Tuesday, April 7, 2009

Sold TBT/Emerson/More on Dynamic Asset Allocation

Today Emerson Electric (EMR) reduced its earnings forecast to $2.40 to $2.60 from $2.7 to $2.9. Emerson expects sales to fall 9 to 11% from 2008 levels. Emerson is on a fiscal year basis and the 2009 fiscal year ends in September 2009. Prior to the announcement analysts were expecting $2.47 in fiscal 2009 and $2.30 in 2010.  I have a small position in Emerson.

Earlier today, I mentioned taking advantage of buying securities in an asset class under stress and I briefly mentioned floaters. More Comments on VEU and Dynamic Asset Allocation/ One floater that I have discussed frequently is AEB, an equity preferred issue from Aegon with no maturity date.  The absence of a maturity date is always a bad thing since it deprives me of the opportunity to receive par value on a date certain.  I had no interest whatsoever in AEB at the time of its original issuance at $25.  I had no interest in it as it fell below 20 and even after it plunged to below 15. Buying this security at my last purchases of less than $5 and at $5.5 creates an entirely different risk/reward metric for me.  The risk of a dividend deferral is still present but I am being paid to assume that risk based on the guaranteed yield and the potential higher yield generated by the float provision. The same is true with the Met Life floater that was purchased at $7. The other category mentioned, REIT cumulative preferred issues, have the same drawback of no maturity date but they are cumulative. When the yields start exceeding 20% based on the discount to par value, then it is my view that I am being paid to assume the risk of a junior security with a fixed coupon and no maturity date.   

I will still try to minimize the risk some by trading these riskier asset classes to capture some gains as shown in my recent transactions involving LXPPRD, BDNPRC, CUZPRA, CUSPRB. But it is only their current prices that draw me to them, not the prices prevalent a year or so ago when most of them were selling at close to par value and yielding somewhere near their coupon. So, in dynamic asset allocation, I will shift money into these asset classes on an opportunistic basis when I view the risk/reward decidedly shifting to my advantage, and even then I will try to minimize the risk by trading, both to the asset class as a whole as well as to individual securities in the class.  Part of this management is just to take advantage of volatility to lower both the effective cost basis and the dollar amount in the same number of shares. 

For a security like VEU, I am going to classify it as a core position in my international stock portfolio.  My maximum position may be 1,000 shares in VEU, and I now own just 100.  I am just happy to own those shares at 29 and change rather than holding onto the original shares bought in 2007, riding them up and then down, which would have cost me my already realized profit and a good portion of my original principal. I will manage risk by buying more of VEU on further weakness during this secular bear market, and at such time that I become confident that a bull market in stocks has started for international stocks, where more buying will hopefully be done.  I will also manage risk by extending my holding period to long term for it.   While I can reduce risk by extending the holding period, I also perversely increase it, reducing and enhancing risk at the same time, in what I call the duality of risks connected with long term holding periods. Duality of Long Term Risks/Stocks Under $5: Per Se Lottery Tickets/ Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets/ Novartis or SanofiBut, as mentioned earlier, I recognize that the longer that I hold any security the more likely a black swan type of event will happen, decimating my profits generated by holding common stocks without adjustments over long periods and possibly even taking away large chunks of my original principal. No one needs this explained to them further based on recent experience.  That is one way risk is enhanced as the holding period is extended by the investor.  By reducing risk, I am just saying that a holding period of five years for example will likely generate satisfactory returns, just by extending the holding period further out beyond a few months or even a couple of years. A shorter term perspective increases risks, buying now with the anticipation to sell later today or next week or even within a year, due to short term price movements that can not be anticipated either up or down with any degree of consistency.  

I previously bought TBT to hedge my long corporate bond portfolio. I elected to sell at around $45 somewhere the shares bought at $36.68 in December Chris Cox: Medal of Freedom?/Massive Dividends for Proshares ETFs/TBT add I will try to manage the hedges in what may prove to ultimately be a losing effort to make money on the hedge itself.  But for now, like my trading in SDS and TWM in 2008, I am making money on the hedges. 

2009 TBT +$175.09

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

No comments:

Post a Comment