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Author: howardgt One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Re: Your Best Pal, Ben? Date: 9/16/2012 5:27 AM
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Charlie,

It’s nice to exchange buy lists with you. Maybe we can both find a few more buy candidate from this. But first a few responses to your responses :)

The bets Taleb makes aren’t ‘highly leveraged’
I understand that Taleb does not risk much of his own capital, but as you say, he uses “out-of-the-money” options to obtain his leverage. I consider options a “highly-leveraged” derivative and this was what I was referring to.

But the problems are fiscal, and until spending is less than revenues, the economy will struggle, if not collapse.
Actually a struggling economy forces the Fed to keep interest rates low and consequently causes upward pressure on most financial markets. This is why I am prepared to follow the “don’t fight the fed” mantra. A collapse is a different story, but I’m betting against it for now.

But ‘everyone’ isn’t worried. Complacency is rampant. Even the gold bugs aren't as panicked as they should be.
I wasn’t talking about everyone. I read lots of doom-and-gloom scenarios... much more than past decades. Gold is close to it’s all time nominal high. I see lots of worry out there (Fiscal cliff, European crises, Iranian attack, etc).

Ok enough prophesying about the future... Here are my YTD purchases and returns so far:

Issue Yrs-to CY YTM DateBot PrcPaid Mark P/L% CY YTM TotRet
Mat cost cost 9/14/12 mkt mkt
NM 6.4 10.4% 12.86% 1/17/12 78.417 92.000 17.3% 8.8% 9.83% 24.2%
james river 6.5 10.0% 12.50% 1/23/12 78.467 57.000 -27.4% 13.8% 19.91% -20.9%
bon ton 1.5 15.7% 34.79% 2/10/12 65.400 97.750 49.5% 10.5% 11.93% 58.8%
RSH 6.7 8.1% 9.98% 2/13/12 83.585 68.000 -18.6% 9.9% 14.36% -13.9%
RRdonlly 8.6 9.5% 9.96% 2/14/12 93.525 101.212 8.2% 8.8% 8.67% 13.8%
GTE north 15.4 9.4% 10.38% 2/16/12 71.800 82.271 14.6% 8.2% 8.86% 20.0%
RRdonlly 8.6 9.2% 9.40% 2/22/12 96.775 101.212 4.6% 8.8% 8.67% 9.8%
mirant 18.6 10.0% 10.15% 3/01/12 91.400 107.000 17.1% 8.5% 8.37% 22.4%
mbia 9.9 8.4% 10.11% 3/07/12 76.400 74.500 -2.5% 8.6% 10.62% 1.9%
bon ton 1.5 13.9% 28.22% 3/07/12 73.650 97.750 32.7% 10.5% 11.93% 40.0%
stonemor 5.2 10.7% 11.24% 3/08/12 95.850 101.500 5.9% 10.1% 9.87% 11.4%
exide 5.4 10.5% 13.16% 3/12/12 81.775 86.625 5.9% 10.0% 12.07% 11.3%
ferrellgas 7.8 9.3% 9.93% 3/16/12 92.725 98.000 5.7% 8.8% 8.98% 10.3%
tenneco 13.3 10.4% 11.43% 3/23/12 76.150 80.000 5.1% 9.9% 10.82% 10.0%
exco 6.0 8.7% 10.58% 4/20/12 85.900 95.625 11.3% 7.8% 8.44% 14.8%
Penn Va 3.8 11.1% 12.34% 4/30/12 93.775 102.000 8.8% 10.2% 9.72% 12.9%
AKSteel 7.7 9.2% 10.86% 6/26/12 83.150 92.000 10.6% 8.3% 9.09% 12.7%
Nokia 6.7 6.9% 10.01% 7/11/12 77.400 84.394 9.0% 6.4% 8.49% 10.3%
amerenenergy 7.5 7.9% 10.06% 7/13/12 80.150 88.500 10.4% 7.1% 8.39% 11.8%
JCpenney 4.5 8.2% 8.70% 7/16/12 97.139 105.250 8.3% 7.6% 6.59% 9.7%
GlobalServ 4.6 10.9% 11.51% 7/30/12 96.350 94.250 -2.2% 11.1% 12.15% -0.8%
AKSteel 9.5 9.6% 10.43% 8/06/12 87.650 91.000 3.8% 9.2% 9.85% 4.9%
toys r us 6.1 8.4% 10.00% 8/21/12 88.150 89.750 1.8% 8.2% 9.64% 2.4%
DexOne 4.5 23.9% 38.38% 8/27/12 39.700 36.000 -9.3% 26.4% 42.30% -8.1%
US Steel 9.5 7.6% 7.70% 9/05/12 98.650 101.000 2.4% 7.4% 7.35% 2.6%
cenveo 4.7 13.0% 14.99% 9/06/12 88.500 87.000 -1.7% 13.2% 15.50% -1.4%
Penn Va 6.6 8.0% 9.22% 9/10/12 90.400 93.000 2.9% 7.8% 8.67% 3.0%

Total 7.2 10.3% 13.09% 81.384 85.867 5.5% 9.8% 11.34% 9.2%

YTD I’ve purchased $59,000 face at a cost of $48,017 (81.38) which is marked today at $50,662 (85.867).

I’m currently showing a 5.5% unrealized gain and a 9.2% total return on my 2012 purchases, CY of 10.3% and YTM of 13.1% on my cost. Weighted average of 7.2 years to maturity and single B rated portfolio.

I think I’m on target to meet my 10% return goal after defaults, calls and maturities (assuming no economic collapse).

In 2013 some of my prior year purchases will begin rolling-off, so I may need to be more aggressive in my purchase program.

But overall, I find Junk Bond investing much easier than equity investing. I think in general, most stocks are priced for an optimistic outcome, while most junk bonds are pricing in negative surprises. I attribute this to the fact that retail buyers are not a big factor in the day-to-day market. I have no problem with the high spreads if this is what is necessary to keep the retail buyers out and prices reasonable.

Howard
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