Once the link between the market price for round and odd lots is broken, a customer has no assurance of the price the broker will fill an odd lot market order. It could literally be at any price, no matter how absurd. NYSE Rule 124 (C) seems clear to me, possibly there is a unique meaning to "national best offer" that I can not comprehend, only those admitted to a secret society who know the special hand shake will be told its true meaning. And I would find it hard to believe that their representatives are unfamiliar with Fidelity's odd lot policy when I was told that the match on the odd lot was to be best available odd lot offer, which is truly scary for someone who enters a large number of odd lot orders. Item # 4 Fidelity Brokerage and Odd Lot Orders This is what the Fidelity representative told me when I pointed out that round lots were trading at $18.49 when I placed my order: "It is important to remember that the inside Bid/Ask that is reported is only for round lots. The next best offer for an odd lot was $18.85." In other words, the round lot trading is meaningless for the odd lot according to Fidelity. Odd lots match up with other odd lots.
It will take some time to get alternative accounts fully funded with assets currently at Fidelity, and I may have to wait until I finish preparing my tax return before implementing the switch. I was thinking about using Bank of America securities for most of the assets currently at Fidelity. If I keep $25,000 in a savings or checking account, it appears that I will receive up to 30 trades a month free of charge. RB just the Old Goat does not need another savings account. I have not used Schwab for a long time, and would be interested in anyone's recent experience on odd lot fills with other brokerage firms. Please send me an email on this or any other issue. The email address can be found by clicking "View my complete Profile" to the right. I do not want to jump out of the frying pan into the fire so to speak.
I am using another brokerage firm to fill the odd lots discussed below.
1. Bought 50 COP at $51.22 and Sold 50 of the 100 GLW at $20.21 Yesterday (see Disclaimer): This brings me to a round lot of 100 shares of Conoco (COP). I do not have a negative opinion of Corning. Instead I am just going for the better dividend paid by COP, and using some of the GLW proceeds to fund the COP purchase in a satellite brokerage account. The GLW shares were bought at $19.6 last January. Bought 100 GLW at 19.6
The dividend yield at a total cost of $51.22 for those COP shares is around 4.3%. In the current low interest rate environment, this affords me with compensation to wait for an appreciation in the share price, where I hopefully can capture a good total return on the shares. I do not know when that will happen. If COP shares rose 10% after a 2 year holding period, the price would be just $56.35. Assuming I captured 8 quarterly dividends by that time, my total return would be over 9% in the shares. The dividend yield pays me to wait for the opportunity to realize a profit on the shares. I do not have a target price on my COP position now, but a price in the range of $60-$65, realized within the next two years, would at least start the wheels turning. A $65 price in 2 years, assuming 8 dividends, would bring the total return close to 30%. The downside is always hard to evaluate. A return to the level of $38.6, where I bought shares in March 2009, is currently viewed as remote.
Conoco shares sold off after its announced its share buyback, 10% dividend hike, and disposal of assets including 1/2 of its stake in Lukoil. Bought 50 COP at 51.35 I much prefer the new strategy where there will be more of a profit focus. This article in Investopedia contains a general discussion of ConocoPhillips' upstream assets.
2. ATLANTIC POWER (owned): ATP:TO announced its 4th quarter results yesterday. The company says in its press release that the results were at the high end of its guidance. ATP reaffirmed its intention to maintain the dividend into 2015. The payout ratio however is estimated to be near 100% in 2010 due to an anticipated decrease in distributions from Atlantic's plants in 2010.
3. Jobs: The latest ADP shows that jobs are still being lost in the U.S., though at a slower pace. ADP reported that private employers shed 23 thousand jobs in March, compared to expectations of a 40,000 increase. www.adpemploymentreport.com/pdf/FINAL_Report_March_10.pdf This was the smallest number of jobs lost during a months since employment started to fall in February 2008. The government reports its monthly unemployment numbers on Friday. Since the census workers are being hired now, the Labor Department may have a more positive number than ADP, which looks at private payrolls, but the market will disregard the temporary hiring of census workers and look at the underlying employment trends for non-temporary workers.
4. GDO: A reader asked me the other day my opinion about whether the rewards outweighed the risks for the closed end fund GDO, which invests in mostly investment grade corporate bonds on a worldwide basis. I think that it is important for investors to evaluate and identity all known risks for a security, and to carefully examine the downside with every investment. GDO has its own risk/reward profile that needs to be assessed by each individual, based on their own particular circumstances. I thought that I would copy my response and then add a few more comments:
" How is this for an answer? It is all relative, which is something that your grandmother might have said.
GDO would have less interest rate risk than a similar bond fund with no liquidation date in a rising rate environment.
It is also relative to the individual. There could easily be a period between now and 2024 where intermediate term bonds lose a lot of value due to a spike in interest rates. If an individual has to sell GDO, or panics and sells, during that period, then there is more interest rate risk under those circumstances than for another individual who holds until the liquidation date. The liquidation date in 2024 will reduce but not eliminate interest rate risk.
You still have credit risk, which would be present in any investment grade bond fund. Credit risk may ultimately be more important in a bond fund with a 14 year life than interest rate risk, for those holding for the entire term which I may do.
You also have some foreign exchange currency risk with GDO in that it holds some foreign bonds.
Lastly, for us nerds, there is always the risk of lost opportunity. If your funds are tied up in any kind of bond fund which is going down in value due to interest rates rising, you lose the opportunity of investing in the higher interest rate environment for more yield.
However, assuming the fund is managed competently with the liquidation date in mind, keeping most bond maturities within that 14 year window, this cuts down on interest rate risk compared to an open ended bond fund with no termination date. The later fund will be losing value during a long period of rising interest rates (a long term secular bear market in bonds) with no out for the investor."
I currently own 370 shares of GDO. What do I hope to gain from it? I do not expect much, which is fine, since I am not trying to shoot the lights out with this buy. Actually, I rarely try to hit a home run, focusing more on bunts, singles, walks and my on base percentage, to use a baseball analogy.
I would hope to receive at the time of the liquidation date in 2024 something at or slightly higher than my original investment. So, I would be pleased with a break even on the shares in 14 years. I am after the monthly dividend payment, currently averaging around 8.3% per annum at my cost. The Old Geezer views that as an acceptable annualized return from a bond investment. However, I would also expect the dividend yield to fall some as the liquidation date approaches, since I would anticipate the manager keeping maturities for any new investments short term.
The risk of lost opportunity is one of those difficult to evaluate risks. If I buy this fund, I no longer have those funds available to buy shares at a better price. The price is slightly better now, on a discount to NAV basis, than when I bought shares a few days ago. And, in a period of rising rates and declining bond prices, the discount of this fund may widen as the value of the bonds decline presenting another better opportunity to buy with those funds already committed, and for an investor willing to hold until the liquidation date. I attempt to evaluate this risk, which is one reason that I have sold my TIP ETF and will not buy U.S. treasuries at their current low yields. Unlike those investments, however, GDO is paying me a good yield now, on a favorable monthly schedule, and the yield is better than the alternative of money market yields. I discuss the risk of lost opportunity in several prior posts in relation to specific securities and asset classes: Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets ;
Another issue is that the relationship between market price and net asset value will fluctuate, which happens with all closed end funds. The discount to net asset value has expanded slightly on GDO since my original purchases, closing yesterday at a 4.43% discount to net asset value. WSJ.com This number will expand and contract continually. I would not be unnerved by an expansion to a 10% discount, and would view that as a possible opportunity to add shares. Conversely, if the price rose to say a 5 to 10% premium, I would view that as an opportunity to trim my stake some and then look for a better price relative to NAV to buy those shares back. So, I would be managing the position somewhat based on the movement of the market price relative GDO's net asset value.
I mentioned that GDO does have some currency risk which I am willing to assume. Over a 14 year period, I would suspect the value of the foreign bonds contained in GDO to rise and fall based solely on currency movements. No one knows whether the end result of that ebb and flow will be positive and negative for a U.S. holder of GDO when 2024 finally arrives. But, the U.S. has a lot of fiscal problems, and I do not really want all of my bond exposure to be in my own currency anyway. The web site for the fund says that at least 40% of the fund will be invested in foreign issuers including those from emerging market countries, at least under normal market conditions. Legg Mason - GDO - Western Asset Global Corporate Defined Opportunity Fund Inc. The distribution rate at yesterday's closing price is shown as 8.41% at this page from the sponsor.
My discussions of purchases of GDO can be found in earlier posts:Bought 100 of the CEF GDO at 18.6 Bought 70 of the CEF GDO in Regular IRA at 18.61 Revised Closed End Fund Table/Bought 200 of the CEF GDO at 18.63 and 18.53 (100 in Roth and 100 Taxable Account respectively)
And lastly, I would add this caveat. When an investor decides to take their money out of FDIC insured savings accounts and short term T Bills to invest in stocks and bonds, then they have entered the world of risk evaluation. If the investor says that they only want safe stocks, or want to know if a particular corporate bond maturing in 2017 like OSM is safe, then they have not even entered the batter's box in their ability to assess risk and probably need to reevaluate what they are doing. The correct inquiry in my opinion is to identify the risks and potential rewards, and then weigh them in light of your particular circumstances including the investor's time horizon, objectives, needs, and risk tolerance.
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