Friday, November 7, 2008

Yes, I am Chicken Now, and Proud of IT

I write these posts in stream of consciousness.  I will go back and sometimes correct a typing error but otherwise I just leave these posts alone.

I mentioned that I would buy  a preferred share issue of Brandywine Realty, BDNPRC, at 12.5 or below, which would give me at least a 15% yield, and I just did that with a 50 share market order in one account and 30 shares in one of my retirement accounts, which is chicken, I know, but I stay alive by being that way in this kind of market.  see 5th paragraph in More Pain to Come: Cisco and NWSA; BDN, GXP & ALJ EARNINGS 
 and first mention in PLAN FOR MDT AND YIELD CURVE

I also added 50 shares, another chicken position, in a company called Hercules Growth Capital (HTGC) at 7.28.  At that price and assuming no dividend cuts which is rapidly becoming the new normal,  my dividend yield is almost 17%.   This company is structured as closed end investment company regulated as a Business Development Company under the Investment Act of 1940.  In essence, it is a publicly traded private equity firm.  The company invests in small, private technology and life sciences companies. As a result of its tax status, it will pay out most of its earnings to its shareholders.   It now has investments in about 96 companies totaling over 600 million.  One of the few reports available on it is from Zachs which I did read.  I also reviewed the companies last reports. CORRECTING and REPLACING Hercules Technology Growth Capital Announces Record Third Quarter 2008 Financial Results and Declares a $0.34 Q4 2008 Dividend: Financial News - Yahoo! Finance Seeking Alpha Yahoo! Finance
I also reviewed the release about the preliminary results for the 3rd quarter. Hercules Technology Announces Preliminary Third Quarter 2008 Financial Results: Financial News - Yahoo! Finance  
This kind of investment has a good deal of risk attached to it.  Many of the companies that receive investments will fail.  One recent example was an investment in NetEffect that later declared bankruptcy but Hercules received its money back when Intel bought the company while in bankruptcy.  Yahoo! Finance The potential reward is that a few will succeed beyond our capacity to predict now.  Hercules does make equity investments, but it also makes senior and other types of loans.  
The stock has been cut in half since April of last year.

 The market take a dim view of these publicly traded private equity firms that invest in small and medium size companies, such as PCAP, PSEC and AINV, and it may be worse for one like Hercules that has exposure to start ups or less seasoned companies.  Then again, it depends on whether you are the kind of person who sees the glass half full or half empty.   One of my problems is that I can see it half full and half empty at the same time.  The possibility of large gains is in the risk, which Hercules would have given the  kind of companies it invests in, whereas a PCAP may have the risks without the same upside, except possibly at its current price.  PCAP is structured in the same way as Hercules and it just reported today, reducing its dividend to $.25  from .33, but even the reduced rate still equals a 25+% yield at its current price of 3.7. PCAP: Summary for PATRIOT CAP FUNDING - Yahoo! Finance  Another dividend cut came yesterday from Macquarie Infrastructure (MIC), in order to build up its cash position, and the stock got slammed. Macquarie shares plummet after large dividend cut: Financial News - Yahoo! FinanceSo I am seeing many companies make significant reductions in dividend payouts, outside of the financial sector, which has seen hundreds of dividends cuts.   So all of these publicly traded private equity firms are certainly candidates for dividend cuts.  Also, like REITS, they have to pay out most of their earnings in dividends to maintain their tax status.  While that means good dividends, it also means that the company is not saving cash for future investments and will often raise capital by issuing shares, even if the issuance is below book value.  PCAP was proud to say today that it just received permission from its shareholders to issue new shares at below book, which is over $9 while the stock price is under $4.  If you are a shareholder in PCAP, this does not look so hot.   So I tread carefully in this sector.  I may add some PCAP next week, notwithstanding the negatives.Patriot Capital Funding Reports 2008 Third Quarter Results: Financial News - Yahoo! Finance

Now, sometimes I say that I will not do something and then change my mind.   I am flexible.  In another account, after seeing Delek continue to fall after my purchase at 5, I placed another limit order to buy 50 at 4.61 and it was filled.  But I am not going to go over 100 on that one, I swear.

 I am not a financial advisor but an individual investor trying to navigate my way through a mind field. In these posts, I am acting as an unpaid financial journalist and an occasional ornery 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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