Monday, January 30, 2012

A Mortgage On Floating Collateral That Yields 13%

Navios Acquisition Bonds Attractively Valued
In a world of 10 year treasuries yielding under 2% there are still solid yield opportunities from time to time that should be bought.  Navios Acquisition (NNA) 8.625% bonds due 2017 and available for 83 cents on the dollar offer an attractive risk adjusted return currently yielding 13% to maturity and offering the possibility of a capital gain to go with the 10% cash-on-cash yield.

Monday, January 23, 2012

Rolling Your Own

How To Create Your Own Indexed CD or Equity Indexed Annuity On the Cheap

Banks, brokers and (especially) insurance agents love to sell a product that has a very mouth-watering top line pitch: equity market upside without the risk of losing money. Unfortunately, the reason they love to sell these products is that the commissions to the salesperson are typically fairly generous and the economics of the product are attractive to the bank or insurance company underwriting the paper. These products go by various names, most commonly appearing in the form of an equity indexed CD, equity indexed annuity, or fixed indexed annuity. Due to the very simple construction of these products, they are actually quite easy and cheap to reproduce in under 30 minutes a year in your very own brokerage account, giving you much better returns and offering a lot more flexibility.

Saturday, January 21, 2012

How to Buy a Dollar For 90 Cents

Arbitraging Market Inefficiencies In Closed End Funds

In a world of universally low yields and high volatility, it’s a tough time to be an investor.  Many people are nervous and prone to shoot first and ask questions later.  Since “safe” options like treasury notes and CDs are now offering yields less than inflation (a TIPS auction was recently concluded at a negative real yield), there really is no obvious place to hide.  Despite this difficult climate, there are still ways to generate returns that are in excess of current bond yields.  One option is to take advantage of other people’s panicky sales and buy dollars for 90 cents by picking through the market for closed end funds.

Wednesday, January 18, 2012

Dumpster Diving in the Junk Bond Market - Part 3

Mechanics of Buying & Selling Individual Bonds

So you have decided to take the plunge and pick out an individual junk bond or two. You have found a likely looking issuer of these bonds, done your (hopefully extensive) due diligence, decided that the issuer is highly likely to be able to pay all scheduled interest and principal payments and are determined to buy some bonds. How does one actually do this?

Wednesday, January 11, 2012

Dumpster Diving In The Junk Bond Market – Part 2

How to start searching for the pearls among the squishy shellfish innards

In my last post I laid out a general framework to determine when to be in and out of the junk bond market.   The problem is that much of the time the junk market is neither a screaming buy nor is it grossly overvalued, leaving us without much of a clear signal much of the time.  So what is an investor with a risk appetite and an interest in yield to do?  Assuming you wish to own junk at all in the “in between” markets, there are two viable options:

1.      Select a junk bond fund run by a competent manager with a long track record of solid performance.

2.      Pick your own individual bonds.

The first option is beyond the scope of this discussion.  Instead, I will focus on how to pick individual bonds.

Friday, January 6, 2012

Dumpster Diving In The Junk Bond Market – Part 1

When to be in the high yield market and when to be out

Especially in an environment of historically low interest rates (1% on a 5 year CD anyone?), many investors are tempted to chase yield in any corner they can find it.  If you have been accustomed to receiving 4 to 6% interest on a long term CD or bond and the investment matures today you are faced with a real problem, especially if you have been living on the interest.  The owners of such maturing investments essentially have three choices: accept current low interest rates on low risk instruments like US treasury bonds, CDs, and the like; attempt to earn higher yields by taking on more risk with junk bonds, preferred stocks, and the like; or buy an annuity from an insurance company with the proceeds of the CD or bond that just matured (probably only a feasible strategy at ages 65 and up).  With more and more people faced with this quandary as time rolls on and low interest rates continue with no end in sight, it is important to understand the risks and opportunities presented by the junk bond market before you give in to the temptation (or necessity) of yield-chasing.

Wednesday, January 4, 2012

Predicting The Future

Forecasting Lowe’s Destiny Via Its Balance Sheet
One of the ways investors can make gains is to predict the future and trade upon their predictions.  Of course, nobody can really predict the future with any degree of certainty unless they have insider information (which is both highly unethical and illegal).  Since most of us wish to stay out of the pokey, we have to settle for putting together the pieces of the puzzle as best we can and inferring what might be likely to happen in the future.  In some cases, this is quite difficult.  For example, given all the uncertainty that seems to be out there, what is the likely change in consumer spending between 2011 and 2012?  Econometricians will build complicated models to attempt to forecast such numbers, but they typically have a wide margin of error and are all too frequently flat-out wrong.  This isn’t intended to be a knock on econometricians; rather it is an illustration of something that is extremely difficult to forecast with any degree of confidence.

Tuesday, January 3, 2012


What is this blog about?

I have been an investor for my own account for almost 15 years, managed money for others, published numerous studies on specific industries, and spent time as a buy-side investment analyst.  In all that time, I have never had the luxury of writing about what I thought was interesting and noteworthy.  Professional demands always meant that I wrote at the direction of others, often producing valuable but fist-eatingly and excruciatingly dull material that was served up to someone who would read it and move on to the next umpteen pieces of the day.  Worse, there was little to no interaction on the subject matter with my readers.  With this blog, I aim to change all of that.