No not at all. That defeats the whole point, meaning making anymore "bets." See my response above to TraderZones giving more specific details.
Grinding it out, day after day
- Thread starter lescor
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No not at all. That defeats the whole point, meaning making anymore "bets." See my response above to TraderZones giving more specific details.
I suspect as of a couple of years ago, people thought Bear, Lehman, AIG and CitiBank were also similar to the companies you mention before summer-fall 2008.
In 2000, people were bidding up web & telecomm companies to 700X next year's rose-colored-glasses earnings. 8-person companies with an idea and no sales were suddenly worth $50 million. In 2003, most of these had gone into the toilet. It was all about #eyeballs and other unfounded metrics.
In the late 90s, the Asian currency crisis had stock markets and currencies down as much as 80-90% in short order.
On Oct. 19?, 1987, the stock market was down 22+% in one day.
In the 80s, people were buying carloads of Topps, Score, Donruss and other baseball cards. Such as boxes of every player for a year. Since baseball cards were appreciating 20% a year, why not? Then of course, the companies ramped up production, and the value of these loads of baseball cards seemed to go nowhere for many years.
In other words, there is no low risk to your strategy, it is one more guess in a world of guesses. You put in your trade, and are hoping your strategy works out. No problem with that, we all do it, but it is still just your hypothesis.
You may have bought on lows, but there is no extrapolating in this kind of environment. Everything everywhere can disappear
Yeah, not to pile on, DS, but just want to make sure you're properly acknowledging the risk in those bonds. FWIW, the credit market is pricing in a roughly 10% chance that those names you mentioned will default in the next 5 years (some multiple of that to your maturity). So not only could those coupons disappear, but there's a very real chance that you could lose nearly all your initial principle (e.g. Lehman recovered ~8.5% on its senior debt). Anyway, I'm sure you've considered this, but in case you're interested, this site might be helpful when considering credit plays / assessing risk: markit.com. Hope that helps.
Wrong - the market value of the bonds is now much higher, so you no longer have a high yield. You have a very fat capital gain, but your yield to market value is not particularly attractive.
Just because you bought something at a great value price, does not mean that it is a good idea to hold it on when the price has moved 100-150% higher.
If you don't believe me, consider this - imagine the price of your bonds goes up 10 fold, and the market yield falls to 0.1% per annum. Would you still hold the bonds, or would you cash them in for 20 times what you paid for them, and then put the money into Treasuries yielding 3.8% (38 times higher yield)?
Since holding on in that case would be stupid, then the yield at purchase is *completely irrelevant* to the current attractiveness of holding on to the investment. Whether to hold or sell depends purely on the current market yield relative to fundamentals, not where you bought the bonds at.
It's the reality of trading with stops too - stocks can gap or get halted.
This is my last post and I am going back on lurker mode. And I certainly do not want to derail or hijack this journal.
<b>lescor & bs2167</b>, thanks for your concerns & thanks for that link bs2167. I am going to lighten up a tad on the friskier financial notes I bought last year and lock in the capital gains. The going forward plan has actually been more conservative anyways with companies like Procter & Gamble, Pepsi, ATT. The annual returns on these MDT to LT notes are like 5.5%-6% so unloading the SunAmericas & Goldman Sachs type notes just bumps me back 5-7 more years.
<B>TraderZones</b> thanks for the little history recap, but I have been lurking on this site since 1999 and generally speaking I am up to speed with things. Fortunately I did not fall for the baseball/football market crash of the 80's, but the modern comic book crash is a different story. Supply & Demand can for lack of a better word be a b*&ch. And I do really like your analogy on "1 more guess in a world of guesses."
<b>Ghost of Cutten</b> simply put, My Prudential notes that I forked out on average $450 a piece for, I get paid $56 annually per note. So thats a 12.4% annual return. Forget about yields and all the other stuff. This is my return; $56 on only a $450 investment in each note.
Yes the notes have rallied and are trading now close to par and current yields are much much lower. But that does not matter to me as I still get my annual $56 interest payment per note on having only invested $450 per note.
I will get my "fat capital gain" in 2028 when the bonds are redeemed. If I sold the bond today I would net a $550 profit per note. But my annual income is gone. If I wait for 2028, I still get my $550 profit per note, plus an additional $1,008 for over the course of 18 years from coupon income per note as well.
Good luck and trading to you all.
Lescor,
Are you familiar with market profile and if so, what do you think of it?
Thanks
Are you familiar with market profile and if so, what do you think of it?
Thanks