Wednesday, November 26, 2008


I have been most unhappy with the performance of Loomis Sayles Retail Bond fund this year.  In a year where an old man working alone in a home here in the SUV capital of the world, with no access or assistance from anyone, dumb or bright, informed or born with oatmeal mush in their brains turning to limestone with age, I have had a positive year with my individual bond investments and realized profits earlier in the year selling some ETFs like BND and BSV. Loomis Sayles has lost me almost 30% in a year when the individual investor needed help and balance from bond investments.  So I have fired Loomis Sayles and I am just waiting for an opportunity to give them back my shares. 

In preparation of my capital raising, I decided to buy LQD, which is the low cost ETF for investment grade corporate bonds after it fell a little today, just above 90. I was waiting for the spread between its price and NAV to narrow, and I started waiting when I could have bought it at 87. This ETF has an expense ratio of 0.15% and owns about 101 investment grade bonds with a weighted average maturity of 11.87 years. The overall quality of the companies is good, including such stalwarts as Pepisco, IBM, Wal-Mart. Proctor & Gamble, Johnson & Johnson, etc. iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD): Overview  I temporarily drained my cash allocation to support this purchase and I intend to replenish the cash by selling the Loomis mutual fund early next year.  

I really do hope that the VIX continues to fall. Even with the last 4 days of a more than welcome rally in the market,   the VIX has fallen from about 81 on 11/20 to 55 today and that is significant but it is still in dangerous territory.  I will not be comfortable with any rally until the rally starts from the mid 30s which is where we were before Lehman's demise and the rally takes it to the low to mid 20s. But the rally over the past 4 days is the best one we have had since the start of phase 2 of this bear  

Feeling a tad better today, I added 100 of Pepco Holdings (POM) at 17.33, an electric utility serving in the Washington, D.C area and surrounding counties in Virginia and Maryland, plus southern New Jersey and parts of Delaware. POM: Summary for PEPCO HOLDINGS INC - Yahoo! Finance The dividend yield is about 6.2% at that price and it is a dividend taxed at the 15% rate rather than the higher marginal rate for interest income. That starts to look appealing with money market rates falling.  

I reviewed the S & P 500 report, Morningstar report and one from Barclays. Barclays and S & P have it rated as a buy. I am familiar with this company and I only became interested in buying shares after it fell below 20.  PEPCO just did a common stock offering at 16.6 which required a discount from the prior day's close of 17.57. The last earnings report was slightly disappointing. The U.S. government is a major customer with governments accounting for about 20% of revenue. I would agree with the S & P analyst that the stock has been oversold at the current level.  I would likely hold this one well into next year, hoping to sell it over 22 after collecting a few dividends so my goal is a modest one. 

If you think that this guy from Marketwatch has it right, then the best course will be hide under the covers with your cash for the next several decades.  

I am always more optimistic but forever cautious and wary of the power and destructive capacity of the bear. 

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.    

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