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Author: Wotdabny Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459883  
Subject: Re: 2009 Contest - Show Your Work Date: 12/30/2008 2:39 AM
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My pick is an ETF: PGF, all preferred stock, all financials. It started trading at 25, and presumably will again some day. Although it has also traded as low as 10, it was only once, and not for long. It’s more reasonable to hope to pick it up at 10.5, but today it closed at 12.4. Its weighted average distribution is a little better than about 7.5%. If we assume a loss to that yield of about 1% due to catastrophic failures in spite of the, ahem, insurance offered by the US Gov, we have a reduced average payout of 6.5% at par. If we pick it up, however, at today's close of 12.4, that gives us an effective payout of 11.4%. Even with failures that might be adjusted to perhaps 10%. Held until sold nearing 25, whenever that is -- could be a year, could be ten -- you get a double, but with that yield -- which , being an ETF, you get to compound even though we're talking about preferred stock -- the return should be around 20%, over any period that ends with you selling it near 25.

Yet, I'm not long just now. I've been doing too well selling cash-secured puts on obviously great investments to bother with it. And yes, there's an options market for PGF as well. I'm one of two guys trading it right now.

Waiting for the volatility to come back,
Dave
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