security/ellsworth-growth-and-income-fund-5-25-series-a-cumulative-preferred-shares/

      BCV-A Bancroft Fund (a CEF) 5.375% perpetual https://innovativeincomeinvestor.com/security/bancroft-fund-ltd-5-375-series-a-cumulative-preferred-shares/

      1. Thank You Tim, I appreciate it. And one good turn deserves another so here’s my list for YOU and everyone else too. In no particular order and also I noticed on the opening that they did not fall as much as I thought they would. Maybe everybody’s still in bed–LOL. Here’s some good choices, especially if they come down today: “EQH+A”, “VOYA+B”, “FCIZP”, “F+B”, “IPLDP”, and my last one might be somewhat controversial to you but here’s the symbol and my take on it: “INN+D”. I have been involved with INN for many years. They are very conservatively run and I have owned their B’s and C’s before they got called and then they issued the D and E. They are “CUMULATIVE” and since I own way more than I should I called thei I R Mgr. yesterday and had a really nice conversation. He said he see’s not problem making the coupon payments on their preferreds (they only have two preferreds). He went on to say they have “set aside extra money” for times like this. They own 74 very high quality Hotels in 19 states. Of course no guarantees in life but I feel very good about all the issues I just listed. Hope all you guys are hanging tough. What choice do we have. Iam NOT going to all cash as I think thats even a bigger mistake. Once they get this virus thing solved watch the market then respond with a huge couple of days to the Upside.

      2. Thanks for the info, Tim.

        Actually, the ECF cef itself is attractive. Nice dividend, nice discount to NAV, low leverage and expenses.

        Thanks again!

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