Sunday, March 14, 2010

Return of Capital: Closed End Funds/SUSQ/International Lease Bond Matures Monday/Long-Short Strategy: Double Short Sector ETF

I wanted to address a few housekeeping type matters to lead off today's post.

I do not receive any compensation of any kind for writing this blog. If someone clicks on the map to the right, ClusterMaps does have some ads. I have nothing to do with those ads. Instead, I use that free service solely because I am interested in the running total of visitors to this blog and their country of origin. While most visitors are from the U.S. I have a number of visitors from outside the U.S. The ClusterMaps service is free to me, and I receive nothing from ClusterMaps for those ads. The running total of visitors started on November 2, 2009. Each visitor is only logged only one time per 24 hour period, notwithstanding multiple views during that one day period. So I am logged just one time for visiting my own site each day.

I noticed today that the links to Aegon's web page listing its hybrids no longer worked, due to a change made by Aegon. I made a few corrections in some older posts, but will not attempt to change all references. Capital securities - AEGON Group Some of the older links will simply cease to work after the passage of time. Sometimes it is due to a change in address information made by the site's owner, while some links return "page not found" since it is not kept on a server anywhere after a period of time. This would be typical for YF links. Since I have noticed that problem with YF, I have started to link the SEC filings as an alternative.

When using the search box to the right from google, which I do all of the time, multiple search inquiries will often need to be tried. For example, you can see the difference in results using the phrase "Bank America floaters" or "BMLPRH" (one of the Merrill Lynch floaters), or "floating rate preferred" or "Bank America adjustable preferred" which returns the fewest entries.


1. Long Short Strategy: I added a small number of shares to an existing position in a double short sector ETF near the close last Friday. I am attempting to create a small hedge in the event the market heads south.

2. International Lease: Prior to 2008, when AIG's International Lease Finance had a AAA rating, I bought 9 $1,000 International Lease Finance bonds with varying maturities. If I had known then what was happening at AIG's Financial Products Unit, NYT, I would not have bought a single bond. I sold 8 of those bonds, along with a number of other short term bonds, to finance stock purchases starting in the spring of 2009. I kept just one bond which will mature on Monday. I am just grateful to receive my $1,000 back, emphasizing the wisdom of the saying that the return of your money may at times be more important than the return on your money.

There is a lesson to be learned from what happened to AIG. No matter how much research is done, there are still imponderables and unknown or unknowable matters that can have serious repercussions on the outcome of an investment. While some may have learned that lesson from Enron and Worldcom, or from the latest series of debacles, it has been in the forefront of my investing philosophy throughout my adult years. I deal with that uncertainty by limiting my investment in any one company to ten thousand dollars now. It was a lower sum several years ago, and will be a higher sum in a few years. It is basically an amount that I can afford to lose based on some event which blindsides me. The recent reports about how Lehman rigged its balance sheet are unfortunately just the latest in a long series of such distasteful disclosures. In Lehman’s Demise, Some Shades of Enron NYT NYT Lehman is one that I avoided because it did not pass the smell test. And, as a general rule, I would not trust any of these wizards, and have no confidence in their financial acumen.

I would very much like for Congress to hire Mr. Valukus to do the same kind of examination for Citigroup and AIG.

3. Susquehana (SUSQ)(OWNED): Barrons has a summary of the outperform opinion of Raymond James, who has a $11 target, in this week's issue. This firm believes that credit losses may soon peek. It did lower its E.P.S. for both 2010 and 2011 based on the recent share offering. The estimate for 2011 is just 56 cents.

4. Return of Capital: I have started to spend a lot of time preparing my 2009 tax return. I mentioned in an earlier post that several closed end funds paid dividends classified as returns of my capital. It took about two hours of my time to make notes of the tax basis adjustments caused by this classification, and to actually make changes to the cost basis in my Schedule D for those securities sold during 2009 which had returns of capital in 2009 or in prior years. Besides this hassle, I see no benefit in creating a tax event for me for returning part of my investment in the form of a non-taxable return of capital dividend which has the effect of increasing my profit, or reducing my loss as the case may be, when the security is sold. Two of the main offenders in 2009 were the Eaton Vance Tax Managed Global Buy-Write (ETW) and Old Mutual Long-Short (OLA). My general policy is to give the fund a pass for one year of a significant return of capital, due to the kind of market disruptive event that was experienced in 2008. But, I am likely to sell one that does it for two years.

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