comlb
Lieutenant
Posts: 68
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Post by comlb on Jan 7, 2023 8:13:32 GMT
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Post by chang on Jan 7, 2023 11:04:06 GMT
It amazes me that these CEFs are still trading at premia. I would consider owning PMF, PML, PMX if discounts widened to > 10%, but I doubt that I’ll see that. Until then, I have no use for CEFs.
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Deleted
Deleted Member
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Post by Deleted on Jan 7, 2023 11:24:12 GMT
comlb, What is your take on this development? Limited or signs of more broad issues in this area? I have experimented with one CEF - UTG. I have been nervous about unknown risks there - to me, there just has to be a catch for something to yield so much. Having gone through the MLP melt down and Kinder Morgan implosion, I know all about ignoring high yield/risk tradeoffs. All I know about CEFs is they use leverage. And the best money managers in the world make mistakes too. Factor in whatever could be lurking due to free money for so long and its demise, and I am doubly nervous to invest here. The "declined to comment further" statement is not comforting.
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Post by steelpony10 on Jan 7, 2023 11:30:49 GMT
comlb , They were pretty aggressive with leverage. Better returns in good times not so good in bad times. That’s how some CEF’s work and PIMCO is the best managers in that area. If you’re looking for warts that would be one. We’ve had 2 cuts with other aggressive ones ourselves already which usually occur in the first quarter of the year. Our two are down to the 12%+ area now. Since we invested during the bank crisis at deep discounts we had our initial investment returned to us in about 5 - 7 years so it 12%+ free money at this time. Incidentally that initial investment went mostly back into VTI which is still down in value and with no cap gains. That’s one of equities’ warts. A 12%+ return of free money doesn’t look to shabby to me at the present time considering the alternatives are equities, conventional bonds and the current inflation rate. Since we generate an excess cash flow we can also compound that excess up to those high rates if we choose year round year after year. seekingalpha.com/article/4567799-municipal-bond-cefs-surprise-surprise-pimco-finally-cuts-muni-bond-cef-distributions
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Post by Fearchar on Jan 7, 2023 11:33:06 GMT
@slooow ,
These are generally leveraged investments and the FED is working to squeeze that out.
Cost of leverage is going up, so what's worked in the past won't work as well in the future.
Also, many Muni's are flush with Covid Cash; so currently they have great finances.
Yes; many have have saved enough to tide them over the squeeze period, but eventually the big spenders
are going develop problems and need to refinance themselves.
The FED will eventually ease off, but since their aim is to reduce spending, it will get really dicey politically.
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Post by steelpony10 on Jan 7, 2023 11:42:37 GMT
@slooow ,
Ha. Ha. If you were retired how would you feel about your other investments now in light of car trouble, home repairs, medical bills, high inflation and unknowns. That’s what made me nervous. Fluctuations in values are common to all investments and distributions to CEF’s. Cap gains fluctuate with equities.
Take your initial investment minus each monthly distribution and calculate when you get all your money back in the future then just enjoy the windfall that occurs after that in all markets. Since you’ve tied up some of your cap gains in dividend stocks as an income investor have someone sell your CEF’s last if your ever reach LTC which really slows spend down.
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Deleted
Deleted Member
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Post by Deleted on Jan 7, 2023 11:46:23 GMT
Fearchar, steelpony10, Thanks. I don't know what I don't know here. I am being careful of any financial asset so dependent on rates right now, particularly if leveraged. I would not be surprised if there minefields still to be discovered in the financial markets. That includes high multiple equities as well. I really don't like seeing a 45% payout cut with no comment.
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Deleted
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Post by Deleted on Jan 7, 2023 11:48:28 GMT
@slooow , Ha. Ha. If you were retired how would you feel about your other investments now in light of car trouble, home repairs, medical bills or surprises? Take your initial investment minus each monthly distribution and when you get all your money back in the future just enjoy the windfall. Since you’ve tied up some of your cap gains in dividend stocks as an income investor sell your CEF’s last if your ever reach LTC. I would feel fine actually. The message here might be purchase with a very large margin of safety. Just anecdotally, that doesn't seem to be now. I understand these instruments have done well for you. For me, they are not an option at this time. edit - and if I had a payout cut of 45% with no comment, that would be the end of my relationship with that management team. |
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Post by steelpony10 on Jan 7, 2023 11:56:50 GMT
@slooow,
Long term, long term, long term. Markets fight an uphill battle every day. Your out to stretch your retirement savings as long as you can. Nothing is guaranteed to do that. VTI makes me nervous, progress has stopped for an indeterminate time. I have to fight the urge to convert it all to CEF’s now. There’s no end to what I don’t know either. I just invest for the monthly paycheck whatever that is.
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Post by steelpony10 on Jan 7, 2023 12:09:30 GMT
@slooow , Ha. Ha. If you were retired how would you feel about your other investments now in light of car trouble, home repairs, medical bills or surprises? Take your initial investment minus each monthly distribution and when you get all your money back in the future just enjoy the windfall. Since you’ve tied up some of your cap gains in dividend stocks as an income investor sell your CEF’s last if your ever reach LTC. I would feel fine actually. The message here might be purchase with a very large margin of safety. Just anecdotally, that doesn't seem to be now. I understand these instruments have done well for you. For me, they are not an option at this time. edit - and if I had a payout cut of 45% with no comment, that would be the end of my relationship with that management team. If your ok then and CEF’s bother you then get out. I have the same poor opinion of equities because I saw them fail in extreme circumstances, LTC, 5 time already. All I do in retirement is receive monthly income in varying amounts with little work holding 50% of our portfolio in reserve currently in dead money, no gains, losing purchasing power and compounding for an unknown period plus flipping out every day over headlines. PIMCO used really aggressive leverage with those munis. Plain as day. So investor error, greed. Not PIMCO but ignorance. That’s how CEF’s work, distributions vary that’s it. That’s one reason I invested in excess to needs, way in excess. If you would dump PIMCO management not telegraphing a distribution cut that more experienced investors might see as a possibility (high short term borrowing rates), CEF’s may not be for you. So to good to be true for some and great for others as it should be. |
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Post by FD1000 on Jan 7, 2023 14:23:42 GMT
@slooow , Ha. Ha. If you were retired how would you feel about your other investments now in light of car trouble, home repairs, medical bills, high inflation and unknowns. That’s what made me nervous. Fluctuations in values are common to all investments and distributions to CEF’s. Cap gains fluctuate with equities. Take your initial investment minus each monthly distribution and calculate when you get all your money back in the future then just enjoy the windfall that occurs after that in all markets. Since you’ve tied up some of your cap gains in dividend stocks as an income investor have someone sell your CEF’s last if your ever reach LTC which really slows spend down. I had in the past car problems, leaky roof, repairs and others. Last year, my wife crashed her car and we bought a new one. The dealer accepted $10K credit card (I get 2% cash back) and for the rest we took the dealer loan because we got another $500 of the price and paid it in 2 weeks. How we did it? keep reading Emergency fund: after your savings pass a certain amount (for us $50K+) we no longer have cash or emergency for over 2 decades and now in retirement. Do I really need an emergency fund? not really, first I use credit cards, if I can't, I have several thousands in the bank. Beyond that, I can sell my mutual funds and get the money within 2 days. Unless you buy illegal drugs or a ransom, why would you have an emergency fund? CASH: Do you really need years of cash, even as a retiree? IMO, a retiree needs maybe 3-6 months at most. Most/all retirees have a cash flow from SS + distributions + pension + can sell something, what is so difficult to sell 3-4 times per year. When stocks do better, you can sell stocks, when stocks lose, you can use bonds. Some of these bonds should be a ballast for stocks, which means in market meltdown they will go up or have minimal losses. Bonds have different categories, risk, duration and behavior such treasuries, Munis, HY, bank loan, MBS, TIPS, emerging markets, and corp. Usually, over longer term hold, they will do better than money markets and CDs. You can sell your bond funds and see the money the next day in your account. CASH for trading: I never understood this concept, and I'm a trader and not a typical investor. A typical investor have stocks+bonds. If stocks go down, and you want to buy more stocks, it's pretty easy to sell some bonds and buy stocks, so why be in cash for months-years making almost nothing. The only exception for me happened after our portfolio was big enough, and I was several years before retirement. I added max loss allowed rule to protect my portfolio. Since then, I'm in the market most time and invested at 99+%(never cash). Only at extreme risk, I'm out. How can a retiree create monthly cash flow? Pretty easy. She can use 1 (or more) funds and create a repeatable monthly sell order for the amount she needs for years to come. It takes about 2 minutes and there is nothing to do after that. A more sophisticated retiree can sell 3-4 times annually the fund that made more money or from the account (taxable, IRAs) she likes to use. She has a full control of what and how to do it. BTW, if it's in a taxable account, you will pay more taxes on CEFs which have very high distributions, regardless if you need all of them. ================= Many CEFs have similar volatility as stocks and why they should be used as part as your stocks portion. In the last several years they didn't do well on risk+reward. Someone who looks for higher yield can use SCHD which I posted about, for several years, easily over 5 years. PDI, managed by the best managers in the world made 6% total in 5 years, yes, it's not a mistake. PV( link) shows how bad PDI was compared to SCHD with similar volatility but worse for max draw and worse year. See below all the numbers (Sharpe, Sortino) for PDI, they are terrible. But, for the first time in years, I said, that CEFs are OK for 2023. Attachments:
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