THIS IS NOT INVESTMENT ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN. I DON'T GIVE TAX ADVICE EITHER--WHAT I WRITE ON THAT SCORE IS NOT RELIABLE
The press of my practice and the joy of family visits have prevented my correspondence for a two weeks. Here are a few random year end observations and attached find a list of my current holdings. Remember, the Baskerville Funds are income producing at an average rate of at least 7%. Many trade flat (e.g. preferreds and exchange traded debt). Principal appreciation is a secondary concern. The Cloncs Fund is for principal appreciation.
1) The recent extension of the Bush dividend rate of 15% made my decision to exit municipal bonds much more palatable. Muni's rebounded a bit after my sell off (ouch), but I am not tempted to re-enter. The full impact of the infusion of funds from the Stimulus in the last 2 years to prop up bankrupt state and local governments, or should I say its absence in 2011, has yet to be experienced. I lost on average about 7% on my muni's which dampened my YTD returns, but I am much more comfortable than I was.
2) I also took a hit on exiting Europe (e.g. several preferred issues of ING, Aegon and RBS, and TEF and FTE), but I just am not comfortable there, either. The excellent capital appreciation on the other holdings in the funds offset these losses and I am cruising at an annualized total taxable return of better than 9%, but a better and earlier appreciation of those risks would have resulted in a double digit rate, for sure.
3) On the taxable side of the house (non 401k,457,403), I continue to love the qualified dividends (subject to only 15% tax) of tobacco (MO, RAI), land line telecoms (WIN, ALSK, CTL, Q, FTR), and utilities (FE, DUK, PGN, POM, UTF). I also like the qualified preferreds of financial institutions (especially ZBpC), insurers (METpB), and recently reinsurers (AHLpA, AXSpA). The reinsurers caught my eye because of an article in the Financial Times describing how the absence of natural disasters (Note, most of the BP spill was not insured) has resulted in a large surplus of reinsurance reserves. This moat makes their mid 7% return (which is a taxed equivalent return in my hands of 9%) very attractive. Caution---these are pretty thinly traded and thus not as liquid as I generally like.
4) On the 401 k side, I have kept my gold (GLD) positions and oil trusts (BPT, PBT, SJT) and added to exchange traded debt and non qualified preferreds, which are treated for tax purposes like debt. I like MWG, AVF, AFF, KSK, the GE alphabet of debt, American Airlines (AAR), Sallie Mae (JSM) (which I did not exit), Taylor Banks (TAYC), Dillard's Dept. Stores (DDT) and Ares Capital (ARY). I continue to love the high flying mortgage reits---Annaly (NLY), American (AGNC) and Chimera (CIM). These must be watched closely because as discussed previously their business model depends on cheap short term credit--but their double digit dividends are worth the diligence. I am also beginning to buy some long term care facility reit preferreds like HCP. They are not so dependent on government reimburement and the our population is aging. It is on this side that I also house my capital appreciation common stock plays in tech (AAPL), big oil (BP, STO, RDS-A), banking (C) and metal mining (BCF, SCCO).
5) The only foreign economy I find attractive is Brazil. I like beverages (ABV), mining (SID) and utilities (CPL).
6) My biggest criticism and most signficant risk, as the holdings now stand, is my overexposure to financials. I am heavily overweighted in AIG (bonds, AFF, AVF), but every day I read how its credit worthiness improves and I love the returns, especially in my hands since I bought so cheap. I literally have to fight myself from buying AVF every single day. The recent run up in financials gives me some cover especially with depressed securites like MWG. Moreover, how can one resist loading up on ZBpC, Zion Bank's preferred which is paying me 9.6% of qualified dividends (tax equivalent of 11.5%!). When I look at C's balance sheet (absent Citi Holdings, the "bad bank" the assets of which C is selling), the fact that the government has sold all of its shares, the likelihood of some dividend payment in 2012 and what the Street expects in earnings, I fail to see how it won't trade 20% higher by mid 2011. My one grave concern is Bank America (BAC) which I hold in a variety of preferred issues. Its exposure to the potential buy back of billions of dollars of bad mortgages and its continued screw ups in foreclosures makes me very nervous. But, every time I line up to sell, I get a juicy dividend or a price increase. But, I am going to start shedding some of this soon. I justify my overexposure to financials in general by relying on my insane diligence---but that probably is what the moth said as it flew ever closer to the flame.
HAPPY NEW YEAR. AND GIVE ME SOME FEEDBACK.
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