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No. of Recommendations: 23
MDLX is a 10 year exchange traded bond with a 6.875% coupon and par of 25. It is a recent IPO and now there is a secondary offering on it. Apparently the underwriters have no retail customers so they are dumping it on the market creating an excellent buying opportunity at $24.20.

Reasons to buy:

1) Bond goes ex-dividend 46 cents in a couple of days
2) Over the next 3 months you will collect 90 cents in dividends and once the dumping ends, it can easily trade at 24.68 giving you an additional 50 cents in gains. Over 3 months, the annualized return could be over 22%.
3) It is rated by Egan-Jones as A- and yet has a yield to maturity of 7.7% so it is very safe and crazy cheap. Checking other bonds like Hasbro, with only a BBB rating and 24 years to maturity yields only 4.75%. 10 year bonds of this quality generally yield around 4.5% while MDLX yields 7.7%. Look at PBB, a BBB- rated exchange traded bond. It sells for 25.80 and has only a 6.25% coupon versus 6.875% for MDLX.
4) I am not highly worried about higher rates, but being a bond means that you will receive at maturity more than you paid, so no interest rate risk if you hold it. Preferreds could be decimated if higher rates do occur over the next 10 years.

Disclosure - I own a ton of MDLX
Egan-Jones is the rating agency that doesn't get paid by the company to rate its stock, so no conflict of interest.
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No. of Recommendations: 0
tjberko:

Thanks for the heads up. Bought a small amount of MDLX today and will watch what happens on the near term before making any further decisions.

Appreciate it.

Gracepeace
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No. of Recommendations: 1
Glad to help, Gracepeace. Looks like buying from this Motley Fool board is already pushing MDLX higher. The ex-dividend date coming this week may also be a factor.
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No. of Recommendations: 0
It's stuff like this that makes this one of the best message boards here.

Thanks!

Mark

MDLX is a 10 year exchange traded bond with a 6.875% coupon and par of 25. It is a recent IPO and now there is a secondary offering on it. Apparently the underwriters have no retail customers so they are dumping it on the market creating an excellent buying opportunity at $24.20.
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No. of Recommendations: 0
I appreciate you all pushing the price up on this!
I bought last week....
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No. of Recommendations: 36
MDLX seems like a "pick your poison" option. We would all agree that you cannot find rock solid, sure thing companies that pay this high of interest on a 10 year bond. There are several companies with yields in that range, Albertsons, GEO Group, SLM etc. All of these are rated Moody's Ba3 or lower, which is "junk."

So the market for some reason is currently valuing MDLX like it is "junk." What is also strange is that this issue IPO'ed on August 4, 2016, about 2 months ago. If the underwriters could have floated it with a lower coupon, they presumably would have done so. So the market would NOT support an investment grade rating back then. Stated differently, the market is forecasting a significant chance of default on these notes.

The parent company, Medley, is a Business Development Company aka BDC. It owns paper assets, like loans, bonds and equity in middle market companies. Most of these companies presumably do not have high enough credit ratings to float their own paper, nor can they get a bank loan. Which is why they go to Medley or another BDC to get funding.

None of this is good or bad, it is just a statement of risk. If, and I am not forecasting it, we have a severe recession, Medley might go the way of the two largest BDC’s before 2008. ALD and ACAS, both went essentially BK in the downturn. This sets the outer limit of risk for MDLX IMO.

TJ is correct in his assessment that preferreds, which are “perpetual”, will get crushed if/when long term interest rates increase. Taking this to a ridiculous extreme and assuming you only have two investment options:

1) MDLX which pays 6.875% and matures in 2026. Best case, regardless of interest rates, you get paid 100 cents on the dollar in ten years. This has the highest probability IMO. Worst case, Medley is not able to make the interest payments and/or redeem the bonds in 2026. The bonds become ~ worthless. This is a lot lower probability, but it not 0.00% chance

2) PSA-pD pays 4.95% interest and is callable in 5 years, 2021. If interest rates fall, PSA will call this issue in 2021 and you receive 100 cents on the dollar. If interest rates rise significantly, PSA will NOT call PSA-pD. The value will drop, possibly a lot, but they will continue making the dividend payments. The probability of PSA NOT making a dividend payment is much, much lower IMO than Medley NOT making an interest payment.

There are a number of other exchange traded notes that are similar to MDLX. GLADO, GAINM, GAINO, GAINN, ABRN, SOHOM, LANDP, RFTA and RFT to name few. I am sure TJ has looked at all of these. Maybe at IPO, they were just as attractive as MDLX. I don’t know.

BOTTOM LINE is that MDLX might be a great buy at these prices, but understand there is a somewhat higher default risk, particularly compared to equity REIT preferreds. TJ very well might be right that MDLX will pay off in full, on time. Not surprisingly, Yoda finds it a little too risky for the widows and orphans portfolios. . .

Thanks,

Yodaorange
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No. of Recommendations: 22
Yoda, I believe your unwarranted fear of my buy recommendations to this board reflects more on your ultra conservative low yielding investment style than on reality. Some months ago I recommended PBB at something like 20 or 21, and you commented (with no foundation) that there was a 20% chance this bond would be worthless in 5 years, even though it carried a BBB- investment grade rating and a BDC bond has never not been paid off. PBB is now at $25.75 (with dividends, close to a 50% annualized return). I am sorry for anyone you scared off from buying PBB. You made the claim simply based on the price of the bond. You believe that if a bond has a high yield that it must be dangerous based only on the fact that it has a high yield. You miss all mispricing opportunities. That is your choice. I prefer to do the homework, understand the company and the bond, and make my own decision. You can believe it or not, but I achieve very high returns year in and year out with what I consider to be a very conservative approach. My first criterion in making an investment is that the downside risk be very small, but somehow you can turn an investment recommendation in a highly rated bond into a frightening nightmare. I am surprised you buy so many preferred stocks given their very high interest rate risk.

With regards to your post on MDLX, it was all incorrect. You based the post on the MDLX bond having been issued by a BDC. The issuer is not a BDC, but an asset manager, MDLY. MDLY has external management agreements with BDCs but they do not make high risk loans and they are not a BDC. I've done the homework on this issue and you clearly have not. I stand by my recommendation and the rating agency agrees with me. This is a very safe recommendation.

Did you buy my recommendation on SSW-C, or did you assume it was too good to be true because the market would have priced it higher if what I said was true? I know that you are trying to protect the people on this board, but I just feel your belief that the market always prices everything correctly is just plain wrong, and finding mispricings in high yield is the way to get rich in the market. I wouldn't keep using this investment strategy if it didn't work. It has worked for 15 years in the high yield space.
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No. of Recommendations: 4
I think both Yoda and Tjb are correct. And Jim too, wherever he has gone....

For myself and my own situation, I have a little bit on both ends of the "quality" spectrum and not too much of the total pie in interest rate sensitive areas.

Which of course means, I am and have been carrying a lot of cash and that hurts.

The recent past has not been easy, normal or predictable. I do not see any of this changing much.
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No. of Recommendations: 15
In my long experience with fixed income investing, there is one truism. When a company is small, it is automatically penalized and trades with a higher yield. Additionally, small company bonds are often not rated so many institutions can't buy them and others stay away. So this is where the true bargains lay. If you become your own ratings agency, learn to read a balance sheet and do the homework, you find bargains. If you simply look at current yield to determine risk, you don't understand the small company penalty and you miss the bargains. Small does not mean dangerous. There can be much lower leverage in a small company than a large one, and they can be in a safer business than the large one, and still have a higher yield than a large risky company. Understanding that is the key to making big money in fixed income. If you believe that the market always prices everything correctly then you might as well let a monkey make your bond picks. A bond does not have a high probability of default simply because it has a yield greater than 6% and it may be a much safer bond than one trading with a 5% yield. Preferreds and smaller company bonds are traded mainly by retail investors, many of whom do not know what they are doing. This is where one can get the edge on the market.
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No. of Recommendations: 11
tj:
A bond does not have a high probability of default simply because it has a yield greater than 6% and it may be a much safer bond than one trading with a 5% yield.


I think you and Yoda are talking past each other. I think both of you are correct.

The market is pricing the bond with a 6% yield as a higher chance of default than the 5% bond. Clearly, sometimes this risk is estimated incorrectly. What you are saying is that you think you have knowledge that indicates that this is risk is false.

Smaller companies do fail, in aggregate, more than large companies (they also grow faster). If you have knowledge about underlying assets or earnings power that others do not know you can make money.

I think that Yoda is pointing out that there is risk associated with this. It is easy to get hubris in this business. Things work until they do not.

Charles
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No. of Recommendations: 0
<i I think you and Yoda are talking past each other. I think both of you are correct. /i>
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No. of Recommendations: 5
Thanks for the excellent discussion everyone.

I would like to add a few points about MDLY (the company that issued MDLX).

On a GAAP basis, MDLY has lost money in both 1q16 and 2q16, and in the trailing 12 months has earned a total of .08/share

Despite these meager earnings, MDLY continues to pay .80/share in dividends
yearly.

Book value is negative.

I admit to having performed only a very cursory analysis of the company, but these kinds of numbers are not the typical of companies with bonds
rated A-.

Lee
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No. of Recommendations: 5
Charles, Yoda and I are not talking past each other. His whole fear-mongering was based on MDLX being a bond issued by a BDC which was plain wrong. MDLY has recurring fee based income and does not get income from high yield loans, so his analysis was worthless. I have been trading fixed income for 20 years and never had a bond default, yet you would think from the comments that these are high bankruptcy probability trades. Yoda does not play in the bond space that I play in, so he does know of what he speaks. I have made hundreds of trades just like the ones I recommend so I know how they play out. You can learn from one with experience or listen to one who speaks from the sidelines. That is the reader's choice. You can earn 5% buying ultra low yields, or you can earn 25% in mispriced low risk bonds and preferreds.
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No. of Recommendations: 10
Lee, you have also not done your homework. A cursory look at Yahoo finance does not come close to telling the MDLX story. MDLX is coming out with a new BDC which it will manage and they will be earning large recurring fees. It will start up in the 4th quarter. They were spending a lot of cash in Q1 and Q2 to get it started so those quarters are not indicative at all as you can see from earlier quarters which were profitable. Analysts estimate .71 per share in 2017 and they are low because they are underestimating the fee income that will come from this new BDC. I bought MDLY common at 5.25 and as people are catching on to the story the stock is now at 9.00. I believe it can even go higher although I did recently take some profits on a portion of my holdings. The book value means nothing because the value is in their management contracts which is where they earn their money. This does not show up in book value and they are worth a lot. If you put a value on these contracts, they would have quite a nice book value. As I stated in earlier post, I've done my homework on this one.
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No. of Recommendations: 4
Sorry Lee, I know you said you only did a cursory report and from what you saw, the concerns you had were legitimate ones to at least ask about. At least you did a little research. What I am most annoyed about is that I did a lot of research on this, which I do with any investment idea I provide to others, I am trying to share my hard work with others to help them, and then Yoda, who did no research and didn't even look at Yahoo's profile to see what the company did, pisses on the idea. I am wondering why I bother to post when I constantly have to spend time defending the investment idea from someone who is always going to fear ideas that have high return potential regardless of the facts and who apparently is smarter than myself and the analysts at Egan-Jones.
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No. of Recommendations: 21
I am wondering why I bother to post when I constantly have to spend time defending the investment idea from someone who is always going to fear ideas that have high return potential regardless of the facts and who apparently is smarter than myself and the analysts at Egan-Jones.

I suspect that many board members -- including me -- welcome your ideas, but would love to see those ideas tempered with Reitnut's legacy of humility and respect.

It might have helped had you mentioned the troubles with Egan-Jones and that in 2013 Egan-Jones was barred from rating securities for eighteen months. It might have helped to give some history of the Taube brothers. It might have helped to explain the relationship between Medley Management and Medley Capital. There certainly are enough investigations and lawsuits to provide abundant material for further research.

Ears
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No. of Recommendations: 6
What I am most annoyed about is that I did a lot of research on this, which I do with any investment idea I provide to others, I am trying to share my hard work with others to help them, and then Yoda, who did no research and didn't even look at Yahoo's profile to see what the company did, pisses on the idea.

I do not post ideas much anymore. However, the way I want my suggestions looked at is the opposite of yours. I want people to show me holes in my ideas. I see no benefit in having people pat me on the back and tell me how brilliant I am. Tell me why I have foolishly put my money at risk.

Charles
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No. of Recommendations: 3
Well at least you did some research, Ears. I commend you for that. But further criticism from you that 1) I didn't spend hours writing my post providing every detail of my research before posting and 2) that I have personality problems is not exactly what I needed to hear. Egan-Jones was not in trouble for giving false or inaccurate ratings, so it is irrelevent. I am sorry I am not Ralph. Ralph also didn't have Yoda criticizing his posts without research and with completely false information. Yoda would have never done that with Ralph. I see that Yoda's critical post of my investment idea got a huge number of recommendations even though the whole post was predicated on the false idea that MDLY was a BDC when it is not. I didn't realize this was about personalities, but this will certainly be the last time I post. Thank you to the 2 people who expressed appreciation for my idea, and to the dozens and dozens who liked the criticism of my idea, you can now enjoy the pleasure of my absence. I should have learned from the reaction to my PBB and JMPC recommendation post, but fool me twice, shame on me.
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No. of Recommendations: 26
tjberko,

This board has a very long history of friendly discourse, infrequently punctuated with some less friendly conflicts. You've been here longer than I have, though you were unfortunately absent for a very long stretch years ago. You have often posted very helpful, specific recommendations, and I and I'm sure others have very much appreciated your efforts.

FAQ X, the very first FAQ, tried to address what we felt was this board's most important policy. I will re-print a few quotes from it below for those who may not be familiar with it.

Unfortunately, sometimes feelings get out of hand. I suspect if this thread had been a verbal face-to-face conversation rather than a written one, things would have turned out differently. I know the number of recs on Yoda's "rebuttal" post vs the number on your original post stings, and seems patently wrong. Likely a number of them are just "auto recs" from people who see Yodas name and click even before reading the post (particularly when it already has a lot of recs). Don't ignore the fact that your reply to Yoda's post also has a very high number of recs (even if it falls short of Yoda's).

I'd ask that perhaps you take some time to reflect on whether or not it's worth giving up on your 15+ year history on this board just because of an unfortunate skirmish. We've lost too many good members over the last few years, we can't afford to lose more.

Ken

################################################################################
FAQ X: How to post to this board --disagreeing, but with civility.
################################################################################

The board has adopted a policy to encourage and help enforce polite discourse. We learn best when opposing points of view are presented. But it is imperative that differing viewpoints be discussed in a calm, reasoned, respectful manner. To that end:

All posts that relate to other posts should speak only to the topic. Refrain from commenting on another poster's intelligence, expertise, or tone, except to be complimentary. Do not post to the board personal attacks, defenses against same, retaliation for same, or complaints about same.

Please remember: Challenge the thought, not the thinker.
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No. of Recommendations: 0
Thanks for the post, Ken.
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No. of Recommendations: 11
I REALLY appreciate posts from YodaOrange and TJ and would definitely miss the presence on this board of either of you. I am not wise about bonds or REITS but have managed to make money from posts both of you have made. I recd posts from both of you. I truly hope neither of you stops posting. It would be a loss for all of us.

I know it does not feel good to read a post that seems to skewer your hard work, but that is one of the greatest aspects of this board, thoughtful perspectives from multiple viewpoints. If I wanted a cheerleader or unquestioned bull (or bear) there are plenty of sites for that.

Please keep up the great posts, ALL of you!

David
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No. of Recommendations: 10
TJ:

I for one greatly appreciate your postings and your recommendations even if I don't always jump on them. I did take advantage of the SSW-C.

I also greatly appreciate Yoda's contributions here. I don't blindly follow any recommendations coming from him either, although I have done so from time to time.

When I read posts from people who have been here a long time, I feel that I generally understand their investing rationale. Sometimes their perspective overlaps with mine and sometimes it does not. I welcome them all but place responsibility for any potential purchase on my own shoulders, not theirs.

We all bring our life and investment experiences, our risk tolerances, and our forward looking macro and micro economic views to the game. Sometimes someone presents a POV that makes me reexamine my belief or common investing practice. Most of us remember times when our favorite investment category of REITs were treated like an unwanted orphan. It took an open mind to embrace a strategy that was out of sync with the overall marketplace.

We have spent considerable time here discussing preferred shares. Again, those of us who have been involved in owning them have witnessed periods of good to great opportunities to buy them as well as times where the warning bells went off.

Many of us have been very wrong about the direction of interest rates. More precisely, we may have been right that the next direction was up, but they ended up staying where they were for a considerably longer period of time historically speaking. I have been around long enough to fear owning lower and lower face rate issues that are selling at a premium. I also avoided the strategy that some here have practiced of buying a new issue preferred on the pink sheets and then selling it for a profit after it starts trading on the open market. I have missed those opportunities by standing on the sidelines. I am ok with that.

This board is also about educating others. I know we have a fair amount of lurkers here who enjoy reading informative posts while maybe being reluctant to post themselves. A buyer of say a 5% face rate preferred may well have a near certain likelihood of receiving their quarterly payment. What they may not realize through their inexperience is how far down the price can go with even modestly higher rates or how long those prices can stay there. One does not necessarily HAVE to sell when prices are depressed. At $20 a share, you would be down 4 years worth of dividends if purchased at par. For some people an income investment that has a negative annualized return after multiple years would cause them considerable angst. It may even lead them to throw in the towel.

For me, I do not own any preferred shares. That is not meant as a criticism of those who do own them. I do own shares of SSWN, which has a firm maturity date of April 2019. It has its own risks associated with it. One of the ways the parent company SSW paid off the SSW-C was to issue new preferreds, SSW-G and SSW-H. My shares of SSWN were bought slightly under par and will yield about 6.55% annually to me at maturity. This is not a recommendation. It is just me sharing what I did. It is very unlikely that I would have gotten there without your original postings about SSW-C. So thank you again!



BG
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No. of Recommendations: 3
TJ,

I have greatly benefited from your posts over the years and my post was indeed meant to be an airing of the concerns I had based on my initial research. I did not intend it as a verdict of thumbs down on the MDLX idea, but hoped it would stimulate further discussion.

I hope you reconsider your intention to withdraw from the board.

Lee
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No. of Recommendations: 20
tjberko:

Try to suck it up, don't be so thin skinned and defensive, and just continue posting. This is all too much drama, really.

There are many like myself who listen to you sometime and other times don't. Try not to take it so personal.

I personally read everything you post and even sometimes as was the case with MDLX I buy a little bit and then follow it up with a thank you to you for posting.

If some disagree with you, then just try to accept it graciously and move on to your next research project. Don't take it as an attack on you. Its just in opposition to the stock you are posting about. If you don't feel that their argument is a valid one, let it go. Make your case and then let others do their own due diligence.

Would hate to see you go.

Gracepeace
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No. of Recommendations: 3
I see that Yoda's critical post of my investment idea got a huge number of recommendations even though the whole post was predicated on the false idea

Why would you let the recommendations bother you? or criticism? I have posted many ideas which were at times short down by both Ralph and Yoda. I give my views. Initially Ralph was cautious on my idea and eventually he turned and endorsed it. The funny part is, there were no rec's for my original idea, or the defense but there were ton's of rec's for Ralph's endorsement, i.e., he agreed with my reasoning, even though eventually my idea ended up being a multi bagger for a REIT(!).

Your ideas are slightly outside of mainstream and that makes folks uncomfortable. At least you got 30 rec's are so. I would say these rec's mean nothing and if you think certain criticism are irrelevant you can ignore them.

Lastly sharing your idea is entirely up-to you. There is absolutely no need to feel either small or big because of the rec's. Just make money.
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No. of Recommendations: 2
tjberko-

I've enjoyed reading your posts and hope you continue posting.

But if you decide to leave, there is another free message board that specializes in new issues and has had some discussions on MDLX starting on August 30- The Silicon Investor "Income Investing" forum.
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No. of Recommendations: 3
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No. of Recommendations: 4
Following up on Jim's theme but a little more update is this dance mix from the 90's which I danced to many a long night. :)

https://m.youtube.com/watch?v=o9Zwzwzhk2s

Also, I would like to add that this board has been a source of inspiration, knowledge, and I have made money on those ideas.
It also has been a place of calm, respectful conversations amongst board members and I have found it an oasis from the sniping on other boards and free of politics.....it's a rare board that does that.

I do hope tjberk who goes back a long way on this board, continues to post and that others do too.

LuckyDog
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No. of Recommendations: 2
Is tjberko still around?

I was wondering if he still owns any of this MDLX.

I do, and I got hammered this past year.

If I can afford to hang on until maturity (which I can), think I'll end up with the 25 par?

Mark
______________________

From 2016...

No. of Recommendations: 23
MDLX is a 10 year exchange traded bond with a 6.875% coupon and par of 25. It is a recent IPO and now there is a secondary offering on it. Apparently the underwriters have no retail customers so they are dumping it on the market creating an excellent buying opportunity at $24.20.

Reasons to buy:

1) Bond goes ex-dividend 46 cents in a couple of days
2) Over the next 3 months you will collect 90 cents in dividends and once the dumping ends, it can easily trade at 24.68 giving you an additional 50 cents in gains. Over 3 months, the annualized return could be over 22%.
3) It is rated by Egan-Jones as A- and yet has a yield to maturity of 7.7% so it is very safe and crazy cheap. Checking other bonds like Hasbro, with only a BBB rating and 24 years to maturity yields only 4.75%. 10 year bonds of this quality generally yield around 4.5% while MDLX yields 7.7%. Look at PBB, a BBB- rated exchange traded bond. It sells for 25.80 and has only a 6.25% coupon versus 6.875% for MDLX.
4) I am not highly worried about higher rates, but being a bond means that you will receive at maturity more than you paid, so no interest rate risk if you hold it. Preferreds could be decimated if higher rates do occur over the next 10 years.

Disclosure - I own a ton of MDLX
Egan-Jones is the rating agency that doesn't get paid by the company to rate its stock, so no conflict of interest.
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No. of Recommendations: 1
I own a ton of MDLX

Somehow I suspect that statement. If you invest tons of money on speculative positions you will not be having tons of money to invest after sometime.

On hindsight, the original posters optimism has not played out as he expected and Yoda's concern has played out.
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No. of Recommendations: 3
Somehow I suspect that statement. If you invest tons of money on speculative positions you will not be having tons of money to invest after sometime.

He e-mailed me privately and told me that he had sold it a while back after feeling that the risk had risen. Gave me his reasons and I have no reason to doubt him. Remember, his post was from 2016.

Mark
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No. of Recommendations: 1
If he is watching these boards, perhaps, come back and post.
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