THIS IS NOT INVESTMENT ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
Although the municipal bond closed end fund market appears to have bottomed out, it did so at a level that was below my stop loss level. I hesitated to pull the trigger and ended up about 10% off. It was a valuable but expensive learning experience. First, I will remember in the future that when it comes to weakness in an entire sector (as opposed to a single security), I should pare back percentages of my holdings over time, and not all at once. After all, I acquired them over time, and I should sell them over time. Second, I should not try to outsmart the market which clearly was my intent after rereading last week's missive. I was smart alright--too smart,---- by half. Third, I should have done more homework. An excellent post mortem is contained in a posting on Distressed Debt. com wherein the perfect storm that befell this market this week is discussed, all the factors of which were ascertainable last week (e.g. lack of stimulus money in the future to support municipalities, an increase in interest rates which negatively impacts CEF's in particular because of their reliance on leverage, a huge supply of muni's coming into the market over the next few weeks, the trouble CA is having selling it short term bonds, etc). I still like these CEF's and will reenter the municipal bond cef area once I see a sustained period of calm. But , I will do so slowly and methodically. My next area of concern is my exposure to mortgage REITs which rely heavily on low interest borrowing. With the backfire of quantitative easing(QE2) and the concomitant rise in interest rates, these vehicles may become less attractive. I must be vigilant. On a positive sign, the old reliables (high dividend stocks) held up nicely during the roller coaster ride this week.
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