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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35357  
Subject: Washington Mutual Date: 6/11/2012 2:10 PM
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Remember them? They went under due to their sub-prime lending. But slowly, creditors are being returned a bit of their money. Two checks arrived in today’s mail from the WMI Liquidating Trust.
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Author: altstrat91 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34196 of 35357
Subject: Re: Washington Mutual Date: 6/12/2012 1:21 PM
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interesting. did you have to do anything in the past in order to receive this correspondence/check from the trust, such as fill out litigation type claim work and prove your purchases, etc.?

can you say what was the classification of the bonds you received these checks for; subordinated/unsecured debt, etc.

don't want to know the personal specifics like how much money you recovered, but in terms of pennies on the dollar, can you simply state what the recovery was?

i realize every case and company liquidation is different and unique, but with some of the junk i am holding right now and the fact that my ATPG bonds looks like they are headed to oblivion soon, i am always curious about situations you are posting on.

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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34197 of 35357
Subject: Re: Washington Mutual Date: 6/12/2012 3:15 PM
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altstrat91,

I'd be happy to share details on my WAMU holdings if they were easily at hand. But I'd have to dig through a ton of records to track down the details. As I recall, I had two positions, both tiny. On one, I recovered far more than I paid. (The workout was par plus a premium, and I got in around 85.) On the other, the workout was cents on the dollar, and I took a beating for having bought near par.

There are published schedules of historical workouts. Moodys has done them (if I'm remembering right). And I know some can be found in Barnhill's book on high-yields. But, typically, that was then, and this is now, and reported workout-ratios are far higher than my actual experience, which is maybe 50 BKs so far. But I'd have to pull records to confirm that, and the number might be higher or lower. I just don't know. But my guess is that my experienced default-rate is around 3%-5% and that I've bought somewhere around a thousand positions (though not all of them were/are corporates).

But, also, if one is buying bonds correctly, Chapter 11 filings and workouts are more of a nuisance than a serious threat to overall profitability. They happen, and they have to be dealt with. But they really are just a cost of doing business, no different than getting stopped out of a declining stock position. In other words, to use Ben Graham's framework, one can play the bond-game 'defensively', or 'enterprisingly', or 'speculatively'.

-If one chooses the former path, defaults will never happen. But also, returns won't ever --except in the rarest of circumstances-- offer a real-rate of return after taxes and inflation. Thus, to buy bonds 'defensively' is to choose to lose money slowly. In other words, one is 'conserving capital' the way one 'conserves energy'. A resource is being consumed, but in a deliberate, planful manner.

-If one chooses the middle path, defaults should occur at pretty close to historical averages. The upside is that returns can be decent, even quite good. It all depends on how skilled the person is and/or how easy the bond market is at the time. Here, the strategy is 'capital preservation' (aka, the preservation of purchasing-power.) If money is made, fine. But the real intent is just to move surplus capital forward to the future against the time when it might be needed and to do so dependably and efficiently. It's a boring, dull business of grind, grind, grind. (But one sleeps well at night. LOL)

-If the latter path is chosen, defaults situations are aggressive saught after. There are people who do it well, e.g., Marty Whitman. In other words, BK investing is a genuine, capital-appreciation strategy. But it's also a specialization beyond my interests and skills. I'm just a Goldilocks, 'middle path' guy. I take on enough bond-risk to make decent nominal money, not so much that I get myself into more trouble than I can manage with ordinary, Ben Graham-type due-diligence and very disciplined position-sizing.

Yes, ATPG is crashing, as anyone should have known would happen when they bought it, which is why I'm long that bond and short their common.

Charlie

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