Risk/Reward Vol. 154
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hello, Dolly/Well, hello Dolly
It's so nice to have you back where you belong
You're still glowin'/You're still crowin'
You're still goin' strong."---lyrics from "Hello Dolly" by Jerry Herman
"What you goin' do with all that junk?
All that junk inside your trunk?"---lyrics from "My Humps" by The Black Eyed Peas
"After all I am forever in your debt/And woman I will try to express
My inner feelings and thoughtfulness/For showing me
The meaning of success."---lyrics from "Woman" by John Lennon
With stability in the Eurozone, growth in China and relief (albeit temporary) from the debt ceiling crisis here in the U. S., the Dow Jones Industrial Average is "still glowin'", "still crowin'" and "still goin' strong." It is up over 6% year to date and nearing its all time high. "It's so nice to be back (in the market) where I belong!" So, how long can it last? Some insight on this was provided by Ray "Hello Dalio", the founder of Bridgewater Associates (the best performing hedge fund of all time) during an interview conducted by CNBC Thursday from the World Economic Forum in Davos, Switzerland. Dalio gave a remarkable thirty minute tutorial on investing that I recommend to your attention ( www.cnbc.com/id/100403678 ) during which he opined that 2013 would be a year of transition away from the constraints of deleveraging (e.g. austerity, cash hoarding, sovereign bond investing,etc.) and into riskier capital allocations. (equities, commodities, corporate debt). In essence, he described in economic terms the concept of the Great Rotation about which I reported last week. ( For past editions go to www.riskrewardblog.blogspot.com )
As further explained by Dalio, the expansion of corporate (as opposed to sovereign) debt is a good thing. Indeed, without readily available debt, companies cannot transact business at all, let alone contemplate growth. Sources of corporate debt financing run the gamut from simple bank loans to investment grade bonds. Between those two extremes are a plethora of other vehicles including high yield bonds, convertible bonds, asset backed financing, senior floating rate loans and collateralized debt obligations. These vehicles usually are not of investment grade and are thus termed (unfortunately) "junk." But, like it or not, the only decent returns that one can achieve these days in debt investing are in these riskier forms. So I for one have a lot of "junk inside my trunk." "What you goin' do?"
Accordingly, "allow me to show you the meaning of success" by sharing "my inner feelings." about junk. After much "thoughtfulness", I have purchased the following. In the junk bond arena, I like HYT, HYV and CYE, three closed end funds managed by BlackRock that have received a Bronze rating by Morningstar. These funds achieve an 8% return through a leveraged approach to bond buying, and they achieve diversity by holding debt in several hundred companies. In the arena of floating rate senior loan financing, I like JFR and JQC, two closed end funds sponsored by Nuveen, that also are Bronze rated and yield more than 8%. Further, I like business development companies (BDC's) which offer a variety of investment options (senior debt, mezzanine debt, and even some equity) to middle market companies looking to expand or to reorganize. In this space I like FGB, a closed end fund that holds investments in a variety of BDC's, and I like ARCC as a stand alone BDC stock. To round out my portfolio, I like BTZ which holds a variety of debt instruments in many companies.
As a new year begins, I am all-in and bullish. "You may say I'm a dreamer/But I am not the only one." In his guarded way, Ray Dalio is also bullish, and that, to me, is "Instant Karma."
P.S. Is anyone else contemplating buying AAPL at this low entry point?
Saturday, January 26, 2013
Saturday, January 19, 2013
January 19, 2013 You Say You Want a Revolution
Risk/Reward Vol. 153
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Old school, when I ride, forever sky high
Workin' wood wheel with the sun outside
I'm just rotating my tires, rotating my tires."---lyrics from "Rotation" by Big Krit
"You say you want a revolution/Well, you know
We all want to change the world
You tell me that it's evolution/Well you know"---lyrics from "Revolution" by the Beatles
"Drilling for oil/Mining for gold
Looking for a love/That never gets old"---lyrics from "Oil and Gold" by Sophie Madelaine
Even though the debt crisis still looms and there were no blockbuster earnings reports, the Dow Jones Industrial Average closed up 172 points for the week, is up 4% year to date and is at its highest point since December, 2007. How can that be? Some savants suggest that we are in the early stages of a Great "Rotation": out of fixed income (read, Treasury securities) and into equities. Indeed, during the first full trading week of 2013, more money was invested in stock mutual funds than at any time since 2008. Remember those "old school" days when the "sun" shone brightly on the stock market? Those days may be returning. With the cost of Treasury securites (and the instruments priced in relation thereto such as certificates of deposit and corporate bonds) "sky high" and everyone "tired" of their low returns, maybe "rotating" really has begun. If so, that is good news for the stock market. More money chasing the same amount of stock means higher prices. I, for one, am heavily weighted toward equities anyway, and I shorted Treasuries (TBT) just in case the market is actually "rotating its tires".
Do you ever stop to marvel at the energy "revolution" that we are currently enjoying? Fracking in the United States is literally "changing the world" at a "revolutionary" not "evolutionary" pace. Here are some statistics. BP estimates that the United States will be 99% energy independent by 2030. In 2008, The United States produced 6.9 million bbls/day of oil; in 2012, 8 million bbls/day; and by 2020 we will produce over 11 million bbls/day, making us the largest oil producing country in the world. Natural gas costs 1/3rd what it did in 2008. The cost of feedstock is so low, world wide petrochemical production is moving back to the United States. Why here, you ask? Clearly, the combination of bountiful resources, flexible capital markets and excellent infrastructure contributes. But the main reason is often overlooked. In the United States, surface land holders own the subsurface minerals--- including oil. Virtually everywhere else in the world, subsurface mineral rights are owned by the state. So, when an oil company approaches a rancher in North Dakota about siting an ugly oil rig on his property, the rancher does not hesitate to assent, knowing that a gusher will make him a multimillionaire a la Jed Clampett. What incentive does a farmer in Poland, France or Germany have to grant drilling rights when all of the proceeds from any oil or gas discovery will go to the state? Nothing drives progress like the prospect of personal profit---pure and simple.
So how have I invested in the domestic oil and gas revolution? The easiest and surest way to "mine for gold" is pipelines. Pipelines are like toll roads. The more the oil and gas flows, the more the revenue; and that formula "never gets old.". I like AMLP, an exchange traded fund that holds shares in all of the major pipeline master limited partnerships and that pays a 6% dividend.. For tax reasons, AMLP may not be suitable for retirement accounts so you may wish to investigate JMF, a closed end fund which likely is suitable for such accounts. (WARNING: check with your own tax advisor!) My favorite domestic oil exploration and production (E&P) company (the one "drilling for oil") is Linn Energy (symbol LINE as a partnership; symbol LINCO as a corporation suitable for retirement account investing). Linn's production is 50% natural gas and 50% oil. It hedges both to ensure a steady 7.5+% dividend at its current price. I gain exposure to other domestic E&P companies via NDP, a closed end fund which owns stock in every major player and which enhances its return through leverage and call option writing. On the refinery side, one "looking for love" need not look beyond Indianapolis favorite, Calumet Specialty Refining (CLMT), controlled by NCHS Class of '69 grad Fred Fehsenfeld and its nearly 8% dividend. I am not currently invested directly in fertilizer or chemical companies, but they too should prosper in a world of plentiful and cheap natural gas.
Next week, earnings reports from tech stocks dominate. Expectations are low so let's hope for a surprise to the upside. Nothing would "please, please me, whoa yeah" more than that.
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Old school, when I ride, forever sky high
Workin' wood wheel with the sun outside
I'm just rotating my tires, rotating my tires."---lyrics from "Rotation" by Big Krit
"You say you want a revolution/Well, you know
We all want to change the world
You tell me that it's evolution/Well you know"---lyrics from "Revolution" by the Beatles
"Drilling for oil/Mining for gold
Looking for a love/That never gets old"---lyrics from "Oil and Gold" by Sophie Madelaine
Even though the debt crisis still looms and there were no blockbuster earnings reports, the Dow Jones Industrial Average closed up 172 points for the week, is up 4% year to date and is at its highest point since December, 2007. How can that be? Some savants suggest that we are in the early stages of a Great "Rotation": out of fixed income (read, Treasury securities) and into equities. Indeed, during the first full trading week of 2013, more money was invested in stock mutual funds than at any time since 2008. Remember those "old school" days when the "sun" shone brightly on the stock market? Those days may be returning. With the cost of Treasury securites (and the instruments priced in relation thereto such as certificates of deposit and corporate bonds) "sky high" and everyone "tired" of their low returns, maybe "rotating" really has begun. If so, that is good news for the stock market. More money chasing the same amount of stock means higher prices. I, for one, am heavily weighted toward equities anyway, and I shorted Treasuries (TBT) just in case the market is actually "rotating its tires".
Do you ever stop to marvel at the energy "revolution" that we are currently enjoying? Fracking in the United States is literally "changing the world" at a "revolutionary" not "evolutionary" pace. Here are some statistics. BP estimates that the United States will be 99% energy independent by 2030. In 2008, The United States produced 6.9 million bbls/day of oil; in 2012, 8 million bbls/day; and by 2020 we will produce over 11 million bbls/day, making us the largest oil producing country in the world. Natural gas costs 1/3rd what it did in 2008. The cost of feedstock is so low, world wide petrochemical production is moving back to the United States. Why here, you ask? Clearly, the combination of bountiful resources, flexible capital markets and excellent infrastructure contributes. But the main reason is often overlooked. In the United States, surface land holders own the subsurface minerals--- including oil. Virtually everywhere else in the world, subsurface mineral rights are owned by the state. So, when an oil company approaches a rancher in North Dakota about siting an ugly oil rig on his property, the rancher does not hesitate to assent, knowing that a gusher will make him a multimillionaire a la Jed Clampett. What incentive does a farmer in Poland, France or Germany have to grant drilling rights when all of the proceeds from any oil or gas discovery will go to the state? Nothing drives progress like the prospect of personal profit---pure and simple.
So how have I invested in the domestic oil and gas revolution? The easiest and surest way to "mine for gold" is pipelines. Pipelines are like toll roads. The more the oil and gas flows, the more the revenue; and that formula "never gets old.". I like AMLP, an exchange traded fund that holds shares in all of the major pipeline master limited partnerships and that pays a 6% dividend.. For tax reasons, AMLP may not be suitable for retirement accounts so you may wish to investigate JMF, a closed end fund which likely is suitable for such accounts. (WARNING: check with your own tax advisor!) My favorite domestic oil exploration and production (E&P) company (the one "drilling for oil") is Linn Energy (symbol LINE as a partnership; symbol LINCO as a corporation suitable for retirement account investing). Linn's production is 50% natural gas and 50% oil. It hedges both to ensure a steady 7.5+% dividend at its current price. I gain exposure to other domestic E&P companies via NDP, a closed end fund which owns stock in every major player and which enhances its return through leverage and call option writing. On the refinery side, one "looking for love" need not look beyond Indianapolis favorite, Calumet Specialty Refining (CLMT), controlled by NCHS Class of '69 grad Fred Fehsenfeld and its nearly 8% dividend. I am not currently invested directly in fertilizer or chemical companies, but they too should prosper in a world of plentiful and cheap natural gas.
Next week, earnings reports from tech stocks dominate. Expectations are low so let's hope for a surprise to the upside. Nothing would "please, please me, whoa yeah" more than that.
Saturday, January 12, 2013
January 12, 2013 Pitbull's World
Risk/Reward Vol. 152
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Ridin' high/Winter nights/Warm and dry
You've earned your space, buddy"---lyrics from "Boomtown Blues" by Bob Seger
"Say O.P.P.(O-P-P), I like to say it with pride
Now when you do it, do it well and make sure it counts
You're now down with a discount."---lyrics from "O.P.P." sung by Naughty by Nature
"There's not a place/That your love don't affect me, baby
So I don't ever change/I crossed the globe when I'm with you, baby."---lyrics from "International Love" sung by Pitbull
With the tax rate crisis over and with some time (albeit short) before sequestration and debt ceiling negotiations again dominate the news, the stock market has been "ridin' high"so far in 2013, "warm and dry" as it closes each "winter night". The Dow Jones Industrial Average (DJIA) is up 2.8%, and the S&P 500 (S&P) is up 3% year to date. Let's hope that companies have "earned this space", an answer we will soon learn as the earnings (and more importantly the guidance) season begins for real next week. Alcoa kicked off fourth quarter earnings reports this week with better than expected numbers. That said, expectations for most companies are modest. Thus, any earnings or guidance disappointments will reverberate more than any news to the upside. I don't expect many surprises.
Although my portfolio of closed end and exchange traded funds is focused on achieving an average annualized dividend payment of 8.5% (not capital appreciation) and although I missed a day or two of this year's rise, I, too, am up 2.25% Thus , I can "say with pride" that "I did well," having matched "O.P.P." (other people's portfolios), even those in index funds. My results reflect the fact that I was able to buy my positions at a greater than normal "discount" to net asset value, thanks to Fiscal Cliff crisis overhang.
This week I discuss my exposure to "International" investments.
My most direct international play is DJX, an exchange traded fund that mirrors the performance of 800 dividend paying stocks listed on the Tokyo Stock Exchange. Shinzo Abe, the recently elected Japanese prime minister, is spearheading an effort to spur economic growth in Japan. This effort includes a stimulus package and yen devaluation. Abe wants Japanese products to once again "cross the globe" so that there is "not a place" on earth that Japan cannot compete. Japanese stocks should do well in such an environment. I chose DJX over the more popular NKY (which mirrors the performance of the Nikkei 225) because DJX is hedged to perform better if the yen falls in comparison to the dollar.
I also achieve "International" exposure via ESD, a closed end fund with 75% of its assets invested in the sovereign debt of South America and Eastern Europe (primarily Mexico, Brazil and Russia). Although none of these is "a place" where I have invested previously, the track record of ESD's sponsor, Western Assets, in these regions has been stellar over the past several years which is why Morningstar gives ESD a Silver rating. "I don't want" this past performance to "ever change." As of today, ESD is no longer trading at a discount to its net asset value, but it still yields a 6.5% dividend. I achieve exposure to other countries in a similar fashion via my positon in AWD.
I achieve exposure to European dividend paying stocks via IGD which, despite a rebound in European stocks last year, continues to trade at significant discount to net asset value and pays an11+% dividend while maintaining a Bronze rating from Morningstar.
Lastly, I achieve "International Love" via BCF, a closed end fund investing in international mining and natural resource companies such as BHP, Rio Tinto, Caterpillar, Vale, etc. If the Chinese economy quickens, this fund should do very well. It currently trades at a healthy discount to net asset value and pays an 8.5% dividend.
I intend to allocate more funds to international exposure. Any suggestions would be appreciated.
The New Year is off to a good start. Let's hope the earnings season does not disappoint. In the words of that force of nature, Pitbull, "Que no pare la fiesta, Don't stop the party," Dah-ling!
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Ridin' high/Winter nights/Warm and dry
You've earned your space, buddy"---lyrics from "Boomtown Blues" by Bob Seger
"Say O.P.P.(O-P-P), I like to say it with pride
Now when you do it, do it well and make sure it counts
You're now down with a discount."---lyrics from "O.P.P." sung by Naughty by Nature
"There's not a place/That your love don't affect me, baby
So I don't ever change/I crossed the globe when I'm with you, baby."---lyrics from "International Love" sung by Pitbull
With the tax rate crisis over and with some time (albeit short) before sequestration and debt ceiling negotiations again dominate the news, the stock market has been "ridin' high"so far in 2013, "warm and dry" as it closes each "winter night". The Dow Jones Industrial Average (DJIA) is up 2.8%, and the S&P 500 (S&P) is up 3% year to date. Let's hope that companies have "earned this space", an answer we will soon learn as the earnings (and more importantly the guidance) season begins for real next week. Alcoa kicked off fourth quarter earnings reports this week with better than expected numbers. That said, expectations for most companies are modest. Thus, any earnings or guidance disappointments will reverberate more than any news to the upside. I don't expect many surprises.
Although my portfolio of closed end and exchange traded funds is focused on achieving an average annualized dividend payment of 8.5% (not capital appreciation) and although I missed a day or two of this year's rise, I, too, am up 2.25% Thus , I can "say with pride" that "I did well," having matched "O.P.P." (other people's portfolios), even those in index funds. My results reflect the fact that I was able to buy my positions at a greater than normal "discount" to net asset value, thanks to Fiscal Cliff crisis overhang.
This week I discuss my exposure to "International" investments.
My most direct international play is DJX, an exchange traded fund that mirrors the performance of 800 dividend paying stocks listed on the Tokyo Stock Exchange. Shinzo Abe, the recently elected Japanese prime minister, is spearheading an effort to spur economic growth in Japan. This effort includes a stimulus package and yen devaluation. Abe wants Japanese products to once again "cross the globe" so that there is "not a place" on earth that Japan cannot compete. Japanese stocks should do well in such an environment. I chose DJX over the more popular NKY (which mirrors the performance of the Nikkei 225) because DJX is hedged to perform better if the yen falls in comparison to the dollar.
I also achieve "International" exposure via ESD, a closed end fund with 75% of its assets invested in the sovereign debt of South America and Eastern Europe (primarily Mexico, Brazil and Russia). Although none of these is "a place" where I have invested previously, the track record of ESD's sponsor, Western Assets, in these regions has been stellar over the past several years which is why Morningstar gives ESD a Silver rating. "I don't want" this past performance to "ever change." As of today, ESD is no longer trading at a discount to its net asset value, but it still yields a 6.5% dividend. I achieve exposure to other countries in a similar fashion via my positon in AWD.
I achieve exposure to European dividend paying stocks via IGD which, despite a rebound in European stocks last year, continues to trade at significant discount to net asset value and pays an11+% dividend while maintaining a Bronze rating from Morningstar.
Lastly, I achieve "International Love" via BCF, a closed end fund investing in international mining and natural resource companies such as BHP, Rio Tinto, Caterpillar, Vale, etc. If the Chinese economy quickens, this fund should do very well. It currently trades at a healthy discount to net asset value and pays an 8.5% dividend.
I intend to allocate more funds to international exposure. Any suggestions would be appreciated.
The New Year is off to a good start. Let's hope the earnings season does not disappoint. In the words of that force of nature, Pitbull, "Que no pare la fiesta, Don't stop the party," Dah-ling!
Saturday, January 5, 2013
January 5, 2013 Back in Black
Risk/Reward Vol. 151
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"What a friend we have in Congress/Who will guard our every shore
Spend three quarters of our taxes/Getting ready for a war."---lyrics from "What a Friend We Have in Congress" by John Denver
"Back in black/I hit the sack
I've been too long/I'm glad to be back"---lyrics from "Back in Black" by AC/DC
"He's making a list/And checking it twice
Gonna find out who's naughty and nice."---lyrics from "Santa Claus Is Coming To Town" by Coots and Gillespie
Can you believe it--- 20% maximum capital gains and dividend tax rates! "What a friend we have in Congress." I "shore" didn't think that investors would fare this well under the 11th hour tax plan (the "Deal"). The only real question is if, by postponing the sequestration and debt ceiling issues, the Republicans are merely "getting ready for a war." I think not. The Deal passed 89-8 in the Senate and 257-167 in the House, and both chambers are "bluer" this term. And clearly the stock market thinks not as well. The S&P 500 closed the week at its highest level in five years, and the VIX (which measures volatility) fell more than 40%. Oh, we will see some choppiness in the coming weeks, but I do not expect to exit again.
Yes, I'm "back" and hopefully soon "in the black." "I've been gone too long/I'm glad to be back." Once again, Mr. Market showed his wisdom. He did not overreact to the Fiscal Cliff threat, and he has started the New Year in stride. As for me, I did not fare too badly either. I exited with the Dow Jones Industrial Average at 13,500, and I am re-entering at 13,400. The portfolio that I sold in October has yet to fully recover--so I am ahead of the game. Moreover, I was risk free from October through December, and as a consequence I slept soundly.
So how did I engineer my re-entry? As I have written previously, I spent my three month sojourn on the sidelines studying. I "made a list" and "checked it many more times than twice." I have known what I wanted to buy, in what amounts and below what prices for weeks. On Wednesday morning, after the Deal was cut, I entered limit orders on approximately half of my desired positions. In setting the limit price, I took into consideration the 200 point rise at the open. I then went about my work. When I checked at the close, many of my orders were filled thanks to a mid day dip which also allowed me to catch some of the upward momentum experienced in late afternoon trading. I repeated the process on Thursday and again on Friday. By virtue of the normal "naughty and nice" moments given to investors during any given day, 75% of my investable capital is now in the market.
What did I buy? As I discussed in Vol.149 ( www.riskrewardblog.blogspot.com ), I decided to re-enter primarily via closed end and exchange traded funds. I like the instant diversification and stability they afford. I selected funds from the following sectors: preferred stocks, business development companies, high yield bonds, investment grade bonds, convertible bonds, emerging market debt, real estate investment trusts, commodities, indices, tech, value, commodities (including oil), small cap and large cap, the last one with an emphasis on covered calls. I looked for funds that pay on average an 8% yield (preferably on a monthly basis), that trade at or below net asset value and that are rated at least a Bronze by Morningstar. Not all of my choices meet the criteria, but most do.
Over the next few editions I will discuss each sector. This week's sector is large cap/covered call funds. The term "large cap" means companies with large capitalizations (e.g. those listed in the Fortune 100, DJIA, etc.). These funds enhance their returns by selling call options for a premium on the large cap stocks they hold (cover). This creates a steady income flow, although it lessens the opportunity for a home run on any given stock because if the strike price on the option is reached the stock will be called or sold. These funds also enhance returns by using leverage (borrowed money), a practice which is lucrative in times of low interest rates like today. In this sector, I like BOE, EOI, CII and IGD, each of which has recently traded below its net asset value and each of which yields better than 9%. Learn more about these funds at www.CEFConnect.com .
And so the Deal is sealed. As an investor, I am pleased. As an American, however, I am disappointed in Congress which once again demonstrated that is only capable of "Dirty Deeds Done Dirt Cheap."
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"What a friend we have in Congress/Who will guard our every shore
Spend three quarters of our taxes/Getting ready for a war."---lyrics from "What a Friend We Have in Congress" by John Denver
"Back in black/I hit the sack
I've been too long/I'm glad to be back"---lyrics from "Back in Black" by AC/DC
"He's making a list/And checking it twice
Gonna find out who's naughty and nice."---lyrics from "Santa Claus Is Coming To Town" by Coots and Gillespie
Can you believe it--- 20% maximum capital gains and dividend tax rates! "What a friend we have in Congress." I "shore" didn't think that investors would fare this well under the 11th hour tax plan (the "Deal"). The only real question is if, by postponing the sequestration and debt ceiling issues, the Republicans are merely "getting ready for a war." I think not. The Deal passed 89-8 in the Senate and 257-167 in the House, and both chambers are "bluer" this term. And clearly the stock market thinks not as well. The S&P 500 closed the week at its highest level in five years, and the VIX (which measures volatility) fell more than 40%. Oh, we will see some choppiness in the coming weeks, but I do not expect to exit again.
Yes, I'm "back" and hopefully soon "in the black." "I've been gone too long/I'm glad to be back." Once again, Mr. Market showed his wisdom. He did not overreact to the Fiscal Cliff threat, and he has started the New Year in stride. As for me, I did not fare too badly either. I exited with the Dow Jones Industrial Average at 13,500, and I am re-entering at 13,400. The portfolio that I sold in October has yet to fully recover--so I am ahead of the game. Moreover, I was risk free from October through December, and as a consequence I slept soundly.
So how did I engineer my re-entry? As I have written previously, I spent my three month sojourn on the sidelines studying. I "made a list" and "checked it many more times than twice." I have known what I wanted to buy, in what amounts and below what prices for weeks. On Wednesday morning, after the Deal was cut, I entered limit orders on approximately half of my desired positions. In setting the limit price, I took into consideration the 200 point rise at the open. I then went about my work. When I checked at the close, many of my orders were filled thanks to a mid day dip which also allowed me to catch some of the upward momentum experienced in late afternoon trading. I repeated the process on Thursday and again on Friday. By virtue of the normal "naughty and nice" moments given to investors during any given day, 75% of my investable capital is now in the market.
What did I buy? As I discussed in Vol.149 ( www.riskrewardblog.blogspot.com ), I decided to re-enter primarily via closed end and exchange traded funds. I like the instant diversification and stability they afford. I selected funds from the following sectors: preferred stocks, business development companies, high yield bonds, investment grade bonds, convertible bonds, emerging market debt, real estate investment trusts, commodities, indices, tech, value, commodities (including oil), small cap and large cap, the last one with an emphasis on covered calls. I looked for funds that pay on average an 8% yield (preferably on a monthly basis), that trade at or below net asset value and that are rated at least a Bronze by Morningstar. Not all of my choices meet the criteria, but most do.
Over the next few editions I will discuss each sector. This week's sector is large cap/covered call funds. The term "large cap" means companies with large capitalizations (e.g. those listed in the Fortune 100, DJIA, etc.). These funds enhance their returns by selling call options for a premium on the large cap stocks they hold (cover). This creates a steady income flow, although it lessens the opportunity for a home run on any given stock because if the strike price on the option is reached the stock will be called or sold. These funds also enhance returns by using leverage (borrowed money), a practice which is lucrative in times of low interest rates like today. In this sector, I like BOE, EOI, CII and IGD, each of which has recently traded below its net asset value and each of which yields better than 9%. Learn more about these funds at www.CEFConnect.com .
And so the Deal is sealed. As an investor, I am pleased. As an American, however, I am disappointed in Congress which once again demonstrated that is only capable of "Dirty Deeds Done Dirt Cheap."
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