The Selling Decision is the Most Difficult

Normally when an investor buys a preferred stock or baby bond the decision to buy is pretty easy.

For me right now it would be a utility or closed end fund preferred or baby bond I would be most interested in as I am sticking primarily to the quality issues–although I have deviated a bit by buying a couple REIT preferreds that are investment grade.

Right now this is my preferred shopping area.

In the age of low coupons I am interested in a potential buy if issues are at or near their $25 liquidation preference–which means I’m not doing much buying now–still in the 65% area invested.

My current problem is more one of selling than buying–everything is priced to perfection—way above liquidation preference. Of course when I execute the sell I have no where to go with the proceeds–at least no where in the investment grade arena.

Right now I am grappling with the potential sale of 2 issues–both utility baby bonds which have moved 4-5 interest payments above of where I bought them

The 2 issues are the DTE 5.25% baby bond (DTW) and the Sempra Energy 5.75% baby bond (SREA).

Now that I am writing about these issues I just checked the yield to worst–the DTW issue is 1.99% and the SREA issue is 3.70%. With this info in hand I know I will sell the DTW issues today–the Sempra Energy issue, which most certainly will be called in 2024 can remain in hand for a bit longer.

So when determining what to sell one has to look at a number of factors–in particular in this time of irrational exuberence. By stepping through paces while writing here the answer became clear.

29 thoughts on “The Selling Decision is the Most Difficult”

  1. Yes Tim when to sell is something I am trying to get a handle on also. My issue is I draw a big fat zero from a private or government pension because I am self employed. Fortunately I set aside funds every year in IRA and Roth accounts that I invested. The dividends from those plus social security is my retirement income. Fortunately the annual budget is running well under the total income from those, so I do have some casino money. I did my first Gridbird style flip recently on JPM-J and made two bucks a share in six months. The quandary is now what do I do with the money? So far my best bet has been to visit this blog every day for ideas. Thanks so much for you and the regular bloggers.

    1. DJ – there is no shame in holding cash. With wide swings in prices over short periods of time one can often make 1-2-3-4-5 years worth of divis in a short period of time with well timed entries and exits. If you have the time to be sufficiently attentive stay on top of prices and be a seller when others are buying and vice versa.

      The time to buy is when there is blood in the streets – even if the blood is your own.

      1. Bob,
        Yup, I realize it was right time to buy is when I am absolutely sick to my stomach. I bought slightly too early when stuff was crashing and I was a bit too chirpy.
        But at least those buys are making 500X bank interest.
        H

    2. Good feeling huh, DJ? Congrats! For me I say, I “own” about 75 preferreds all the time…It just that I usually only have real cash invested in about 30 at a time. I just constantly churn back and forth on relative values. I dont care if I own AILLL, SOCGP or IPLDP, it doesnt matter, I sell what wobbles up and buy what wobbles down based on their specific typical price window.
      I was able to snag about 300 of AILLL for example last week at 28.40, and earlier this week ditched them this week a buck higher. I just take what is given each way.

  2. Tim, similar quandary with AATRL – good yield over a much longer haul, but it’s up more than 40% since purchase and I worry about the world economy and inflated market of the moment. Got a case of them old hesitation blues . . .

  3. “Nobody ever lost money taking a profit.”

    I’m a trader so I would sell. There’s more downside than upside.

  4. Tim, I’m often reminded of what my old boss told me, “sell when you can, not when you have too.” I’ve had some issues called and have sold some others, cash is rising (about 22%) as I cruise for opportunities. I think it’s important for everyone to run some Yield-to-Worst calculations and see if there are better opportunities to swap into. There is little to do here so I’ve let cash build and spent more time working out and working in the yard, there are other dividends in life:)

    1. Yes ChrisW–always better to sell under your terms. For me I am trying to be patient on sells as well as new buys. I feel strongly better buys are ahead.

  5. I’ve sold some that i couldn’t resist taking the profits on, but still have many that have great gains. Not selling much of those though because i’m going to need the income for living expenses. it’s a good problem to have but still tempting to sell. problem is: there’s no quality to buy at a decent price.

  6. Yes, the decision for income versus capital preservation is always a difficult one. That is more of a heady decision for me than whether to buy or sell. As I am doing that daily. The game of relative values has been very profitable trading wise, and generally staying in the more secure areas.
    Longer term I do worry about imported inflation and our currency, but interest rates are not much so. In 1940s we had annual inflation of up to 16% with 10 year treasury at 2%. Not a lot of ways to trade out of that scenario. At some point I may take the foot off the gas, but its going too good this year to stop now. But, we all see through different lenses. I live off my pension, not my investments. If my investments went to zero like Pendragons are heading, it wouldnt change my life in any way.

    1. I think we have inflation, it has just been showing up in the asset area.

      That is fine as long as it lasts. We have had about 11 years of it going on in earnest. You would have thought a pandemic would have been the signal to retrench to a lower level.

  7. I don’t think it’s that painful to sit on a lot of cash. I’ve been selling my F/F preferred issues (priced at $25-$26) that change to 3 month Libor plus 300-400 basis points in 3 years or less. I would rather sell now than wait and sell much lower if the Fed keeps short term rates low forever. I don’t mind leaving a few bucks on the table. I’m also selling my smaller local and regional bank preferred issues because if the downturn/recession lasts a long time, I think they will have serious problems. Who knows? I just prefer to be cautious right now. The March slaughter was a big wake-up call for me.

  8. IMHO we are due for another drop, once oil drops, than gold, than stocks. Im still not a believer in one thing. Huge pandemic and the stock market has shown not a single ounce of realization that we lost our ass during this pandemic. It just doesn’t seem to obey the natural rules of finance, which is why Buffet stayed away…he knows. I am selling most of my position that I am positive on, and most of my others. I am just staying in cash now , in1929 I think it took a year and a half for the second leg.Now the Feds turn around and stimulates what we lost by borrowing money. So its like you lost your job, and are getting cash advances to keep you going. I can always buy, but it is much harder to sell

  9. I dumped SREA last week, same reasoning. Been doing quite a bit of selling actually. I know why they call it a watch list. All I’ve been doing is watching.😏

      1. But Tim, It is even more painful to watch your holdings evaporate right in front of your eyes. For the last few weeks I have been thinking of reducing the number of shares of some of my holdings. I think most of my utes are just about at the top and nowhere else to go. And, thank you so much for a great website!

        1. Puck, I just lost 113 shares of ute AILNP today..Aint complaining since I bought them at $119 earlier this year and sold 13 at $145 and 100 at $140 just now. I still have 87 at $145 out there if you want them. 🙂

          1. Just remember this issue is a $100 issue that IS CALLABLE, so I would think long and hard about buying, lol…

          2. Grid – there are folks who either don’t do the math or don’t understand it. At 145 per share of AILNP you’re risking almost 6 years of dividends.

            There is a lot of silly pricing out there right now.

            1. Bob, the illiquid market has just gone mad past month or so. Its been legal money printing for me. just crazy!

            2. Or they have a 50 year time horizon and don’t expect it ever be redeemed.
              some of these things have been around for 50-100 years.

              1. This was a 1992 Illinois Power issue. Holding company owns 96% of the float. Dont know why they did that as opposed to redeeming.

                  1. Camroc, my experience with these is normally they dont pay themselves the dividends, for example I know CSX doesnt take the dividends DMRRP pays out. As it would appear to be double taxation for them. I dunno for sure here though.
                    Puck, I was glad hanging on at 128 but at 140 I had to let them go. I still have close to 150 though left since the other 80 some didnt sell. Its hard to totally let go of an old friend, ha.

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