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Cautious_Bob

Cautious_Bob
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  • Junk Bond ETFs Over Equities In 2012 [View article]
    The dividends you receive from JNK and HYG are "not qualified" because they come from bonds rather than stocks.

    This means that the tax you pay on the dividends from JNK and HYG is higher than you would pay with stocks.

    The dividends would be taxed at your ordinary income tax rate, it does not qualify for the reduce 15% rate.
    Jan 19 08:36 PM | Likes Like |Link to Comment
  • Junk Bond ETFs Over Equities In 2012 [View article]
    The Interest rate is a good question. I have owned JNK and HYG for years and have thought a lot about this.

    First, JNK is really not old enough to check historical data to see what it will actually do in a rising interest rate environment.

    One key aspect is to look at the average duration of the bonds held by a fund such as JNK. I believe they average duration is around 5-6 years. These are relatively short duration, thus any damage from rising interest rates will be minimal.

    I believe that of all the different classes of bonds, the junk bonds such as JNK or HYG will fair the best in a rising rate environment.

    It is true that JNK is also somewhat correlated to stocks (i.e. chart JNK vs SPY to see the relationship). In contrast, treasuries, especially long term treasuries will get hit hard by a rise in rates.
    Jan 19 08:32 PM | Likes Like |Link to Comment
  • Bonds Were Boffo In 2011 [View article]
    Yeah, I think a lot of the rise in municipal bonds is probably people just trying to get yield. I am sure a lot of retirees are really worried about where in the world their money to live on is going to come from.

    For example, MUB (a municipal bond ETF) is trading near its all-time high right now. It was a good buy a couple years but its too expensive for my tastes.

    TIPs would be an interesting play if the United States ever decides to inflate its way out of its big debt problem (I believe it recently just hit 15 trillion dollars). If the printing presses really start up big time at the Mint, then the gains in TIPs would be absolutely huge.

    Junk bonds (i.e. JNK or HYG) are one of my personal favorites because they have the high yields and keep things interesting (if you like that kind of thing). You can get some wild swings with JNK and it appears to be somewhat correlated to the S&P 500 (i.e. compare the chart of JNK vs SPY).

    JNK is better than regular stocks through, because with the big yield they pay out every month, at least you are getting something if you end being married to it for awhile (due to falling share prices if your timing is bad).

    The way I see it is you if you buy JNK you get a nice yield and if there is a large bull market in stocks, then you may even benefit from that a bit and get some capital gains without actually being in stocks.
    Jan 19 08:21 PM | Likes Like |Link to Comment
  • First Trust Strategic High Income II: Ample Time To Sit And Wait [View article]
    Thank for your article, I recently bought some more shares of FHY myself last week.

    Any time one gets to purchase shares of this fund at a 15% discount to yield, it is a wonderful buying opportunity. This fund could return to 15% discount if the market brings a large downturn (i.e. a disaster in Europe may trigger such an event). But this is just one scenario.

    However, just because it was selling at a 15% in the past, does not necessarily mean it will return there again anytime soon. Most 15% discounts are rare events.

    If we are entering into a multi-year bull market, it may not be selling at a 15% discount for a very very long time. You could possibly see the discount to NAV for this fund evaporate and the share price may being to sell at a premium to NAV instead in a year or two.

    I was happy to get shares last week at a 5% discount to NAV. This fund appears to give an excellent yield.

    You do not want to get too greedy by trying to get too large of a discount, because the share price could runaway from you and you will be leave holding the cash and nowhere to invest it (except to buy over-valued assets in a bull-market).

    In addition, you have to consider your "opportunity cost". If you sit out on the sidelines for too long waiting for the 15% discount, then this is yield you are missing out on. For every month that goes back, you are missing dividend payouts as well.

    Just some things to consider. I am have no idea whether the market is going up or down, however, my position is rather than use too much of my personal time guessing where it is going, I will just dollar-cost average to acquire more shares.
    Jan 18 08:48 PM | Likes Like |Link to Comment
  • The 'Personality Premium' Of Bill Gross: Wells Fargo Vs. Pimco Funds [View article]
    Great article, I really liked reading your analysis.

    I think the main thing that would reduce to the huge premium to NAV for PHK would be a large 2+ year bull market in stocks.

    If people see that the stocks are returning +30% percent per year, they will pull their money out of PHK to try and get a better return and more profits.

    In such a scenario, the share price of PHK would drop down closer to NAV say around the 7$ or $8 /share level; at 7$ or 8$/share this would make it a good entry point to buy into PHK.
    Jan 3 10:10 AM | Likes Like |Link to Comment
  • Investors Should Not Try To Time Markets [View article]
    You are right that the total stock market fund is up for the past 10 years.

    According to the website, if you started with $10,000 in the Total Stock Fund in 2000 you would have $14000 today (10 years later) a 40% return.

    personal.vanguard.com/...

    Thus, taking that 40% gain and averaging it over the 10 years would give you a small percentage gain per year.

    The actual values of the index itself are not up after 10 years. For example, see:

    www.google.com//financ...

    The actual profit achieved by the Total Stock Fund is likely from dividends. Still if you want a very small rate of return you can just buy bonds that have less risk.

    Further, re-balancing is actually a form of market timing (it happens usually only once a year). Thus by re-balancing once a year, you are going against the main article (the main article is about buy-and-hold forever; or buy-and-forget forever)
    Sep 17 12:55 AM | 1 Like Like |Link to Comment
  • Investors Should Not Try To Time Markets [View article]
    It is true that cannot always time the market.

    But sorry David buy-and-hold has not worked for the last 10 years, in fact the S&P500 was higher in 2000 than it is today.

    I don't blaim you though, I remember reading the books written back in 2000 that said that the marked on average increases by 10% per year.

    The market always goes up 10% per year on average, except for when it doesn't.

    When it comes to timing the markets, I don't know the answer. Sure being fully invested in the market all the time means you will get the 10 best days but it also means you will get the 10 worst days as well.

    The best that has worked for me lately, is some very general rules of thumb.

    One rule of thumb is if a stock or asset has risen in price by an unusually high amount relative to its regular performance then its time to sell. This includes any asset that just experienced a huge run up in price (think internet stocks in the 2000s, houses in 2006, gold today).

    The second rule of thumb is if a stock or asset has just experienced a violent downturn and is suffering extreme loses relative to its normal performance, then you may consider buying it (i.e. buying stocks during the depths of the financial meltdown). Of course you only buy if it is fundamentally sound (i.e. it did not suffer from something like accounting fraud such as enron). This buying rule is even safer if you use it for indexes than for individual companies.

    Since stocks have started to get hard this year, it means they actually have better prospects than gold.

    You have to remember in order to have big gains, the results have to generally be unexpected. Thus, if stocks start performing unexpectedly well this would trigger a huge rush of money into the asset class. This is because lots of investors like to chase performance and need external validation that the asset is "good" first from someone else before they go back into it.

    Its really hard get in front of the wave and buy something that has terrible prospects such as buying stocks during the financial crisis. If you can take the stress though the rewards are huge.

    Violent downturns are a good time to buy because the asset price may have dropped to more than its truly worth.

    For example, during violent downturns, an asset class can become oversold due to investors getting scared and panicking. Also, stop-loss orders get triggered. An investors may have to sell during a downturn in order to make a margin call even if they don't want to sell. Hedge funds may get lots of redemption notices from their investors and have no choice but to sell. The media will add fuel to the fire because fear and crisis gets readership and their ad revenues up. All these things lead up to the discounted price of that asset.

    Thus, it is true that you do not want to constantly be buying and selling, however, it is ok to use some intelligence once and a while.

    You don't want to act like robot and watch the world collapse around you while blindly marching to the buy-and-hold forever beat. There is no glory in going down with the ship.
    Sep 12 10:42 PM | 2 Likes Like |Link to Comment
  • Build My Portfolio: Helping This Baby Boomer Doctor Reach His Retirement Goals [View article]
    The investment David gives is one of the most popular and well-established investment strategies around.

    Basically, you do usual ... do you 7-10 categories of asset-allocation, ... re-balance once a year ... index everything ... market timing and trading is always bad ... yata yata yata ...

    I like to call this strategy "Vanguarding it", you can "Vanguard your portfolio" and do ok, you will always be average with this type of strategy

    The only problem with this is that it is extremely boring.

    Also, I have to say sadly it seems not to work as well as it used. In 2008 just about everything when down, diversification failed us when we most needed it,

    correlations are breaking down between the asset classes, i.e. when stocks drop so does everything other asset class!! (except gold which might currently be in a bubble ready to pop).

    It could be that correlations are breaking down because too many people are "Vanguarding it", the "crowd" is all doing the same thing basically

    Thus, Rich you should do the standard boring asset allocation for part of your portfolio (say 50-75% just to be safe),

    however, if you are smart enough and confident enough start to learn some investing on your own, take that other 25% and start to invest in things you believe in rather than trusting it all to an outside adviser, you can make investing fun again

    You said that your in the medical field, thus do you know any companies in your industry that have stock worth buying based on your experience? Or do you know of any real-estate that has potential for big gains, that you can get in on? Just something to think about.
    Sep 9 10:01 PM | Likes Like |Link to Comment
  • PHK: Is My Closed-End Fund Dividend Safe? Morningstar says NO..I agree! [View instapost]
    Good luck, many have tried to short PHK month after month, it could happen some day but I'm not sure how long you will have to wait for the market price to return to NAV.

    It could happen next week or 3 years from now who knows.

    You gets points though for working the story and trying to spread the news about it.
    Sep 9 09:42 PM | Likes Like |Link to Comment
  • Income Investors Face Enormous Macro Risks Ahead [View article]
    Truth is right now we are in a nasty economy. Choose your poison, you can find something wrong with just about any investment option right now.

    Your article prompted me to look closer at JNK's holdings. According to their website the average duration of their bonds is 6.85 years, that is not very long.

    Anytime you look at the rising interest rate risk you have to take duration into account, JNK will not be affect very much by rising rates the duration is too short

    In fact, if you look at the Junk bond ETFs, i.e. JNK, HYG, PHB, etc. they act more like stocks than bonds, look at the correlation between JNK's price and the SPY for example; Junk and treasuries have very little in common

    10Y Treasuries prices will suffer a lot more from rising interest rates than the junk bonds will;
    Sep 9 09:22 PM | 5 Likes Like |Link to Comment
  • Today's Trading Strategy: Short Junk Bonds and Stocks [View article]
    yeah thats good talk a big game right after HYG had its ex-dividend date, I bet you won't be around to pay out the dividend to the people you borrowed yours shares from come the end of August
    Aug 3 03:38 PM | Likes Like |Link to Comment
  • PIMCO Closed-End Fund Premiums Under Pressure [View article]
    The premium to NAV is simply shows what the market is willing to pay.

    The market believes these CEFs to be valuable and is willing to pay extra for it. I suspect that buyers find the Pimco funds with their large payouts in this low interest rate environment to be valuable.

    If the market later decides that their money is best spent elsewhere then the share price will fall at that point in time. The market will decide for itself when the time is right for an adjustment up or down in the price per share. It is simple as that.
    Jun 15 09:14 AM | 1 Like Like |Link to Comment
  • JNK: Chasing Yield Is Not a Plan [View article]
    Great article, it is very well written.

    Yeah the outlook is not good, that is why it is called "Junk". It is what you have to accept it to be an investor in these types of bonds. A lot of people can't handle this type of risk.

    I plan on holding onto my shares no matter where the market goes, if the share price goes down I will just wait it out for 5 years or longer if it takes that long for them to recover.

    Holding onto JNK shares is not so bad because the dividend is huge. The great plus side to this is that I purchase more shares cheaper if JNK tanks like you suggest.
    Jun 8 10:12 AM | Likes Like |Link to Comment
  • A Look at How Far Silver Might Correct [View article]
    I think once the euro begins to stabilize a bit, it will push the dollar down and then you will see silver start to pick up again.

    In order words, non-dollar currencies need to get stronger and reduce the dollar "safe haven" effect. This in turn will make silver a more attractive way to preserve wealth and push the price of silver back up again.
    May 16 04:13 PM | 4 Likes Like |Link to Comment
  • Asian Nations Buy Physical Gold and Silver on Dip as Stagflation Threatens [View article]
    Now is the time for the scared investors to run away from silver

    Traders who can keep their emotions under control will either hold out until it recovers and then some or they will buy more now that its on sale
    May 12 12:37 PM | 2 Likes Like |Link to Comment
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