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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 35345  
Subject: Re: Howard: Leucadia? Date: 2/18/2012 4:35 AM
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Hi Charlie,

It’s been a while since I posted here, but I still browse the board regularly. Yeah, Leucadia was the first individual bond I ever bought because I felt comfortable with management. I paid 82.133 for the 8-1/8’s of ’15 on 4/13/09. At todays mark of 110.25 and 23.11 of earned interest (since my purchase) gives me a total return of 62.4% in something less than 3 years. My issue is “non-callable” so I will probably hold to maturity for a YTM of 12.2%. Amazingly, the current 62.4% total return is one of my poorer performing bonds from those days. Ah, those were the days!!!!!

I agree with you about the importance of diversification. From my personal experience, I’ve come to the conclusion that diversification and position-sizing is the “most important” metric when it comes to consistent junk bond portfolio performance…none of this 10 bonds for me! I’m now in the process of adding additional new issues in order to reduce the effects of any given default. I learnt this the hard way by holding an overweight position in the pulp and paper industry and especially Newpage. Newpage and Norske have since defaulted on me and Verso may be on it’s way. But in spite of this, my ALL-JUNK portfolio has done and continues to do quite well and I’m still finding buys. I’ve made 6 purchases so far this year (usually 2 or 3 bonds each).

At current market prices, my portfolio is averaging a CY of 9.8% and a YTM close to 12.5% going forward. I hold something like 70 unique issues with a weighted-average maturity of 8.4 years and B2/B+ rating. If I can hold defaults down below 3% per year, I can earn close to 10% per year (which is my target). I now only do new buying in tax deferred accounts which allows me to reinvest all interest payments (I feel paying tax on interest/inflation is disgusting). The goal is to eventually have my total RMD covered by my bond interest payments.

BTW, I did stop buying junk last year (2011) from July to Nov when it looked like we were heading into recession and default rates would rise dramatically, but once again, the economists and the media overreacted to the economic risks.

Good to see you are back posting,
Howard
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