Friday, September 25, 2009

Bought 100 STDPRB at $15.3/Sold FCE/A LT at $13.23/Durable Goods & New Home Sales/Interactive Map of Public Debt by Country as Percentage of GDP

1. Interactive World Map of Public Debt as a Percentage of GDP: I thought that this was an interesting map that shows the public debt of each country in the world, and the percentage that debt to GDP.

2. New Homes Sales: The Commerce Department reported that new home sales increased at a seasonally adjusted annual rate of .07% above the revised July rate. http://www.census.gov/const/newressales.pdf

3. Durable Goods Orders Below Expectations: The Commerce Department also reported that new orders for durable goods decreased 2.4% in August, mostly due to aircraft sales which fluctuate wildly from month to month. http://www.census.gov/indicator/www/m3/adv/pdf/durgd.pdf Excluding aircraft, the expectation was for a .5% increase. Inventories for durable goods decreased for the 8th consecutive month, falling 1.3% to 308.9 billion.

4. Bought 100 STDPRB at $15.30 (see Disclaimer): STDPRB is a non-cumulative floating rate equity preferred issued by Banco Santander (STD), one of the largest banks in the world headquartered in Spain with a large presence in South America. Santander recently announced that it hoped to raise as much as 7.25 billion by selling just over 15% of its stake in Santander Brazil. WSJ.com

This floating rate security pays the greater of 4% or .52% over the 3 month Libor rate.

This is a link to the prospectus: www.sec.gov The terms are described starting at page 36. Actually, the issue is from Santander Finance and guaranteed by Santander. Quantum has this security classified as paying qualified dividends with the usual caveats: Preferreds eligible for the 15% Tax Rate Table - QuantumOnline.com Since I will receive one dividend payment in 2009, I will be in a position to confirm that when I receive my 1099 form early next year.

At my cost, the yield is currently around 6.5%, more when the Libor float is triggered.

I discuss the advantages and disadvantages of the floating rate equity preferred securities in more detail in this post: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

5. Sold Lottery Ticket FCE/A at $13.23 (see Disclaimer): I bought 50 shares of the Forest City common with the profits realized on 50 shares of its exchange traded bond. The common shares were bought in May at $6.3 so I realized over a 100% gain in this LT. LOTTERY TICKET PURCHASE: 50 SHARES OF FCEA-FOREST CITY COMMON/ADDED: SOLD FCY When managing the LT category which is about equal in value to my 100 shares of Proctor and Gamble, though there are over 30 positions, I need to do four things fairly well given the heightened risk of the securities being purchased as LTs.

First, I need to choose the selections carefully even though no more than $300 is devoted to each one. By definition, these companies have been deservedly- in virtually every case-beaten to a pulp for good reasons. Even with careful selection, failures will be inevitable. The objective is to go through the rubble and/or garbage after all and attempt to make a reasonable judgement on whether there is recovery potential. Far more stocks are discarded than chosen, at least 20 are rejected for one reason or another for each one chosen. One of the main reasons for rejection is excessive debt. Forest has way too much debt in my opinion but survived the selection process based on my evaluation of its turnaround potential and the risk/ reward based on my cost of $6.3 per share.

Second, some need to be jettisoned before the loss becomes a total loss or close to it. So, I like to try to keep my losses to $50 to $100.

Third, I need to allow some of the positions to run, hopefully turning into ten baggers. I have several that have gained far more than Forest City that I have not sold. GRTPRF bought at $2.9 is example up over 500%, as is C B Richard Ellis. LOTTERY TICKET PURCHASES: LINKS IN ONE POST Some are borderline, like the 100 shares of Sunopta currently trading near $4 bought at $1.65 last December. Buy of Sunopta: Highly Speculative I can not make up my mind what to do with it.

Lastly, some gains just need to be harvested since I do not want to risk losing them which was the case with Forest today. It was also true with several others, many of which continued to run after I sold the shares. But that is not relevant. The only relevant criteria is how all of the stocks in this category perform as a class, as if they were just one security rather than 33 or so, after taking into account the realized and unrealized gains and losses. I will do a detailed evaluation of this category once or twice a year, with the last one summarized in this post from earlier this month: Evaluation of Lottery Tickets so far in 2009

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