Tuesday, March 20, 2012

Sold 50 FMER at $17.3/Sold 50 LXPPRD at $24.8/SOLD 50 MHNA at $25.75

Mark Zandi, the chief economist for Moody's Analytics, estimates that $7.4 trillion in U.S. homeowner's equity  has been lost since 2006. The author of a cover story in this week  Barrons claims that home prices will start to turn back up by the spring of 2013.

During 2011, the CEO of First Niagara, John Koelmel, received a 3.7% raise in his total compensation to $3.1 million. FNFG slashed its dividend by 50% last year.  First Niagara: Just Another Incompetent Bank Board of Directors First Niagara Dividend Slash The stock opened 2011 at $14.25 (closing price on 1/3/11) and ended the year at $8.63. FNFG Historical Prices Unadjusted for the recently slashed dividend payment, the stock declined 39.44%. First Niagara Financial Group (FNFG) has participated in the most recent robust regional bank stock rally, closing at $10.26 yesterday.

A Bernstein analyst lowered Sprint to a sell, noting there was a very legitimate risk of a bankruptcy. WSJ The common stock fell 13 cents or 4.5% in trading yesterday to close at $2.76.  S Stock Quote I have never owned the common shares. I have sold out of all of my positions in Sprint bonds. Most of those positions were in trust certificates containing as their underlying security a senior Sprint Capital bond. Trust Certificates  I did recently sell one Nextel bond based primarily on the belief that the yield was not worth the risk. SOLD 1 Nextel 7.375% Senior Bond at 98.75  That was my last position.

I will be busy on other matters for the remainder of this week and will not have much, if any, time to devote to this blog.

1. Sold 50 FMER at $17.3 Last Friday (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): I still own 84+ of FMER shares after selling 50. I had averaged down by buying 30 FMER shares at $11.35. Using FIFO accounting, I sold the highest cost shares bought at $16.96, realizing a small gain, and thereby reduced my average cost for the remaining shares. I am reinvesting the dividend.

I did make a mistake when averaging down. After buying the first lot at $16.96 on 5/6/11, the shares started to decline. I averaged down by buying another 50 share at $16.18 on 5/24/11. I need to wait longer and to have at least a 7.5% to 10% differential in price after the brokerage commission before buying more shares. This would have given me a target buy price range between $15.15 to $15.6 to buy another 50 shares.  By waiting until June 2011, I could have bought in that price range. The shares continued to decline into summer which gave me an opportunity to buy at $11.35. FMER Historical Prices

I do not believe that there were any material changes in FirstMerit's intrinsic value between the $11.35 buy on 8/19/11 and last Friday's sell at $17.3.

This is a snapshot of my remaining shares:


The foregoing table does not include the reinvested dividend received yesterday.

Even with a stock likely to be kept long term in a basket strategy, and FMER so qualifies, I will use the natural volatility of the share price to average down, lower my cost basis over time, and to harvest some profits where feasible by selling my highest cost shares using FIFO accounting.

If I am able to buy back the 50 shares sold at less than $15.65, I will likely to do so provided there is no material change in my opinion about this bank's prospects.

FirstMerit Corp (FMER) closed at $17.29. At a total cost of $17.29, the current dividend yield is about 3.7%.

2. Sold 50 LXPPRD at $24.8 Last Friday (See Disclaimer): I view REIT preferred stocks as a disfavored security. This does not disqualify me from owning them, but that classification will increase my trading activity and lower my exposure to them. I discuss their many disadvantages in REIT Preferred Stocks:  Advantages & Disadvantages.

I am not likely to hold one bought anywhere near their $25 par value for an extended period. In those cases, the purpose is solely to generate some income and to exit the positions hopefully at any profit.

During the Near Depression period, I bought this security as low as $6.6 and $7.  BOUGHT 50 LXPPRD at $6.60 November 2008 and Buy 50 LXPPRD at $7 in Roth IRA March 2009.

I sold the shares bought in the ROTH IRA at $23.46.

2010 50 Shares LXPPRD Roth IRA Realized Gain +$807.03
This REIT never did miss a dividend payment.

The shares sold last Friday were bought last September at $23.8.

2012 LXPPRD 50 Shares +$34.08
Lexington Realty Trust 7.75% Cum. Redeem. Pfd. Series D _(LXP.PD) closed at $24.81 yesterday. The next ex dividend date is 3/28/12.


3. Sold 50 MHNA at $25.75 Yesterday (see Disclaimer): The bond market has been in a long term secular bull market since 1982. Many investors are probably too young to remember the long term bear market which predated the bull move. Eventually, it will return and I hope to have minimum exposure to long term bonds when the worm turns. 

I am continuing to hold several Trust Certificates containing long term bonds bought at large discounts to their $25 par values. At this stage in the long term cycle, I am not likely to hold for very long any long term bond bought anywhere near par value.  Instead, I am content to harvest small profits after collecting one or more interest payments.

Some of the TCs purchased during the Near Depression, which are still owned,\include KTN (2027), JZV (2023) and JZJ (2031).

See, e.g. KTN currently owned shares:

KTN Unrealized Gain Taxable Account Average Total Cost Per Share =$13.26 
KTN Unrealized Gain Regular IRA Average Total Cost Per Share=$14.16 
MHNA was bought at $24.9 (August 2011). Interest payments are made quarterly. The coupon is 8.25% on a $25 par value. The bond matures in 2041. Prospectus.

Maiden Holdings North America Ltd. 8.25% Notes due 2041 (MHNA) closed at $25.43 yesterday. 

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