I mentioned below that GM bonds might have been a good play in hindsight. This does not mean GM stock is a good play. I would not touch common stock of a bankrupt company that's in the process of being reorganised with an 18 foot pole unless you were short to begin with. It's not in keeping with my overall investment philosophy.
This is a wife vs. mistress scenario! There's a very big difference between being a bondholder of a bankrupt company and a common shareholder of a bankrupt company. The bondholder will take legal precedence over the common shareholder.
For those wanting to buy GM common stock, please keep a cool head. The recent rally could be a combination of short covering and over-exuberant investors buying up the stock.
More on the GM reemergence from US News & World Report and The Motley Fool.
Sunday, July 12, 2009
Thursday, July 9, 2009
I'm Officially Junk Bond Queen
Sad but true...
The majority of my corporate bonds are now trading flat with the exception of Neiman Marcus and United States Steel - taking me one step forward as a viable candidate in the 2009 Most Disastrous Portfolio Contest.
Not to be outdone, I also missed out on a 700 pip move with a recent GBP/JPY short by getting out with just 10 pips. My strategy was to move my stop after getting to +20 pips, but it never got there whilst I was in the trade and started reversing, so I just took profit. In hindsight, I had managed my risk properly, especially considering the reversal would have taken out my stop, but at the same time, it doesn't make you feel any better seeing the 700 pip drop practically overnight.
Realistically speaking, if I'm going to continue moving my stops the way I do, this is going to continue happening. So, I'll just have to look at it as risk management, especially since if I don't move my stops, the trade could have turned into a loss instead. Even a small gain is better than a loss, I say. What I do need to now figure out is why my trading signals didn't show me that the 700 pip drop was imminent so that next time I see a similar signal, I'll be able to stay in the trade longer.
Back to my Junk Bond Queen status though, I've acquired most of my newly defunct bonds for less than 40 cents on the dollar, so the damage is relatively contained. However, the bankruptcy proceedings will take at least another year for most of these companies (Washington Mutual Bank, Lehman Brothers, Ion Media, and Metaldyne). I did acquire the WaMu and Lehman ones after they filed for bankruptcy at a ridiculously low price, but Ion Media and Metaldyne were sort of unexpected but not exactly shocking.
I don't expect Neiman Marcus or United States Steel to follow suit.
A few scenarios could play out following a bankruptcy:
1. Bondholders could receive a direct payout following the formal bankruptcy and liquidation proceedings. The widely accepted average recovery is about 30 cents on the dollar for unsecured creditors. The procedure could take a few years, so patience is required.
2. Bondholders could receive equity in the newly restructured company in the form of preferred or common stock. In this case, it is my belief that bondholders could be in for quite a substantial gain providing that the company is good to begin with. In hindsight, I should have bought myself some GM bonds immediately following its Chapter 11 announcement, but it's now too late.
3. Bondholders could receive new bonds issued by the newly restructured company. This, I'd say is the least favourable outcome. It's not unusual for a company that has filed for bankruptcy to repeat history.
The important thing to remember after a company files for bankruptcy is to file a proof of claim form as soon as possible.
In celebration of my JBQ status, I contradicted myself and bought some more replica art, including Max Klinger's incredibly beautiful Triton & Nereid as well as Gustav Klimt's Completion and The Kiss.
I've now got replica art everywhere.
The majority of my corporate bonds are now trading flat with the exception of Neiman Marcus and United States Steel - taking me one step forward as a viable candidate in the 2009 Most Disastrous Portfolio Contest.
Not to be outdone, I also missed out on a 700 pip move with a recent GBP/JPY short by getting out with just 10 pips. My strategy was to move my stop after getting to +20 pips, but it never got there whilst I was in the trade and started reversing, so I just took profit. In hindsight, I had managed my risk properly, especially considering the reversal would have taken out my stop, but at the same time, it doesn't make you feel any better seeing the 700 pip drop practically overnight.
Realistically speaking, if I'm going to continue moving my stops the way I do, this is going to continue happening. So, I'll just have to look at it as risk management, especially since if I don't move my stops, the trade could have turned into a loss instead. Even a small gain is better than a loss, I say. What I do need to now figure out is why my trading signals didn't show me that the 700 pip drop was imminent so that next time I see a similar signal, I'll be able to stay in the trade longer.
Back to my Junk Bond Queen status though, I've acquired most of my newly defunct bonds for less than 40 cents on the dollar, so the damage is relatively contained. However, the bankruptcy proceedings will take at least another year for most of these companies (Washington Mutual Bank, Lehman Brothers, Ion Media, and Metaldyne). I did acquire the WaMu and Lehman ones after they filed for bankruptcy at a ridiculously low price, but Ion Media and Metaldyne were sort of unexpected but not exactly shocking.
I don't expect Neiman Marcus or United States Steel to follow suit.
A few scenarios could play out following a bankruptcy:
1. Bondholders could receive a direct payout following the formal bankruptcy and liquidation proceedings. The widely accepted average recovery is about 30 cents on the dollar for unsecured creditors. The procedure could take a few years, so patience is required.
2. Bondholders could receive equity in the newly restructured company in the form of preferred or common stock. In this case, it is my belief that bondholders could be in for quite a substantial gain providing that the company is good to begin with. In hindsight, I should have bought myself some GM bonds immediately following its Chapter 11 announcement, but it's now too late.
3. Bondholders could receive new bonds issued by the newly restructured company. This, I'd say is the least favourable outcome. It's not unusual for a company that has filed for bankruptcy to repeat history.
The important thing to remember after a company files for bankruptcy is to file a proof of claim form as soon as possible.
In celebration of my JBQ status, I contradicted myself and bought some more replica art, including Max Klinger's incredibly beautiful Triton & Nereid as well as Gustav Klimt's Completion and The Kiss.
I've now got replica art everywhere.
Tuesday, July 7, 2009
The New Subprime & The Worst Stocks to Buy Today
The New Subprime... very interesting read - particularly the section on credit score inflation...
The Worst Stocks to Buy Today... I don't know if I should be offended that AIG is not on this list? LOL.
The Worst Stocks to Buy Today... I don't know if I should be offended that AIG is not on this list? LOL.
A Look Back: Investing vs. Debt Obliteration
Warning: some more rambling ahead...
I'm not exactly in an enviable financial position at the very moment, although I definitely won't complain either. I'm the first woman in my family earning the amount of money I do and I'll definitely be the first woman in my family with either a self-financed Hermes Kelly, Birkin, or Lindy - or all three.
People might be wondering why it has taken me over eight years to be on the precipice of obliterating my debt once and for all. Eight years is a long time, but I think part of the reason it's taken this long aside from my constant obssession with shopping is I had been investing and at the same time focused on debt obliteration most of the time. Now that my portfolio is down in the double digits, I wonder all the time whether I've taken the wrong path.
But at the time, given the benefits of compounding and low interest rates, I chose to invest and at the same time pay off my debt. Now, I know compounding can work against you too - especially when you're just starting out and don't know what you're doing. The blessing in disguise is that when I do finally become financially free, I won't be starting out from zero again. However much my portfolio will be worth then, at least I'll have relatively liquid assets.
Anyway, I do want to point out that one's mindset when investing with debt vs. investing when you're fully financially free will probably be very different. I've definitely committed some financially suicidal moves over the past few years, which if I had been fully financially free, would probably not have made.
So, looking back, did I take the wrong financial path? Maybe I shouldn't even look at it that way. All I know is I've taken all these steps to financial freedom. I had to work really, really hard, but that actually made me feel like I deserve financial freedom. Being who I am, I probably wouldn't have wanted it any other way. So, I should now focus on what I could be doing next to make my portfolio better than ever before.
It was quite interesting when Hillary Clinton was running for President (and I insist to this day that she should have been elected), she had suggested that home economics, including financial budgeting, be reintroduced into the education system. I'm all for it. I had to read a ton of books and do a lot of research to learn basic financial management skills. Even if you study at a university that is supposed to be specialised in finance, they won't teach you the basics - which is what's most important. For some people, this stuff might come naturally, but judging from the state of our economy, it's definitely not the case for the majority of people. So for anyone feeling terrible / lost / hopeless about their financial situation, you need to keep your hope up and know you can get out of it even if you're a chronic shopaholic like myself.
Anyway, back to the subject of investing vs. debt obliteration... if you're in a similar situation, do you choose investing or fast-track debt obliteration?
The short answer is if you know what you're doing with investing and if you could get very low interest rates, then investing whilst carrying debt makes sense. I was able to get interest rates of 3% or less about 50-60% of the time I was carrying a lot of debt. Back when I could get a 5.5% APY on a savings account, keeping the cash in my account made a lot of sense. Not anymore.
If, however, you've got astronomical interest rates, then investing with debt is financially sinful in my diva opinion. The historical rate of return on stocks is about 10% annually. Factoring in taxes and inflation, your expected rate of return on your portfolio must be much higher than your APR in order for investing to make sense.
Now, what can you do to get out of debt?
1. It may sound simple and it's going to be a bit of do as I say not as I do, but the first step is to ensure that what you do earn is greater than what you spend. Many people will look at their gross salary and think it's a lot and go out and basically spend it all and wonder why they have nothing left. Been there, done that. Looking at your net salary is what matters most in budgeting.
2. Be strategic and map out all your debt in Excel. List out any and all debt you have along with APR rates so that you're never in denial. Pay off the highest interest debt first.
3. Renegotiate your APR. Even if your credit score is not ideal, don't let it stop you from calling your bank and at least attempting to renegotiate your APR on any of your loans or credit cards. I do it all the time and banks are usually responsive as I have a good credit score. Even if you save 1 or 2% a year, your savings will add up.
3. What has helped me a lot during the past year is paying cash or using my debit card for every purchase. With cash, you can implement the envelope method, which is splitting your cash up into envelopes with labels such as utilities bills, rent, spa, dinner, etc. I know it sounds elementary, but it works!
4. Freeze your debt. Don't add to it. I put myself on a two-week financial diet last month, living on only 15 Euros a day. It was torture, but at the same time, I didn't feel any more or less happy. I did have to go to the spa much less, but when I did go, I ended up appreciating it more. To accelerate my debt obliteration, I may have to do this more often this year. For some more ideas, refer to The Motley Fool.
5. Perhaps most importantly, try to increase your cash flow. If you get a large tax refund every year, you can request to lower the amount of taxes deducted from your paycheck so that you don't give Uncle Sam an interest-free loan. And if you're really a workaholic, then you can get a second job.
Once you're financially free, congratulate yourself and never backtrack.
To stand on your own financially must be the most amazing feeling ever! Just a few more months to go...
I'm not exactly in an enviable financial position at the very moment, although I definitely won't complain either. I'm the first woman in my family earning the amount of money I do and I'll definitely be the first woman in my family with either a self-financed Hermes Kelly, Birkin, or Lindy - or all three.
People might be wondering why it has taken me over eight years to be on the precipice of obliterating my debt once and for all. Eight years is a long time, but I think part of the reason it's taken this long aside from my constant obssession with shopping is I had been investing and at the same time focused on debt obliteration most of the time. Now that my portfolio is down in the double digits, I wonder all the time whether I've taken the wrong path.
But at the time, given the benefits of compounding and low interest rates, I chose to invest and at the same time pay off my debt. Now, I know compounding can work against you too - especially when you're just starting out and don't know what you're doing. The blessing in disguise is that when I do finally become financially free, I won't be starting out from zero again. However much my portfolio will be worth then, at least I'll have relatively liquid assets.
Anyway, I do want to point out that one's mindset when investing with debt vs. investing when you're fully financially free will probably be very different. I've definitely committed some financially suicidal moves over the past few years, which if I had been fully financially free, would probably not have made.
So, looking back, did I take the wrong financial path? Maybe I shouldn't even look at it that way. All I know is I've taken all these steps to financial freedom. I had to work really, really hard, but that actually made me feel like I deserve financial freedom. Being who I am, I probably wouldn't have wanted it any other way. So, I should now focus on what I could be doing next to make my portfolio better than ever before.
It was quite interesting when Hillary Clinton was running for President (and I insist to this day that she should have been elected), she had suggested that home economics, including financial budgeting, be reintroduced into the education system. I'm all for it. I had to read a ton of books and do a lot of research to learn basic financial management skills. Even if you study at a university that is supposed to be specialised in finance, they won't teach you the basics - which is what's most important. For some people, this stuff might come naturally, but judging from the state of our economy, it's definitely not the case for the majority of people. So for anyone feeling terrible / lost / hopeless about their financial situation, you need to keep your hope up and know you can get out of it even if you're a chronic shopaholic like myself.
Anyway, back to the subject of investing vs. debt obliteration... if you're in a similar situation, do you choose investing or fast-track debt obliteration?
The short answer is if you know what you're doing with investing and if you could get very low interest rates, then investing whilst carrying debt makes sense. I was able to get interest rates of 3% or less about 50-60% of the time I was carrying a lot of debt. Back when I could get a 5.5% APY on a savings account, keeping the cash in my account made a lot of sense. Not anymore.
If, however, you've got astronomical interest rates, then investing with debt is financially sinful in my diva opinion. The historical rate of return on stocks is about 10% annually. Factoring in taxes and inflation, your expected rate of return on your portfolio must be much higher than your APR in order for investing to make sense.
Now, what can you do to get out of debt?
1. It may sound simple and it's going to be a bit of do as I say not as I do, but the first step is to ensure that what you do earn is greater than what you spend. Many people will look at their gross salary and think it's a lot and go out and basically spend it all and wonder why they have nothing left. Been there, done that. Looking at your net salary is what matters most in budgeting.
2. Be strategic and map out all your debt in Excel. List out any and all debt you have along with APR rates so that you're never in denial. Pay off the highest interest debt first.
3. Renegotiate your APR. Even if your credit score is not ideal, don't let it stop you from calling your bank and at least attempting to renegotiate your APR on any of your loans or credit cards. I do it all the time and banks are usually responsive as I have a good credit score. Even if you save 1 or 2% a year, your savings will add up.
3. What has helped me a lot during the past year is paying cash or using my debit card for every purchase. With cash, you can implement the envelope method, which is splitting your cash up into envelopes with labels such as utilities bills, rent, spa, dinner, etc. I know it sounds elementary, but it works!
4. Freeze your debt. Don't add to it. I put myself on a two-week financial diet last month, living on only 15 Euros a day. It was torture, but at the same time, I didn't feel any more or less happy. I did have to go to the spa much less, but when I did go, I ended up appreciating it more. To accelerate my debt obliteration, I may have to do this more often this year. For some more ideas, refer to The Motley Fool.
5. Perhaps most importantly, try to increase your cash flow. If you get a large tax refund every year, you can request to lower the amount of taxes deducted from your paycheck so that you don't give Uncle Sam an interest-free loan. And if you're really a workaholic, then you can get a second job.
Once you're financially free, congratulate yourself and never backtrack.
To stand on your own financially must be the most amazing feeling ever! Just a few more months to go...
Barclays: Cat Calling the Kettle Black...
Oh, karma certainly has a way of getting back at us. Maybe this is a sign I shouldn't be getting other Finlay bondholders to accelerate the bandaid ripping procedure mentioned below. After spending a good two hours working on a presentation at work, I ended up somehow saving over the original with a revised version. Being that I need both versions in Visio, that wasn't very helpful. Luckily, I had made a JPG of the first prior to my mishap of saving over it.
On another note, I even made up my own expression today... cat calling the kettle black! Oops...
An even bigger oops? Barclays' new TV ad!
Now that's the cat calling the kettle black...
On another note, I even made up my own expression today... cat calling the kettle black! Oops...
An even bigger oops? Barclays' new TV ad!
Now that's the cat calling the kettle black...
Monday, July 6, 2009
Any Finlay Enterprises Bondholders Out There?
Hey guys... if anyone is a fellow bondholder of Finlay Enterprises, please contact me by posting a comment below.
If we can get 25% of us together to demand immediate payment of our Senior Notes, we can accelerate the payment process and maximise our payout. (Should I be caring about any potential bad karma at this point? Finlay has indicated they have no intention to make the interest payment. If Finlay continues to operate, they will just be eroding their asset base away, leaving Senior Bondholders with a much lower recovery rate.)
Financially, it is in everyone's best interests to accelerate the process - especially for Senior Noteholders.
So, I say rip the Finlay bandaid right off.
If we can get 25% of us together to demand immediate payment of our Senior Notes, we can accelerate the payment process and maximise our payout. (Should I be caring about any potential bad karma at this point? Finlay has indicated they have no intention to make the interest payment. If Finlay continues to operate, they will just be eroding their asset base away, leaving Senior Bondholders with a much lower recovery rate.)
Financially, it is in everyone's best interests to accelerate the process - especially for Senior Noteholders.
So, I say rip the Finlay bandaid right off.
Thursday, July 2, 2009
Ultimately, We Are Responsible... AIG Holds First Shareholder Meeting Since Collapse
Oh, this story is just so heartwrenching. I finally understand the mistake I've made in purchasing AIG shares.
Rather than contending with institutional shareholders on what's considered fair to all shareholders of the company on any future issues, individual shareholders will need to battle the complacent U.S. government - far worse, in my opinion. As individual shareholders, our voice is only 20% of votes - which is a no-win situation. Even if all 20% of us agree, we're still only a minority. No wonder that horrendous reverse split scenario was approved.
One of the shareholders at the AIG meeting asked a very poignant question: "We don't see anybody being held accountable. Who's responsible? And who is going to be held accountable?"
The short answer is: ultimately, we as individual shareholders are the ones responsible. No one else will ever be able to safeguard our portfolios better than we will. So, we've got to be the ones doing the due diligence and creating a contingency plan.
Right now, I've only got a very small amount of money to invest, but I've got to maximise the effectiveness of this capital on all future trades. To start with, I recently created an asset allocation plan to determine the amount of capital I would invest every year in each market that I trade, including equities, forex, corporate bonds, and cash reserves. As my knowledge on investing expands, I plan to add other investment vehicles to my overall asset allocation plan. I intend to evaluate the performance of each investment vehicle on a bi-annual basis to determine if I need to rebalance my portfolio. By adhering to this plan, I will continue to ensure that my portfolio is well-diversified. I will also be able to quickly take action in case there's a once-in-a-lifetime opportunity presenting itself in Market A relative to Market B. Opportunity costs are often overlooked in my portfolio planning, so I've got to account for this in the future.
Secondly, I also created a portfolio targeting plan for my equities. This is basically a scenario analysis that enables me to forecast potential profit on positions by targeting the 52 week high and the all-time high. Other potential price targets could be 50% of 52 week high or 50% of all-time high, depending on your time horizon. The really good thing about this scenario analysis is that I started plugging in different numbers of shares - essentially playing around with the position sizes to see how that would affect P/L. This is very enlightening. On some positions, if you add more shares, you get a much better profit. Obviously, it's better to do the scenario analysis prior to buying any shares. Right now, I've done the opposite, which is buying the shares prior to the analysis. In the future, this will change. I will not only do this scenario analysis, but will also look at it from an OTT view - that is, I'll compare a few different stocks at once and choose the one that yields the best reward with the least risk.
Finally, I've got to make up for lost time. I've been financially irresponsible in the past, so now I've got to be much more careful and diligent. Rather than jumping in head first, I've got to first test the water a bit. After all, ultimately, we are the ones responsible.
Rather than contending with institutional shareholders on what's considered fair to all shareholders of the company on any future issues, individual shareholders will need to battle the complacent U.S. government - far worse, in my opinion. As individual shareholders, our voice is only 20% of votes - which is a no-win situation. Even if all 20% of us agree, we're still only a minority. No wonder that horrendous reverse split scenario was approved.
One of the shareholders at the AIG meeting asked a very poignant question: "We don't see anybody being held accountable. Who's responsible? And who is going to be held accountable?"
The short answer is: ultimately, we as individual shareholders are the ones responsible. No one else will ever be able to safeguard our portfolios better than we will. So, we've got to be the ones doing the due diligence and creating a contingency plan.
Right now, I've only got a very small amount of money to invest, but I've got to maximise the effectiveness of this capital on all future trades. To start with, I recently created an asset allocation plan to determine the amount of capital I would invest every year in each market that I trade, including equities, forex, corporate bonds, and cash reserves. As my knowledge on investing expands, I plan to add other investment vehicles to my overall asset allocation plan. I intend to evaluate the performance of each investment vehicle on a bi-annual basis to determine if I need to rebalance my portfolio. By adhering to this plan, I will continue to ensure that my portfolio is well-diversified. I will also be able to quickly take action in case there's a once-in-a-lifetime opportunity presenting itself in Market A relative to Market B. Opportunity costs are often overlooked in my portfolio planning, so I've got to account for this in the future.
Secondly, I also created a portfolio targeting plan for my equities. This is basically a scenario analysis that enables me to forecast potential profit on positions by targeting the 52 week high and the all-time high. Other potential price targets could be 50% of 52 week high or 50% of all-time high, depending on your time horizon. The really good thing about this scenario analysis is that I started plugging in different numbers of shares - essentially playing around with the position sizes to see how that would affect P/L. This is very enlightening. On some positions, if you add more shares, you get a much better profit. Obviously, it's better to do the scenario analysis prior to buying any shares. Right now, I've done the opposite, which is buying the shares prior to the analysis. In the future, this will change. I will not only do this scenario analysis, but will also look at it from an OTT view - that is, I'll compare a few different stocks at once and choose the one that yields the best reward with the least risk.
Finally, I've got to make up for lost time. I've been financially irresponsible in the past, so now I've got to be much more careful and diligent. Rather than jumping in head first, I've got to first test the water a bit. After all, ultimately, we are the ones responsible.
Wednesday, July 1, 2009
Never Say Never: Another Bimbo Reverse Split Moment
How much more embarrassing can my trading get? I'm almost afraid of telling people which university I attended for fear of damaging my alma mater's reputation. It's true I never majored in finance (good to know your own strengths and weaknesses, right), but still you would think I'd have more common sense than getting into another reverse split scenario.
Just when I thought I was finished nursing my trading wounds for good, I recently acquired a small position in AIG and failed to do my due diligence, which caused me to neglect the minor but major fact that they have announced a 1 for 20 reverse stock split.
The problem with this is that my position was small, so now I've only got 15 shares in AIG. I'm wondering if I should be laughing or crying.
OK, I could look on the bright side... I didn't invest too much to begin with, so this is where risk management works for you. But it's a bottomless pit in the sense that if I don't add more shares to a Reverse Split stock, I'll be waiting 100 years before it ever breaks even. In this case, it's probably not even worth adding more shares.
I'm going to do some more research on the whole topic of the Reverse Split and post any interesting info I find here.
For now, I've got to go back to nursing my C position. Please let other shareholders have enough sense to reject this whole Reverse Split notion. From my experience, a Reverse Split is never good. And I had such high hopes for Vikram Pandit. Sigh.
Just when I thought I was finished nursing my trading wounds for good, I recently acquired a small position in AIG and failed to do my due diligence, which caused me to neglect the minor but major fact that they have announced a 1 for 20 reverse stock split.
The problem with this is that my position was small, so now I've only got 15 shares in AIG. I'm wondering if I should be laughing or crying.
OK, I could look on the bright side... I didn't invest too much to begin with, so this is where risk management works for you. But it's a bottomless pit in the sense that if I don't add more shares to a Reverse Split stock, I'll be waiting 100 years before it ever breaks even. In this case, it's probably not even worth adding more shares.
I'm going to do some more research on the whole topic of the Reverse Split and post any interesting info I find here.
For now, I've got to go back to nursing my C position. Please let other shareholders have enough sense to reject this whole Reverse Split notion. From my experience, a Reverse Split is never good. And I had such high hopes for Vikram Pandit. Sigh.
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