Risk/Reward Vol 18

THIS IS NOT INVESTMENT ADVICE OR ADVICE OF ANY KIND.  IT IS A PERSONAL REFLECTION ON INVESTING.  RELY ON NOTHING STATED HEREIN

The market's performance over the past few days has not been profitable, but it has been instructive.

One of  my new tenets is to stay disciplined.  Tenet 1:  if a security experiences more than an 8% decline from its purchase point, I sell it. (Thank you Bill O'Neill and IBD).  Yesterday,  I shed AINV and INTC.  In previous posts, I have expressed my disappointment in Intel.  Its decision this week to purchase MacAfee for $8billion instead of distributing that $1.20 per share of excess cash in a dividend makes this an easy decision.  As a subscriber and I were discussing yesterday, it is frustrating when professional managers (as opposed to entrepreneurs) prove a failure at organic growth through innovation and decide to bloat through non strategic acquisitions.  Show me any synergy between Intel and MacAfee.  None exists.  Good riddance.  I do regret losing AINV.  I bought it too rich.  With its good track record and excellent dividend, it will be a good buy for someone soon.

Judged by the portfolio's performance, what could have been profit taking on Thursday morphed into a flight to safety on Friday.  The bond cef's, trust preferreds and mortgage reits we hold generally held their value with some even upticking.  Meanwhile, commodities (even gold) telecoms and energy struggled.  Throughout the sideways trading that the market has experienced since last October, one consistent gainer has been the trust preferreds of financials.  Simply go to the the WSJ preferred stock closing table and look at how each performed yesterday and YTD.  With ever strengthening balance sheets (thanks to cheap money from the Fed), the bonds and bond like securities (e.g. trust preferreds) of financial institutions have appreciated daily even if their common stock has not.  Accordingly, I will continue to purchase those that yield 6% or better so long as they trade under the redemption price (usually $25).  Remember, trust preferreds in a post FinReg world will not count as Tier 1 capital starting in 2013 and stand a good chance of being redeemed.  I for one don't want to pay north of $25 only to get redeemed at $25.

The municipal bond cef's appreciated well yesterday.  But the premiums over NAV being paid are worrisome.  I for one will be cautious as I add to these positions---which I will.

After the bell, WCRX officially declared its $8.50 (30%) dividend payable September 8, 2010.  The next few days of trading should be interesting.

The portfolio has withstood the last two murderous days.  It is still up 2% not counting dividends and interest which on average pay over 7%