attack my high-yield investing

[brewer12345]

To someone that doesn't understand the market, active investment through a "dogs of the DOW" approach or directly trading stocks is doomed to failure. But don't generalize it to folks that actually put the effort into coming up with a profitable strategy. I know, impossible... Just keep thinking that; it makes it easier for the rest of us

I will point out a giant hole in your junk bond review, as an example. You don't read the prospectus and indenture when you buy junk? If not, expect to get badly burned from time to time.

I am also curious how you buy and sell junk bonds. Trade execution for retail lots is atrocious compared to equities, with bid/ask spreads commonly 3 points or worse. I am also curious how all of this will work out in one of the many periods where the junk market hiccups and there is pretty much zero liquidity for such bonds.

 

[Texas Proud]

I don't use margin But in all seriousness, I purposely separate my trading money from safer / stable money. So when things go south, and they have, I'll still have options. Will my strategy remain profitable long term? That remains to be seen, but it has served me well so far (knock on wood).

You never addressed the issue of inflation.... again, your portfolio is producing INCOME... not cap gains.... and it seems that you are spending all the income....

So, over time your spending ability will go down EVEN IF YOU DO NOT LOSE PRINCIPAL..... However, I have doubt that over time you will not lose principal.... there are always firms that go out of business or some other thing happens to make your investment go bad.... look at Citi, AIG, GM, Chrysler (just naming some who are still in business, many more who did not make it).... and these were not junk (hi yield is another term for junk, so do not try and tell me you are not investing in junk)....

Like many here have posted, your strategy works until it does not... and likely it will implode quickly rather than over time.... and as I said in my first post, you might not live long enough to have it implode... so you are the winner...

 

[jazz4cash]

This is the most entertaining thread I can recall since MMND.

 

[vxp036000]

No I'm not spending all the income I make from trading. My trading portfolio grows roughly 6% / year after living expenses.

And yes, sometimes I do lose principal. That is why I have considerable capital elsewhere. No, I do not invest in junk. High yield != junk. Citi, AIG, GM, Chrysler, etc. I would not have touched with a 20 foot pole and yes I considered them to be junk for multiple reasons. I only invest in companies with a proven track record, among many other criteria. People are telling me to buy AAPL, DFS, FB, etc. Do you consider these high quality as well? My criteria disqualify all of these companies as poor choices.

You never addressed the issue of inflation.... again, your portfolio is producing INCOME... not cap gains.... and it seems that you are spending all the income....

So, over time your spending ability will go down EVEN IF YOU DO NOT LOSE PRINCIPAL..... However, I have doubt that over time you will not lose principal.... there are always firms that go out of business or some other thing happens to make your investment go bad.... look at Citi, AIG, GM, Chrysler (just naming some who are still in business, many more who did not make it).... and these were not junk (hi yield is another term for junk, so do not try and tell me you are not investing in junk)....

Like many here have posted, your strategy works until it does not... and likely it will implode quickly rather than over time.... and as I said in my first post, you might not live long enough to have it implode... so you are the winner...

 

[vxp036000]

Isn't ignorance a bliss?

This is the most entertaining thread I can recall since MMND.

 

[vxp036000]

Junk bonds? I trade high quality stocks.

I will point out a giant hole in your junk bond review, as an example. You don't read the prospectus and indenture when you buy junk? If not, expect to get badly burned from time to time.

I am also curious how you buy and sell junk bonds. Trade execution for retail lots is atrocious compared to equities, with bid/ask spreads commonly 3 points or worse. I am also curious how all of this will work out in one of the many periods where the junk market hiccups and there is pretty much zero liquidity for such bonds.

 

[brewer12345]

Junk bonds? I trade high quality stocks.

As I understand it, you are buying junk bonds and high yielding equities.

 

[vxp036000]

False, I only trade high quality stocks. Maybe you are confusing me with someone else.

As I understand it, you are buying junk bonds and high yielding equities.

 

[brewer12345]

False, I only trade high quality stocks. Maybe you are confusing me with someone else.

Apparently. I seem to have mixed up which troll I was feeding.

 

[vxp036000]

Apparently I unentionally come across as a troll. My point here was to offer an alternative view to investing. I don't understand all the hostility to folks with a different perspective. I'm not a fan of passive investments, but I certainly try to respect those that choose them.

Apparently. I seem to have mixed up which troll I was feeding.

 

[Htown Harry]

Maybe you are confusing me with someone else.

I suspect you are flattering yourself, vxp.

About all you've said about your strategy is it involves active trading of high quality stocks using strict buy and sell rules. Can't speak for Brewer, but I haven't found enough there to merit any comments on your technique.

Perhaps you could provide some additional detail?

 

[vxp036000]

I would be very glad to provide details, except for the fact that I would promptly be ridiculed to no end by a bunch of so-called investment gurus. Perhaps if folks are willing to keep colorful comments to themselves, I will divulge more.

I suspect you are flattering yourself, vxp.

About all you've said about your strategy is it involves active trading of high quality stocks using strict buy and sell rules. Can't speak for Brewer, but I haven't found enough there to merit any comments on your technique.

Perhaps you could provide some additional detail?

 

[REWahoo]

Apparently I unentionally come across as a troll.

Take a moment and go back to read your first three posts. What you did is the equivalent of walking into a crowded room to loudly and abrasively announce that those gathered there were wrong.

And you don't understand why you are viewed as a troll?

 

[brewer12345]

Apparently I unentionally come across as a troll. My point here was to offer an alternative view to investing. I don't understand all the hostility to folks with a different perspective. I'm not a fan of passive investments, but I certainly try to respect those that choose them.

Please understand: most of the "regulars" here have decades of onvesting experience. You will also find a fair number of CFPs, CFAs, CPAs, PhDs, experienced engineers, mathematicians, rocket scientists (literally), and other very, very smart people here. The really smart people here are why I stick around, despite some misgivings about the forum in general. When you show up and start bragging about how wonderful your investing srategy has performed since 2009, it should not be a giant surprise that you get skeptcism at best that what you do is in any way unique or special (let alone durable for decades in the future). I would also suggest that the cocksure attitude also smacks heavily of someone who does not take risk management or the really bad times seriously. Since your audience is wealthy retirees and those on their way to a similar status, you should not be shocked that people here look askance at a lack of attention to risk management and contemplation of the downside.

If you have something to say, put it all on the table and lose the attitude. You might get some thoughtful responses. Otherwise, you will simply be regarded as another member of the parade of assclowns that comes through here on a regular basis.

 

[vxp036000]

I never said there wasn't a downside. In fact, most people would probably fail in an epic fashion at trying to duplicate my investing strategy. And I will openly admit that there is nothing special about what I do. But I don't think you understand how seriously I take risk management. I spend at minimum several hours each day researching the market and contemplating my next move. When the market is down, I don't trade. I understand that most people associate investing in stock with going after the latest facebook, linkedin, etc. I consider that to be financial suicide and is about as far removed my strategy as you can get.

I choose a quality stock based on P/E, market cap, profit margin, debt / assets ration, moving averages, and many other factors. Then, I establish the exact conditions under which I will buy, price, volume, trend, etc. And, before I buy, I establish precisely when I will sell. And when the criteria are met to sell, I sell. That's it. One of the reasons it works for me is because I adhere to a strict set of rules and never deviate. Most other people will lose miserabely with this approach because they either don't establish a firm set of criteria or try to use the wrong criteria.

Look at everyone that jumped onto the facebook bandwagon. Please, a P/E over 100 when it was first offered? This is the average investor. And for them, a passive approach will win every time.

Please understand: most of the "regulars" here have decades of onvesting experience. You will also find a fair number of CFPs, CFAs, CPAs, PhDs, experienced engineers, mathematicians, rocket scientists (literally), and other very, very smart people here. The really smart people here are why I stick around, despite some misgivings about the forum in general. When you show up and start bragging about how wonderful your investing srategy has performed since 2009, it should not be a giant surprise that you get skeptcism at best that what you do is in any way unique or special (let alone durable for decades in the future). I would also suggest that the cocksure attitude also smacks heavily of someone who does not take risk management or the really bad times seriously. Since your audience is wealthy retirees and those on their way to a similar status, you should not be shocked that people here look askance at a lack of attention to risk management and contemplation of the downside.

If you have something to say, put it all on the table and lose the attitude. You might get some thoughtful responses. Otherwise, you will simply be regarded as another member of the parade of assclowns that comes through here on a regular basis.

 

[Htown Harry]

Back to the thread...

response #5 to comments on my high-yield investing

So, how does my "quality screening" sound?

Cheers!

Alex in Virginia

It sounds rather simplistic and clueless. Good thing you have been doing this in a rising market.

I agree with Brewer's second comment more than his first.

For example, in the current rising market the technique of discounting unrealized gains on derivative values and hedges is reasonable. The rub comes when those derivatives actually swing hard over to losses, as happened to many of the high-dividend-paying financial stocks in 2008.

More generally, the market can be especially brutal to a dividend-paying stock when there are hints of trouble. I agree with Texas Proud's prediction that the bad periods for your strategy are prone to being swift and severe.

 

[KMyer]

I am also curious how all of this will work out in one of the many periods where the junk market hiccups and there is pretty much zero liquidity for such bonds.

This is exactly what happened to my father in the 1980's when he owned a lot of high-yield bonds. The issuers that were successful ending up calling the bonds to refinance at lower interest rates. The unsuccessful issuers ending up defaulting and it took my father a decade to unwind his investments in the bonds.

 

[brewer12345]

Look at everyone that jumped onto the facebook bandwagon. Please, a P/E over 100 when it was first offered? This is the average investor. And for them, a passive approach will win every time.

Again, consider your audience. I would be truly astonished if more than a very few regular posters here bought FB at the IPO price, and even then it would be as a lark.

 

[brewer12345]

This is exactly what happened to my father in the 1980's when he owned a lot of high-yield bonds. The issuers that were successful ending up calling the bonds to refinance at lower interest rates. The unsuccessful issuers ending up defaulting and it took my father a decade to unwind his investments in the bonds.

This is the nature of high yield bonds. As a result, I only want to buy when I can get bonds trading at a material discount to par and the issuer has a reasonable credit profile. I usually sell when I can get a bid at roughtly the call price or I don't like what is happening to the issuer's credit profile.

 

[vxp036000]

Alright, I'll take another stab at this. I saw it stated that GM, Chrysler, and AIG were quality companies.

GM: In 2007, GM had a negative profit margin. Today, they are barely profitably. Chrysler: Also almost non-existent profit margin in the mid 2000's.
AIG: Losing money throughout the same time period.

So yes, if these are considered quality stocks, you will get burned. I think that is why many people have such a negative opinion of stocks; they simply don't understand what qualifies as a quality stock.

Again, consider your audience. I would be truly astonished if more than a very few regular posters here bought FB at the IPO price, and even then it would be as a lark.

 

[brewer12345]

So yes, if these are considered quality stocks, you will get burned. I think that is why many people have such a negative opinion of stocks; they simply don't understand what qualifies as a quality stock.

By posting here you are not addressing "most people." Again, cut the 'tude, put it all on the table, and you might have an interesting conversation. Otherwise, the parade seems to be continuing...

 

[ERD50]

Alright, I'll take another stab at this. I saw it stated that GM, Chrysler, and AIG were quality companies.

Try again (or not).

Logical fallacy - others being wrong does not make you right.

-ERD50

 

[Alex in Virginia]

It sounds rather simplistic and clueless. Good thing you have been doing this in a rising market.

Brewer,

If you look back to my OP, you'll see that I started this thread specifically to learn what pitfalls others might see in my high-yield investing approach that I don't see. So I would really like to understand why you consider the quality screening approach I presented in post #73 of this thread to be "simplistic and clueless".

Are you referring to how I analyze company financial reports, stocks, bond issues or all of them? Why? How, exactly, would you do the vetting differently? What am I not looking at that you see? What do you see me missing?

(BTW, I do review bond prospectuses.)

Thanks.

Alex in Virginia

 

[brewer12345]

Brewer,

If you look back to my OP, you'll see that I started this thread specifically to learn what pitfalls others might see in my high-yield investing approach that I don't see. So I would really like to understand why you consider the quality screening approach I presented in post #73 of this thread to be "simplistic and clueless".

Are you referring to how I analyze company financial reports, stocks, bond issues or all of them? Why? How, exactly, would you do the vetting differently? What am I not looking at that you see? What do you see me missing?

(BTW, I do review bond prospectuses.)

Thanks.

Alex in Virginia

Do you build detailed financial models for the companies you invest in? Do you talk to the investor relations people at the companies you are investigating? Talk to suppliers, competitors, customers, etc.? Build cashflow models for junk bond issuers? Do you update these models at least quarterly?

In my experience, there are really two kinds of investment opportunities: ones that require very little real digging (since they are way too cheap and it is obvious), and those that require very extensive, painful digging.

 

[growing_older]

I spend at minimum several hours each day researching the market and contemplating my next move.

Have your results (so far) been so much better than a passive investment strategy to make this large amount of effort justified. I think there has been a lot of concern expressed that you are not accounting for all the risk you are taking. I think you should also consider all the effort you are expending.