Tuesday, March 27, 2012

If You Want To Earn 3% Risk Free On Your Cash, Hurry Up

A Reminder To Jump On I Bonds Before It Is Too Late

As I mentioned in a prior post (http://lifeinvestmentseverything.blogspot.com/2012/03/where-to-invest-safe-money.html), one of the places to put some of your "safe" money is I bonds issued by the US Treasury.  Bonds bought by the end of April will earn 3.06% for the first six months, with rates subsequent to that based on the consumer price index (CPI rate).  Based on the CPI thus far, I would expect the following six month rate to be over 1%.  An all-in 12 month rate would be approximately 2 to 3% depending on what the second half of the year's rate turns out to be (very attractive compared to a 1 year CD at 1% if you can even find a rate that high).  However, if you wish to jump on this opportunity you will need to move soon.

Monday, March 26, 2012

Where Do Junk Bonds Go To Die?

Sketching Out The Range Of Outcomes

Some bond investors buy bonds with the intention or at least strong possibility of selling them prior to maturity.  Other bond investors tend to buy bonds, put them away, and forget about them until they mature or default.  With investment grade bonds, the outcomes are fairly straight forward.  Most investment grade bonds are not callable and the overwhelming majority of them do not default.  In contrast, junk bonds have a wider range of outcomes which can materially affect an investor's returns.  In this post I will outline the more common cases and describe the implications for returns.

Thursday, March 22, 2012

A Treasure Hunt In Reverse

How to track down ALL the leverage on a balance sheet

When investing in either the stock of a leveraged company or a junk bond, it is important to understand how much leverage that company has.  Some leverage is very easy to find: you look on the balance sheet and there is a number labelled "long term debt."  Unfortunately, there are other forms of leverage that are not as clearly labelled, although it is disclosed by SEC filers if you know where to look.  As part of your reular due diligence, you should always tally up all the forms of leverage and ensure that the issuer in which you are about to invest has as solid a balance sheet as first appearances suggest.  As an aid to my readers, I will walk through a specific example and illustrate how to find all of an issuer's leverage.

Monday, March 12, 2012

Attractive Yield Opportunity In Stonemor Partners Bonds

At an 11% YTM, I am Dying To Get In

As the junk market has rallied, pickings have been getting slim in the 10+% YTM category.  Of the non-Caa/CCC rated names that regularly show up in my searches there are precious few I would want to own.  However, Stonemor Partners (STON) 10.25% bonds due 2017 (CUSIP 86184BAB8) recently offered at 95 cents on the dollar in retail sized lots appear to be one of the rare attractive yield opportunities currently available.  These bonds yield a bit over 11% if held to maturity and as much as 16% if they are called at the issuer's earliest opportunity.  While STON bonds do not offer a material capital gain potential, I believe they are a solid value for yield oriented investors.

Friday, March 9, 2012

Light At The End of the Tunnel, or Oncoming Freight Train?

A Value Investor's Dilemma When They Turn Out To Be Correct

Bottom fishing value investors (among whom I count myself) tend to have a thick skin, a willingness to ignore what everyone and their brother is saying, and the ability to hold their noses while clicking "buy."  In search of superior value propositions, we can look past uncertain business outlooks, messy financial statements, heavy debt burdens and even abrupt management changes.  We are accustomed to going it alone and relying solely upon our own judgement.  Perhaps that is why a persistent failing I see among value investors (myself included) is poor execution when the world comes around to the positive case for your investment.  After living through months or years of nothing but negativity about what you own, it is a bit unnerving to have investors change their view and start clamoring to buy your formerly hated investment.  To make matters even more confusing, if you have held the investment for any length of time you have probably seen brief upturns in valuation that have gone nowhere and quickly dissipated, so it is very tempting to bail out at the first sign of any positive sentiment.  Often value investors sell too early, leaving a lot of money on the table.  So how should a value investor gracefully and profitably exit their winning trade?

Monday, March 5, 2012

Where to Invest "Safe" Money?

There Ain't No Such Thing As A Free Lunch (TANSTAAFL)

We are in a persistent low interest rate environment and this shows no obvious signs of changing in the near future.  Many people who have been accustomed to receiving 5% and higher yields on CDs, treasury bonds and other "safe money" instruments are now faced with increasing maturities and have to decide what to do with the funds.  What should risk averse investors (or investors who keep some of their portfolio "safe") do with these funds?