Monday, July 27, 2009

Sold Some IRR/ VZ/Another SeekingAlpha Comment

1. Verizon (owned): Excluding items, Verizon earned 63 cents per share in the 2nd quarter, one cent better than the consensus estimate. On that basis, the earnings declined from 67 cents in the year ago quarter. GAAP earning were 52 cents. Sales rose 1.9% excluding the Alltel acquisition. VZ added 1.1 million customers to its wireless operations, as mentioned in a post last week, and 300,000 customers for its television service (FIOS). VZ now has 2.5 million FIOS TV customers.

2. Posted Comment to SeekingAlpha Article: I felt the need to post another comment to an article by Neal George at Seeking Alpha. Just based on the comment made prior to mine, the typical individual investor may easily be confused by Neal's use of the word "preferred", understanding it to mean "equity" or traditional preferred rather than Trust Preferred.

3. Sold Some IRR Shares (see disclaimer): One of my readers is interested in closed end funds. I own 30 of them. This morning I sold all of my shares of IRR in my retirement account (109+), a closed end fund investing in energy stocks. The bid/ask spread was narrow so I entered at market order which was filled at $16.65. The quarterly dividend was just paid. Those shares were included in a ROTH conversion at a lower price. I am keeping the 200 shares owned in the taxable account. I also own shares in two other natural resource closed end funds, BCF and GCS, and BCF is owned in both retirement and taxable accounts. I recently discussed these closed end funds: Closed End Funds: Energy and Natural Resources Funds

The sale of IRR today is also part of ongoing re-allocation in the retirement accounts to emphasize bonds.

I also recently bought at an ETF, IGE, containing North American natural resource stocks in a taxable account:

As of Friday's close, IRR was selling at a slight premium to its asset value. ING Risk Managed Natural Resources Fund - Overview And it was rallying about 3% early this morning. Generally I would prefer buying an Exchange Traded Fund (ETF) at or very close to NAV rather than a CEF (closed end fund) selling at a premium to NAV. Also, as a couple of general points, the ETF is lower cost than a CEF, and will outperform over time a comparable CEF. So, I would generally expect XLE to outperform a CEF like PEO which is a low cost CEF investing in energy stocks (the expense ratio of PEO is still higher than XLE).

My general approach for CEFs is to buy them at a large discount to Net Asset Value, and then sell them when that discount narrows substantially or when the price moves to a NAV premium. The shares of IRR in the taxable account are being kept for now, but they are on my trading chopping block.

I view my decision to hold CEFs in 2008 to be easily the biggest mistake that I have made in a very long time:


  1. What are your thoughts on the proposed sale of land lines to Frontier Telecom (FTR), for which VZ shareholders will receive something like 1 share of FTR for every 4 shares of VZ owned? Based on what happened with Fairpoint, my inclination is to sell the FTR shares as soon as they appear in my account. But FTR does pay a pretty decent dividend (~$0.18 per quarter on a current price of ~$7).

    (Sorry if you discussed this back in May when the deal was announced.)

  2. CATHIE: I do not yet have an opinion. I do own Verizon. I recall vaguely receiving from VZ some shares in Fairpoint Communications. I looked at that company back then, and I do remember selling the shares immediately too. I see that Fairpont (FRP) is currently selling at around 58 cents now, so that was the right decision for it.

    I do not care for these spin outs since they create a tax headache for me, and I am already a magnet for esoteric tax issues. And, I am too cheap to pay someone to do my taxes who would have to spend the month of March doing it, maybe that was an exaggeration. So, it is conceivable that I might just avoid that headache by selling VZ in a taxable account and keeping my shares currently in an IRA.

    I do know that Cramer thinks more highly of Frontier than Fairpoint, and talked about FTR earlier this month in a favorable fashion:

    If that link does not work, you can google Cramer and Frontier, and look for the first story.

    If I decide to keep Frontier, I will take the position up to 100 shares at some point after receiving the spin out shares. I own a similar company Winstream. I would agree with Cramer about waiting to buy more until the Verizon shareholders have finished unloading their shares. A lot of people will sell FTR shares soon after receiving them. But, as I said, I do not have an opinion yet. I will discuss it in the blog when I make a decision. Been too busy lately to focus on it.

    I was working on my Fat Tax idea this morning.

    I do not recall discussing FTR before. To find something in my own blog, I do a google search using the search box just under the FeedJit widget on the right side.