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You opened the door to bond discussions. Since I read the following thread on "Falling Knives" I've been intrigued by the Sears (SHLD) bonds.
http://boards.fool.com/shld-29725251.aspx?sort=whole

I don't see any compelling reason to buy the stock even though it is 63% of BV
http://caps.fool.com/Ticker/SHLD/Stats.aspx?source=icasittab...
The chart: http://quote.morningstar.com/stock/chart.aspx?t=SHLD&reg...

But the bonds at 11.5% to 12.5% Yield to Maturity look very compelling. Particularly the 2017 seems to have a high risk/reward factor.
http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=...

The YTM has gone down in the last week. With a rating of B+ but a debt to asset ratio of 17%,being first in line if anything disasterous happens seems to be reasonable. That's a nice return for five years.

It would be nice to see how they do during the Christmas season. Your thoughts?

Hockeypop
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Wow, the interest rate has dropped .5% in the last hour, pretty much across the board on these. Someone's buying seems.

Hockeypop
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Do they trade? Are they available?

According to Quantum, the exchange traded version of SHLD debt was bought back and then delisted (still trade OTC) in 2005.

http://www.quantumonline.com/search.cfm?tickersymbol=SBCKP&a...

I'm thinking the YTM is a mirage based on the fact they don't trade.

Rich
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There are plenty for many end-dates on Vanguard and I bought some for 10/2017 at about 11.3% YTM yesterday. They are B3, so below investment grade, but I made the decision based upon the M* data posted yesterday, and the brief info I posted.

Please recognize that I don't do this often, and plan to use them when I retire in 2012 for cash flow as part of my cash/CD/bond ladder. Feel free to tell me this was a mistake. You won't hurt my feelings.

Hockeypop
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Hi HP,

I don't really have an opinion one way or the other. My hunch is you'll do all right.

Rich
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should we maybe peruse the Sears balance sheet and cash flow statement and see if they can make the payments to debt holders in liquidation? Might be a good way to see how the bonds are going to do
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peruse the Sears balance sheet and cash flow statement and see if they can make the payments to debt holders in liquidation?


OK. Take the most recent balance sheet, for Sep 30, 2011, keeping in mind that market cap is $5bn.

Liabilities: $17.9bn
Total assets: $25.5bn.

So equity is $7.6bn, easily covering the market cap. In other words, at first glance, yo might think that in the event of bankruptcy, not only are bondholders ok, even shareholders will get all their money back and a little more.

But all equity is not created equal, so we should haircut some of the things in there. Q3 is the worst time of the year for this, since they have stocked up for Xmas, but let's do it anyways. Current assets are:

cash: .6
receivables: .7
inventory: 11.1 (the biggie)
prepaid expenses: .5
other: .1

The traditional handicap for these is that cash is cash, receivables get a 1/4 haircut, and inventory 1/2. That seems a little harsh for Sears, since most of that inventory is perfectably good sellable stuff, and a good part of that is going to be gone after Xmas, most of it for full price. It's not as though these are thingummy gadgets in inventory, of questionable value, these are washing machinges and underwear and power tools. I would say a 1/4 haircut is ok, and zero for the other stuff, so I would put the current assets at .6+ .75*11.6 = 9.3 bn. Liquidate those, and you have paid off 9.3 out of the 17.9 total liabilities, leaving 8.6 that we have to find elsewhere.

Going down the balance sheet, next we get to property, plant and equipment, on the books for 7.0. Goodwill we ignore, and there's also 3.1 of intangibles, presumably the company's assessment of the worth of their brands, and 1.0 of other long term assets.

So basically, your question boils down to, are those 11.1 of assets really worth enough to cover the 8.6 in liabilities that the liquidated current assets haven't already paid for.

Since the lion's share of those assets is stores and real estate, the question really comes down to their value, in liquidation. Bruce Berkowitz famously claimed that they were worth over $10bn, about 5 years ago, before the housing collapse, the market crisis, the Geithner mess, Obamacare, the European debt crisis, etc. But how much is it worth now? If it has lost 40% of its value (just pulling a number out of nowhere, but that's roughly the residential housing market haircut), then we might have $6bn worth of real estate, and you only need the intangibles and the other assets to be worth about 2.6 out of their stated 4.1 value.

So bottom line, I think the bonds are fairly safe. In addition, the company is basically breaking even, and this is a very controlled liquidation, if it is a liquidation at all. Lampert has the luxury of choosing his timing, at least as long as margins stay around 0 or slightly positive, or even if they are slightly negative.

Regards, DTM
Occasional seller of long-dated puts, with a few shares that have come to me from the December expiration, and which I intend to hold onto unless prices get back up over 70...
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good run through the BS DTM
I kept hearing about how valuable all the real estate was too a few years back and how that put a floor under the price. It was around $130 then down from $190. Just goes to show how far wrong such assumptions can be in extremis

I would agree that Lampert is unlikely to declare sudden BK . An orderly liquidation or downsizing seems more probable. Apparently Sears Canada remains pretty good. Maybe just shift all the business North?

The bonds look interesting
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Excellent! I couldn't exactly see buying the stock since Sears is now about the third or fourth biggest retailer, but with a remembered brand. I don't think the Kmart purchase helped them, but that is something that could go in a liquidation (and I don't think that likely). They could turn it around, and have, but because I think margins will tighten, even with a reasonably healthy economy, I looked elsewhere.

I also couldn't understand why the 10/2017 bonds were selling about 3.5% more than the 10/18 (those dates are approximate). It seems like a good short-term bet and is a substitution for some of my ST treasuries. If the company does improve, so should the bonds.

Thank you VERY much. It was a different, and better line of thinking than I used.

Hockeypop
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Small correction: I added 11.1 property and .7 receivables to get 11.6, which is obviously not quite right, so the question is whether 11.3 (not 11.1) of assets would cover 8.5 in liabilities.


I kept hearing about how valuable all the real estate was too a few years back and how that put a floor under the price. It was around $130 then down from $190. Just goes to show how far wrong such assumptions can be in extremis


Yeah, well it doesn't show that the assumption of real estate value was wrong, but it's true that that doesn't necessarily put a floor under the stock value. Which is good, because that gives you and me a chance to get those assets for less than they're worth.


I would agree that Lampert is unlikely to declare sudden BK . An orderly liquidation or downsizing seems more probable. Apparently Sears Canada remains pretty good. Maybe just shift all the business North?

The Canadian business is not doing as well as it was. Sears Canada trades separately (8% of the company is not owned by SHLD), SCC on the Toronto exchange, and is down from $20 to $12 in the last year, which is probably a big part of why SHLD is down so much. It is probably in run-off mode like the US operations, not fast enough to call it liquidation, but definitely downsizing, as you say.


The bonds look interesting

I would be interested to hear why you think the bonds are better than the equity. My thought is that the equity is what is more exciting, principally because Lampert is a disciplined capital allocator and is still aggressively reducing share counts, and at today's prices he can leverage this bet significantly more. At some point, a small discount to value can end up being an outsized return, if (I should put that in bold) things work out, which you don't get with the bonds. If the whole thing collapses, on the other hand, there is some risk that the property actually doesn't cover the obligations, and although the bond owner obviously gets first dibs, I'm not sure you're getting enough compensation for that risk, when your bet gives you no participation in the big payoff that comes with the upside scenario.

What bonds in particular are you looking at, and what is the yield?

DTM
Bond novice
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I didn't know until this week that M* covered bonds as well as the stock. Neat:
http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=...

See the difference between the 10/15/2018 (8.9%) and the 10/15/2017 (11.6%) YTM. Being worried I bought the 2017 at a little lower price than quoted there.

When I looked at ALL B3's on Vanguard these Sears looked by far the best. I still approach it from the stock analysis.

As for the stock, no dividend, loss of cash flow for the last two years, I wanted to be slightly more conservative, and it would seem I'll gain if the companies is better regarded re credit during the next couple of years. I swapped them for money markets earning 0 and fed funds earning about 1% -- all for more risk.

Again, thank you all!

Hockeypop
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I didn't know until this week that M* covered bonds as well as the stock. Neat:
http://quicktake.morningstar.com/StockNet/bonds.aspx?Symbol=......

See the difference between the 10/15/2018 (8.9%) and the 10/15/2017 (11.6%) YTM.



OK, thanks for that, and yes, M* presents them nicely.

But are all those prices really current? I would suspect that the 10/15/2017 bonds are pretty thinly traded, with $43mn issued, whereas the 10/15/2018 bonds have $1bn issued. Too bad the M* table doesn't have a column for 'Last Trade'.

dtm
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But are all those prices really current? I would suspect that the 10/15/2017 bonds are pretty thinly traded, with $43mn issued, whereas the 10/15/2018 bonds have $1bn issued. Too bad the M* table doesn't have a column for 'Last Trade'.

dtm


1. I can't speak for how often they change them, but they HAVE changed in the last week. I reviewed current prices through Vanguard -- I know, it's NOT bond heaven, but it works for me. It do my very limited disaster option purchases there too.

2. I also bought the 2017's this week and paid just under $80 for them on a limit order. The 2018's were that price or a little higher.

3. I understood the implications of buying over the holiday and think that's why their trades were so light. I did use a limit order. I don't plan to turn them over (which is why I chose the short time-frame), but you make a good point.

4. I still can't understand the difference in price/yield between the 2018's and 2017's unless large institutions can't trade small numbers ($43 million is small?????).

5. Bonds aren't as much "fun" as stocks except perhaps in this risk area. But it did give me something new to look at, and your analysis (and a look at M*) lowers the risk IMO. I think that's Value Hound territory.

Hockeypop
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1. I can't speak for how often they change them, but they HAVE changed in the last week. I reviewed current prices through Vanguard -- I know, it's NOT bond heaven, but it works for me. It do my very limited disaster option purchases there too.

...

4. I still can't understand the difference in price/yield between the 2018's and 2017's unless large institutions can't trade small numbers ($43 million is small?????).



All I meant is that $43mn outstanding is a lot less than $1000mn, so they may not be traded very often. Maybe part of the price discrepancy is because the price on the 2017s is stale. On the other hand, bond prices should be going in the same direction as the share price, so if the 2017s' prices were old, they should be higher than the 2018s, not lower, so maybe that's not it.

dtm
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CNBC reports Sears same store sales fell 5.2% for Christmas AND they are closing 100 of 120 Kmart stores. We'll see how my bonds do today.

I should have started this thread OT on KitKatt's fertilizer discussion.

Enjoy year end, a little, and family and friends a LOT. I'm delivering "Meals on Wheels" this week in the hope that you youngsters will do the same for ME in 20 years.

Also my daughter and her new husband bought me a retirement clock. It keeps to the second the time left before retirement. She's always been a keeper!-- and now she's married the same.

Hockeypop
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CNBC reports Sears same store sales fell 5.2% for Christmas AND they are closing 100 of 120 Kmart stores. We'll see how my bonds do today.

Somewhere up stream on this thread was a question whether the bonds or the equity were preferable.

SHLD sss have been declining for years and despite Lampert's efforts to improve the business he has failed. The share price is going to do what it did today every time the company disappoints. From comments I saw, the bonds stayed their course. The short duration, the discount and the high premium make the bonds interesting. Can Sears make it until 2017 is the question Maybe if Lampert keeps paring it back

<SNIPS>

http://online.wsj.com/article/SB1000142405297020347910457712...

"Given our performance and the difficult economic environment, especially for big-ticket items, we intend to implement a series of actions to reduce ongoing expenses, adjust our asset base, and accelerate the transformation of our business model," Chief Executive Lou D'Ambrosio said.

Aside from closing the stores, Sears said it plans to focus on improving gross profit dollars "through better inventory management and more targeted pricing and promotion."

Sears, controlled by billionaire hedge-fund investor Edward Lampert, has faced criticism from some analysts and investors as it has sought to control costs by closing some stores rather than revamp older locations.

Citing the year's performance, the company said it expects that it will record a fiscal fourth-quarter noncash charge of about $1.6 billion to $1.8 billion because of a valuation allowance on certain deferred tax assets. In addition, the company said it may recognize an impairment charge on some goodwill balances for as much as $600 million.

Credit Suisse retail analyst Gary Balter was quick to blame Sears itself for its woes. "It begins and, some would argue, ends with Sears' reluctance to invest in stores and service, effectively asking customers to pay for a poorer shopping environment than available at competitors and online. We do not see how that will turn around."
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Thanks!

It's a calculated risk, but at roughly 11.5% at least you know the original interest rate (6.875%) seems unlikely to be called back for a lower rate in the next 4 years and 10 months. The bigger concern is not being able to pay back the principal, BUT if they do that for the 2017's the rest will be killed as well, and that likely would be a poor choice.

Interesting, they dropped 21 cents yesterday BEFORE the announcement, and nothing today. Think we get info first??????

I'm happy that they're closing Kmart stores. Two good investors with high stakes in them. We'll see. This is an interesting way to invest in a "Falling Knife."

BTW, the 2018's seem to be back to the 11.5% area.

Hockeypop
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Lampert has steadfastly refused to invest in stores. He did well with Autozone using this strategy and massive share repurchases. The following article gives a hint why that worked for him with AZO but has completely failed with SHLD

Using the same strategy across acquisitions in a one size fits all mentality does not work. I am wondering if Biglari may want to take heed.

http://online.wsj.com/article/SB1000142405297020429680457712...


Amazingly, Sear's has spent $5.2 billion over the past five years buying back its stock, more than twice as much as on capital investment. That strategy, of buying back stock and keeping capital expenditures low, worked well for Mr. Lampert at Autozone Inc. He began amassing shares of that company in the late 1990s, and engineered a management shakeup in 2001.

But selling car parts and accessories is not the same as running a retailer. In general retail, customers put a higher premium on service, the competition from the likes of Lowe's Cos. and Target Inc. is intense, and an inventory miss doesn't mean having an excess of mufflers that will eventually sell but an excess of ear muffs that will never sell.


While retailers generally spend $6 to $8 per square foot a year on updating their stores, Sear's spends only about $1.50 to $2, notes ISI analyst Greg Melich. That is not even enough to keep up with depreciation and amortization.

Clearly, Sears needs to invest in its operations. But it also needs an experienced retail hand to run it—without interference from Mr. Lampert. As it is now, Mr. Lampert's cooking isn't fit for eating.
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I am wondering if Biglari may want to take heed.

If Sears continues it's abysmal performance, their market cap might be Biglari-able! Seems like the kind of brash "I'm the best value investor in the world" type move he would make if he had the dough.

Rue the day Eddie Lampert when www.enhancesears.com goes live!

Seriously, is Sears real estate really that big of a margin of safety? I'm sure the scraps are worth something in a pure, all-at-once liquidation, but as a going concern bleeding cash and no frothy real estate market to buoy property values, how much is this thing worth?

Reminds me very much of the wisdom in Buffett changing strategy from from buying mediocre business at great prices to buying great businesses at mediocre prices.

Sears is another lesson for those of us who have made 'Jockey Bets'. Sometimes is works, but most of the time a pig of a company will always be just that until it finds itself extinct.

BBQ

^(~(oo)~)^
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There is a Sears store in a mall a few miles from my home. It is one of the mall anchors. On my infrequent visits I've noticed a couple of things. One is that the area where tools and appliances are sold on the lower level gets a fair amount of traffic and the other is that on the upper level where clothing is sold is like a ghost town.

Does anyone shop for clothing at Sears? I don't know anyone who does. At a mall with J.C. Penney's, Macy's and many specialty clothing retailers what is there at Sears to attract clothes shoppers? Then again, I'm no expert shopper so maybe I'm missing something.

Should Sears just get out of the clothing business and license their Craftsman and Kenmore brands to other retailers? I'm inclined to think so. The automotive repair business might be worth keeping. It could be time for some big changes at Sears, if it is survive over the long term.

Don
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My wife (whom isn't a big shopper) but is picky and frugal, has been warming up to Lands End. Interesting the Lands End catalogue we have has no mention of Sears. Recently she has been buying more at Lands' End than Macy's. Had some good luck buying online.
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My wife buys clothes from LE about every 3 months, probably over $1000 a year, but we don't have any half decent clothes retailers within a couple hours' drive, so my experience is not typical.

I'm trying to remember whether Sear's breaks out LE on-line sales as a separate item, I'll look it up. Does anyone want to guess how much they could be worth if Sears were to sell them?

Regards, DTM
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On my infrequent visits I've noticed a couple of things. One is that the area where tools and appliances are sold on the lower level gets a fair amount of traffic and the other is that on the upper level where clothing is sold is like a ghost town.

Lower levels always get more traffic. That's why WalMart and Kohls and Target are one level stores and don't go vertical. As soon as you go to a second floor, shopping carts become unmanageable and unwieldy, and that affects your first floor shoppers, too (who don't take a shopping cart because it's a PITA to get upstairs, even if they're not going there.)

Does anyone shop for clothing at Sears? I don't know anyone who does. At a mall with J.C. Penney's, Macy's and many specialty clothing retailers what is there at Sears to attract clothes shoppers? Then again, I'm no expert shopper so maybe I'm missing something.

Sears locations are overwhelmingly in malls. 60% of the foot traffic in malls is female. (If you count by "hours spent shopping" the number skyrockets to over 80%.) Abandoning clothes in favor of tools, automotive, and appliances is a quick road to death. (Arguably they are on the slow road anyway.) If anything, they should freestand the male oriented lines and put women's products in the vacated space.

I thought they were on to something (and might still be) with the assumption of the Land's End business, but they have managed to subsume it under the Sear's brand (which stands for nothing that I can see. WalMart has "value" and Target has "chic" and every other successful retailer has a meme that instantly springs to mind. Sears? Not so much. "They're at the mall"? OK, but that's so 1980, and big box collections are outflanking the malls all over the country. Free parking is a given, and what else is there? "We're Sears, we were cool 50 years ago"?)

Should Sears just get out of the clothing business and license their Craftsman and Kenmore brands to other retailers?

They've already tried that with K-Mart, but that's like Cadillac producing a compact car, or Tiffany's merchandising their line at the Dollar Store. Arguably Craftsman and Kenmore are the last two remaining things to bring men into the building. Maybe they should give that up, but the margins running through other retailers are less than enticing. Besides, who is going to carry a full line of Kenmore appliances? Home Depot? The local kitchen store?

It could be time for some big changes at Sears, if it is survive over the long term.

Seems doubtful. They can't spruce up the stores now that sales are down and profits are about to be hammered. They can't revitalize K-Mart while they're tapping a credit line just to have room to breathe. They can't remerchandise cheaply when competitive lines know that Sears brands (Land's End, Kenmore, etc.) will get favored status on the floor. And they have no cred with distributors.

They tried to pretend that 2 + 2 was going to be 5, and instead it's actually more like 2 + 2 = 1.7

It's a tough place, and they're going to need something radical, because, as the saying goes, if something cannot continue, it will stop. Where they're going cannot continue.

(My suggestion, pitiful as it might be, would be to move the low-traffic but "necessary purchase" merchandise (appliances, tools, etc.) to the second floor or to freestanding stores, and to put clothing throughout the ground level, to remove the "Sears" signs from the side of the building and make it "Land's End", (a full store within a store,) expand jewelry and beauty and home, and move the ancillary rental businesses (tax returns, eye doctor, the hearing aid guy and whatever other irrelevant rent-payers are taking up the outer window space and ground floor square footage), and then to find some master-of-merchandising who can turn a sows ear into a silk purse.)

I know taking the lawn tractors and washing machines to the second floor will be inconvenient for the help, but what are we doing here, making the warehouse workers lives easier and confusing the customer with a product mix of gas-and-oil with tres-filet dresses for teens on the ground level? They're programming an arcane collection of products, and it's not unusual to walk from exercise machines to blouses, from tools to leather jackets, or from appliances to bath supplies. It's everything - and nothing - all in one place. No wonder it has no image.
 
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I agree with pretty much everything GH says about Sears, and I think the amazing thing is that we would even be entertaining the notion that the thing can be turned around, at this point. I was sort of hoping that Lampert was just planning to close this thing up, after giving it one half-hearted chance to shine and hoping against all hope that it might work. Obviously, it hasn't work, and putting a lot of new money into it is throwing good money after bad.

The only purpose that might be served by trying a few more new things is to postpone the complete liquidation of the whole ball of was for a few more years, hoping that real estate values might be more favourable. But you can't really sell all the good things (Craftsman, Kenmore, Land's End) and then keep the rest of it limping along indefinitely. So I hope Lampert doesn't really believe his own rhetoric about keeping alive the jobs and the legacy of the great Sears name. He's taken the cards he's been dealt, really an awful hand, and played the game pretty well, but he's in the last few rounds now and he's looking at some pretty dicey cards to play those rounds with. He may just have to lay down his cards and get whatever he can, since I think the big win scenario is looking too unlikely to keep playing for.

Regards, DTM
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That's why WalMart and Kohls and Target are one level stores and don't go vertical. As soon as you go to a second floor, shopping carts become unmanageable and unwieldy,

Not true for Target. At least three stores in CA have two level stores. The problem with shopping carts
is managed with tracks between the escalators. At least two stores also have lifts to allow parents
the option of leaving a child in the cart on the way up/down.

https://www.google.com/search?tbm=isch&hl=en&source=...
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"Does anyone shop for clothing at Sears?"

Land's End and jeans (sometimes).
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So if Land's End is the only brand of value in the apparel segment, you have stores that are way too big to justify their existence. Maybe the price of RE is the only thing holding back liquidation or maybe the recently announced intended store closures is the first step in that process.

Don
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Not true for Target. At least three stores in CA have two level stores.

It's rare, to say the least. WalMart has passed major urban areas because they don't want to go vertical. They've got a couple, but they're not hurrying to build more. (And I would be shocked to find a lot of parents wheeling a cart with their child in it over to the cart-roller-coaster out of reach, but maybe that's just me.)

So if Land's End is the only brand of value in the apparel segment,

How many brands of value does Kohl's have? (They have Levi's, as does Sears). How many does JC Penny have? There are plenty of stores which do nicely enough providing unbranded, but reasonably priced clothing for shoppers. Of course I wouldn't know a clothing brand if it hit me in the face, but how many "clothing brands" does Target have? Yet they allocate half the store to it, don't they?
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All interesting and relevant to the stock, but before I dig into my EOY analysis, I'm still feeling pretty good about the bond investment. The market isn't, obviously.

While I'm taking a little bath since the 11.5% I bought it at, the '17 stands at $70.5 and 14.6%, I'm not going to sell, but the question is should I risk more? Will it last 5 years and 10 months, and with the burn rate of cash and its assets I suspect it will, but you all bring up death spiral possibilities (this DID start on Falling Knives.

Equally interesting to consider among risk investments in this low interest rate environment are the long bonds which have a break even now in about 7 1/2 years and then pure return.

Will they be Montgomery Wards or ... well Sears (they've reinvented themselves before). This has been great information. Enough so I'm not willing to get greedy until I find out more about what they'll do in 2012. And I thought BANKS were hard to evaluate.

Hockeypop
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Digging up this old thread. I'm feeling better about my Sears bond:
http://beta.fool.com/gibbstom13/2012/04/10/did-sears-just-mo...

FWIW my Sears bond 10/15/2017 6.875% is back up to 80% with a YTM of 11.934. I intend to hold but I bought at 79.94% and 64.43%. It still looks pretty good. Of course the stock has done well too.

Radio Shack 5/15/2019 bond is at 78.35 for a YTM of 11.262%.

If I wanted to fill-in a ladder, the Exco 7.5% 9/15/18 is at 86.87 for a YTM of 10.34%

Everything looks better than equities this week so far.

Hockeypop
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In the FWIW category I thought I would report that yesterday I did sell my Sears (SHLD) 10/2017 6+% bond at 95% of par after a little more than a year. For bigger lots it is trading even closer to par after being in the 65% to 80% to par range a year to 18 months ago. As I mentioned in this and other threads I thought it provided a little more degree of safety than the stock, as well as a nice dividend when I retired.
http://boards.fool.com/sears-29735295.aspx?sort=whole#299686...

It is still "junkie" and I decided the roughly 8% yield to maturity was a tad too risky vs the reward. I frankly don't understand why it went this close to par. Besides, I used the profit to justify an expensive vacation. I profited at roughly 60% if you count the dividends in a tax deferred account, so I'm happy, and have some more dry powder to use.

I still own the more risky Radio Shack 2019 bond which has gone from roughly 65% of par to 80%. It has more upside, but also greater downside than SHLD. Folks still seem to be buying junk bonds and RSH is my last remaining. I'm looking carefully at its risk.

Thanks for all of your comments. So far bond buying was a successful experiment that was new for me.

Bob
RYR Home Fool
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Bob,

Sell to the greedy and buy from the scared.

I prefer to buy and hold to maturity bonds but this is the second time I have seen more value in selling then holding. Its always a case by case issue. The burning question when it comes to bonds is always "Will they survive long enough and healthy enough to pay me back my principal plus coupons?"

Too bad I ran out of dry powder on the equity side when the picking for both debt and equity was easy.

jack
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I prefer to buy and hold to maturity bonds but this is the second time I have seen more value in selling then holding. Its always a case by case issue. The burning question when it comes to bonds is always "Will they survive long enough and healthy enough to pay me back my principal plus coupons?"

The 2017 Sears was about the maturity I wanted and I thought they'd at least survive past then. When par was near 100% I had a decision on my hands.

The 2019 Radio Shack is IMO much more problematic. But everyone is so euphoric about business right now I'll wait.

I have too much "dry powder" right now and failed to follow my own LT advice and perhaps got more heavily into short-term bonds too soon (about a year ago). I would have been really happy now with an 8% return YTD (especially with relatively low inflation) from the perspective of last December, but when everyone else is at 18% YTD .....

bob
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but when everyone else is at 18% YTD ....

Everyone else isn't at 18% YTD. :<(

B
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Bob,

But everyone is so euphoric about business right now I'll wait. Not very relevant.

Play YOUR hand.

What is yield to maturity? What is yield to worst? What are the odds of default?

Is there a better risk/reward opportunity?

A general rise in business can bypass Radio Shack, improve its balance sheet or turn Radio Shack into a nice equity play. The only question that matters with the debt is whether it will pay all remaining coupons and return face value to you. Radio Shack can do the ugly limp along as long as it continues to service the debt you hold. If others have bid it up they are either lemmings or someone sees improvement, two suitable candidates to sell to if you have gotten your value out of the deal.

Value investing principles apply to bonds and stocks. When either is overvalued we have the choice of riding the price back down to its IV or selling and taking our profits. What is the end game? I've held onto dividend payers with strong long term outlooks (IMO) and I've taken the cash in hand when a stock has become overvalued.

I'll chew some numbers on Radio Shack later tonight or tomorrow.

I'm not arguing for a sale, only that you consider the instrument in your hand for what it is and make your decision based on that understanding.

jack
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