Sometimes Investors Lose Their Minds

Many income issues are sprinting to points higher that are a bit ridiculous.

The best example we see at this moment is the Invesco 2023 Term Trust (IHIT) which is crossing right now at $10.45.

As an investor you have to look at booking profits in here–you get a years worth of dividends in 1 month–this is pretty unusual for an issue like this one. There are very high odds you will be able to buy it back in a month at much lower levels (around $10).

It is not like us to want to “trade” much but we can look at this as a opportunistic harvesting of unexpected gains.

46 thoughts on “Sometimes Investors Lose Their Minds”

  1. Another issue with irrational upside trading is TVC, a TVA bond with a 3.5% coupon. It has gone from ~ 25.00 up to 28.87 in the last 6 trading days. Huge volume also. It almost looks like a short squeeze. Matures on 6/1/28, so YTM is about 1.73%. Pretty strange. . .

  2. Tim, thanks for your comments on harvesting profits. Most of the time if I can get a years worth of dividends in one day, I make the move. However, I always have the concern about finding a suitable replacement. Sounds like I need to work on my patience and recognize that in most instances a replacement (or the same stock) will provide a near term opportunity for a buy.

    1. LarryL–a replacement will always show up–when and what is the question. In the case of IHIT if a person could have sold in the 10.40’s today it closed at 10.25.

      It has taken me years to learn patience in the age of ‘instant gratification”.

  3. Being new to this I just don’t understand why so many preferreds and baby bonds have raced up to prices that seem unsupportable. Does the market as a whole believe The FED is completely through raising interest rates?

    There certainly are very few, if any buys out there for IG issues below par. Taking profits where possible does seem to be the thing to do.

    1. Euphoria–and thin volumes make this happen mikeo. Likely they will set back a bit in coming weeks.

      Yes euphoria because of the FED–always seem to overshoot to the downside and the upside. I don’t like it–BUT I have to admit that silly high prices feel a hell of a lot better than silly low prices.

  4. Although some invest in individual preferred stocks just for the dividends, I invest differently. I buy preferred stocks and issues to BOTH get high dividends and capital gains. Within the last week, my good to cancel orders for two issues were triggered at a 9.2% gain. The proceeds go into PSK, an investment grade only ETF, that pays a monthly dividend (annualized last year at 6.1%).

    When an issue, I want comes to market, I buy it from PSK “holding tank”.

    The market will decide how long I hold the issue. For fixed rate issues, I agree with Tim – a year’s dividend is my target capital gain. Since floating rate seems to have a bigger premium – I shoot for 1.5 – 2 years dividend as the capital gain.

    To me:

    If I want to buy and hold until maturity, it’s a bond
    If I want to try to get largest capital gains, it’s a stock
    If I want high dividends PLUS capital gains, it’s a preferred stock

  5. Thanks for the heads up Tim. I’ve been looking at these shares the last few days and wondering how come they rose this high knowing they’re redeemable at NAV 9.83. Sold my position this morning.

    1. Sometimes folks don’t understand the terms of what they are buying and the dividend of this issue likely will be reduced each year as we get closer to termination.

  6. Thanks for the heads up. I had been using several CEFs and very conservative Babys instead of CDs as cash and divy repositories when the markets had beat them down. Everyone’s situation is different and I had the sale of real estate in mid 2018 that I did not want to reinvest in RE. No more management by ME, so where to go?! I have been on a deep dive, retirement focused, very wide scope re-positioning since then. I had been nosing into some of the term higher grade, CEFs during the recent drawdown and collected some income….IGI, IHIT and even GDO (yield lure). Unlike buy and forget CD’s which crank along and mature I have been distracted. I do not like the smell of high leverage of CEFs during this secular interest rate turning and debt expansion. I think we are seeing a ‘reach for yield’ melt-up here.
    Just a story to remind and encourage all of us to remain diligent as to why we placed an investment! Good Skills AND timely reminders from Tim!

  7. HDO put out a buy on GLOP-A and B early this morning, causing a price spike since its membership is large. GLOP-C went along for the ride.

    1. Thanks for info Wilson, I was happy to sell them my GLOP-A @ 23.65 in Pre-Market. Not that I think the GLOP Preferreds can’t go higher but I like some others a bit more now and profit is profit. Trying to get more TGP-B @ $23 with some of the proceeds.

  8. I put in a sell for IHIT yesterday at 10.25 as it’s now trading at a premium to NAV instead of the usual discount. It ended up selling with Vanguard at 10.46 on a spike. Gotta love that!

  9. Yep, why I have been buying and when the opportunities arise been flipping junk lately. Still some good deals there if you don’t mind taking a little risk. The PFF Rebalance opened up some good bets. For example, GLOP Preferreds moved up a lot today, especially Pre-Market. Allowed me to dump my GLOP-A position at a nice little profit. Still like TGP-B and CMRE-E here.

    1. Yes Ken–I hold some GLOP-C and finally am in the green. I am a bit shocked how these (and many others) issues are moving since the FED announcement and press conference.

        1. Always–unless I hold a pot of SDS (sp500 ultra short) which I have been known to hold from time to time.

    2. Ken, I think you are playing a card game where the odds are certainly stacked in your favor. I would be doing some of that too, but its just not in my lane. But still I tweak around edges also. I keep buying including today more ~6% Canadian utility reset preferreds that have taken the hit from the pitiful resets that had driving their prices down. So instead of paying 6% for par and above for quality QDI, I am paying 20-25% under par for the quality QDI 6%. If rates ever rise in 2-5 years these things are going to pop in kind on their future reset. So with these I will patiently wait and collect my safe divi knowing I will be largely protected if rates rise down the road any at all.

      1. Grid–someday with my spare time I am going to need to investigate these Canadian issues. Not certain when I will have that much time–info is kind of scarce for that entire market.

        1. Tim, the info is out there, but its back to your time factor. You need to sit in a quiet room undisturbed for a while to get the gist. I have been reading for about a year in frustration occasionally look at trying to buy ERRAF the past 6 months. Snagging EBBNF and EBRGF increased my resolve until I figured out the problem…Vanguard sucks in terms of trying to buy most of these. They don’t route them correctly or just plan block it. TD is an efficient machine with OTC “F” issues.
          The mechanics are largely the same as say NI-B…Except almost all of these allow holders to convert to 90 day Loonie from 5 year Loonie if a set amount vote to do so (usually a million shares minimum to convert any). I will stay long though and not ever vote to the 90 day.
          Canada really started these resets hard about 10 years ago, and about 75% of issuances north of border are resets. They have little appetite for perpetuals. But it bit them in the arse though as these 5 year resets that have occured have sank the yield and thus the prices sank in kind. So I am buying some with low 1% 5 yr Loonie and even low sub 2% 5yr US Tbill resets (as some trade off USD currency and TBill, not Canadian), though they trade on TSX.
          These are quality utilites many of which own US utilities and assets such as Emera and Fortis. Each issue has its own terms though and need to be understand and also of course currency conversion if applicable along with tax understanding.

          1. This has been a ‘go nowhere” for me. I am still seeing no Bid/Ask or volume on any of these. I owned the CA shares of Powercorp which has a nice div common that trades here and is a bombproof diverse, generational company, also Capstone Infrastructure pr.a. The have a bunch of prefs ideas I can not touch via TD without going back to 1965 broker telephone call who calls another broker at Newcrest who takes a verbal offer to another market maker…..yadda…Recent shows on Bloomberg Canada show recent daily trades then a quote off 5-10 % especially to sell….HAha flip.
            I was told they like it that way. Would love some access, thanks for the glimpse and electronic market may break through yet!

            1. Joel, that is strange, but is appears to be a problem of what you want and who you go through. For example another person has been trying to get the Fortis Series G at $14.25 for two days and it hasnt been touched. I wanted to top off my tank at an even 1200, so I put in a 167 share bid in and they hit instantly at $14.22, just like the rest. Its like TD is plucking them off TSX and sending through OTC ticker as it is almost directly trading off the TSX price.
              Now Vanguard got me EBBNF and EBRGF, and Canadian Utilities LTD preferred. But I tried to get more and they couldnt find any. They admitted the dealer they use has limited access to OTC “F” issues. I tried to get an Altagas issue on Vanguard, also and they accepted the order but nothing was happening. I put same order in with TD while Vanguard order was still in que and TD hit and Vanguard never connected. Its all about the dealer they use since there is no market maker to streamline and access inventory amongst the dealers.

            2. Joel, added thought…You most likely will not see the bid or ask or believe it or not the trading volume either. I have bought 1000 shares of the Fortis Series G at 14.02-03 on two different days and it never showed on level 2 at all..,Price, volume, bid , ask…Not anything… This is why some of these I believe are being bought off TSX. Now a couple of issues have shown trades or an occasional bid (mine never has shown though). But when I was buying ERRAF pre exD last week around $15, not one trade of those registered either. But it did show up in free quotes as a USD trade. The Fortis issue never showed up anywhere. To make it more odd my CU Ltd preferred did show up on free quotes (not my trading platform though) but as the actual Canadian price from actual TSX preferred. It did not show up in USD price of the US OTC version. 3 different OTC, TSX issues, three different outcomes from the trades.

                1. Joel, If you are serious about it you could call your brokerage and have them check with other dealers. Vanguard did do that for me but admitted they dont have robust options like other brokerages do for foreign OTC issues.
                  If you see liquidity on TSX for your issue of interest there will be availability if you can get routed to a dealer with access.

      2. Hi Grid. I was hoping you’d comment here. “Stay in your lane” makes good sense to me, and it’s a good fit for my investment personality. Have a good day.

        1. Bigbear, you may share similar reasons, but I largely do it because I understand the risks in what I know. And also if things go to hell, I know it is a selling issue, not a possible financial issue of the company being in any peril. If the company is solid and the price would happen to drop, well I may buy more. If I am chasing high yield that is stressed and price drops, I would inevitably buy low and sell lower, lol

      3. Grid, I got rejected at Merrill Edge and Vanguard for buying a couple of the Canadian preferreds I inquired about. I even went up to main supervisory areas with no luck or sympathy. They just may not be meant to be in my portfolio, Nomad

        1. Nomad, Im on the phone now with Vanguard now trying figure out why I could buy a Canadian Utilites LTD preferred with them last week and now I cant. They dont seem to know either. TD just soaks the trades up though. I have 4 Canadian reset issues with TC and 3 with Vanguard. The trouble is I cant cross pollinate the money to put over there due to it being an HSA account.

        2. Nomad, I couldnt help myself. Back in SCE-L at 18.50 today. Going to ride this til exd next month unless it pops to $19.

          1. Grid, you know I only wish you the best of profitable investing. I’m not going near Cali as I feel that the state is doing everything to harm and incapacitate investors and their citizens (taxes, rules, regulations, fees etc). I was in San Francisco and Oakland 3 weeks ago on business and couldn’t believe what a dirty and appalling area it has become. There is little “free” enterprise in many parts of California and I feel they are hostile to business. Smile, Nomad

        3. Nomad and Joel, the Canadian reset story continues…Vanguard had been useless with FTRSF for months..Then today magically it accepted my online trade…It rejected it once then second time it accpeted and I got 500 shares at $13.73 which converts directly to the TSX trading Fortis Series G security. This price 6% currency converted. It has an abysmal 2.13% kicker to go with Canadian 5 yr Tbill, but price is so low being 27% under par this covers that up. Investment grade high quality utility. I actually put bid in at 13.90 to get it noticed, but it gave me an honest market price. So Vanguard is now getting out of my doghouse since bought this and the Altagas 7% reset preferred yesterday.

          1. Grid, when I tried to buy this Canadian preferred at Vanguard I got
            “This trade will include a $50 processing fee for foreign securities in addition to the commission cost. If the trade executes over multiple days, an additional commission will be charged for each day on which an execution occurs.” Did you pay the $50 “foreign” free? Wishing you profitable investing, Nomad

            1. Nomad, yes I ate this one to finish out my Fortis limit…Most are in my TD account and TD does not charge any more than the regular trade. Im eating the $50 here only because these Canadian utility preferred resets are my new 2019 sock drawer issues. The Emera, Enbridge, Fortis, Altagas, and Canadian Utilities LTD are my new sock drawer addtions. If I was viewing this as a trade I couldnt stomach the fee. But I am holding years here waiting patiently for the next resets and sitting way under par.

              1. Grid, I it looks like the Fortis Series G can be purchased with Schwab (although I had looked a few weeks ago and didn’t think it could). Will this have the 15% tax withheld that you have mentioned before for Canadian securities? Thanks

                1. Alan, yes it will. Now per treaty with US/Canada they are not supposed to withhold from IRA accounts…But you better call brokerage to make sure as I hear some brokerages screw it up and it is paperwork wazoo to try to get it back. The witholding is recovered in tax offset credit when you file taxes if bought in a taxable account.
                  Process appears pretty simple. I always owe taxes now anyways so this will ineffect lower my tax bill come filing time. Another thing to remember this a Canadian currency issue so one must with deal with currency fluctuations. Since I am buying long term I am unmoved by any matters over the fluctuations. Others may not though.
                  There are some interesting resets from Canada that use US currency and US Tbills such as EBBNF from Enbridge and ALTGF from Altagas. Those two however are not really utilities. Enbridge is more a massive pipeline company and Altagas is a mix of regulated ute and energy/pipeline. As always understanding prospectus, being comfortable with company, and price entry point matters.

                  1. Grid, The 5-year reset and pending $US debt issuances appear to be excellent hedges against any currency fluctuations. The new US debt alone may lead to a currency-inspired YTM fattener. Amazing how you dig these up.

                    1. Alpha, My thought process is what you are thinking, but also a little more shallower too, lol.. My running lane is utility preferreds and I like keeping up near 6%. But you know how people who buy safe US preferreds with libor are buying at par and above hoping the Libor (or its equivalent) stays at 3% or so just so they dont get hammered on a reset. Well these have already went through the hammering process on resets as the reset went lower.. So the risk reward long term now swings to buying resets off low resettings. Somebody else took the arse whipping. These are high quality preferreds, not junk either. Many are just as relevant in US (Fortis and Emera for example) holding many US utility companys as they are in Canada.
                      I had a field day with SCE preferreds flipping out on more jumps today on the L and J. Lowered the boom on SCE-C that hadnt appreciated as much buying from under $18 up to 18.15…This one hadnt participated like the others and is still down 15% YTD, and actually down on the week even though the others have continued to pop daily.. SCE has been a very good play for me this year many times already…Heck I even bought more NI-B today and turned right around and sold them right back for 30 cent profit today. I still have a decent floor base of this issue.
                      Alpha, by the way, the Canadian resets appear illiquid, but they are very liquid on TSX. I stronger suspect my FRTSF shares today bought at 13.73 were bought off TSX because they never showed up in volume or price on the grey market ticker of FRTSF.

                    2. Grid, No “Reply” tab on your last post so using my own…Your SCE slot machines have been paying off nicely – even .30/per share flip is near a quarterly distribution – and that you’re doing this with non-core cash in a few days – fabulous. It’s a talent that’s yielding dividends – literally! It’s been a tough go the last few weeks with the run-up in prices, making your Canadians one of the best options around. Question: Do you anticipate the same liquidity when (though sock drawer issue for now I know) selling FRTSF?

      4. Grid, definitely a card game where your opponent could have pocket aces at any moment. I certainly have no interest in touching many of the junk issues out there at current prices but a few I’m familiar and comfortable enough with still seem like a solid gamble in today’s environment. Good for potential flips or maybe even a dividend capture or two. Of course, that could change tomorrow, you never know.

        Thanks for all your input on this site and have read many of your comments over at SA as well. Not many people out there that have more knowledge of the Preferred Market than you do.

        1. You an old veteran hand Ken, and you know market liquidity and credit is flowing again after December credit spread lock up. This favors the trades you are monitoring…And like a Hawk I am sure! 🙂

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