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  • PHK - How excessive premium can cost you money - the hard facts 0 comments
    Sep 24, 2011 8:47 AM | about stocks: PHK, FHI, BSE
    While PHK had been a great buy some 2-3 years ago and I congratulate anyone who bought then and held it to get an amazing stream of dividends as well as some fantastic capital appreciation, the trend has changed dramatically over the past 6 months once premiums have been scratching the 50% mark and breaking above it.
    Add to this deteriorating fundamentals in the high yield markets, a few Pimco / Gross mistakes in gambles on the Macro levels (gambles he MUST make in order to sustain this unrealistic distribution rate) and you get the following two charts:
    Here are 2 charts showing the total return for PHK over the past 3 months and 6 months vs. two CEF's I hold as hedge vs. my PHK shorts.
    Note that BSE is a tax free bond fund so the total return is even better on an after tax basis
    So let's see, PHK holders insist PHK deserves its rich premium valuation due to Pimco's and Gross expertise and choose their excellent entry point as a proof this should be going on forever
    We have no argument that at 4 PHK was a great buy due to market conditions.
    Those market conditions have long passed (probably a year ago).
    At 14 it was a great SELL due to premium and clouding market conditions.
    AT 12 it is still a great sell (probably even more so) due to both premium AND market conditions which have turned from clouding to storming.
    The fact money has been made in PHK in the past does not mean it can all be lost once this bubble busts.
    The market has changed, Gross has not been creating value for this fund for the past six months or more, yet the herd insists on paying this abnormal premium.
    Sanity always prevails in the financial markets exactly as water moves to the lowest point in physics.
      This fund have LOST value to its blind holders for the past 6 months while other better alternatives made money even in a difficult environment.
    No one is disputing the great performance PHK has given holders for the past few years, but nothing last forever with gains like this (a big chunk of which are due to inflated prices due to premiums) - not Tulips, not Rail stocks, not Internet stocks, not bank stocks etc.
    Bubbles burst and until they do their holders are always convinced they never will - such is the nature of the beast and such it has always been.
    ..I guess it makes sense to pay 1.60 for every dollar in assets for the privilege of getting a decidedly sub-par performance..OR NOT!
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