Investment Ideas For A Choppy Market
Hi All,
Its been a rough few weeks for investors. However, if you're still interested in making money on the market, here are a couple of ideas that have come up in conversations we've been having with knowledgable people.
1) Hospitality Property Trust: Interested in a 26% dividend on shares that beat the pants off of Q3 earnings projections?
Consider the Hospitality Property Trust. This company is a REIT, or real estate investment trust. It owns a number of hotels and travel centers primarily in the United States. Their business strategy focuses on acquiring cash flow properties and signing management agreements to handle the hotels, giving the trust one of the best balance sheets in the industry. If you're worried about a downturn, checkout HPT's preferred shares. They trade under symbols HPT-PB and HPT-PC.
2) Municipal Bonds: If you don't want your money on the stock market and aren't hot about the low yields on money market funds, you might consider a municipal bond. Right now municipal bonds have at least two advantages. First, their yields are often tax free. Second, these bonds are yielding around 5.7 - 5.9% percent annually. This is better than the 3.2% you'd get in a money market account or the 3.8% 5 year CD's are offering. The only catch is you'll probably need at least $5,000 to get started get in this asset class.
So here is our weasel wording: Any purchase you make should be appropriate for your portfolio and risk tolerance. You should also do your due diligence, e.g thoroughly research any investment to be sure its financially sound, etc., etc., etc.
Also, we also don't own any of these investments, but do think they look promising.
Best,
James
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1 comments:
Any time we see a high yield in the market, we need to understand it is an indication the “market” perceives a great deal of risk in the investment. That is the reason high-yield bonds are called junk bonds.
In the case of the HPT’s, a 26% dividend indicates the market perceives a strong likelihood of a reduction in the dividend payments or default or both. Otherwise, “money” would move towards t he HPT’s driving the yield to a normal level. At their current yield, they should be considered speculative investments.
With respect to municipal securities, it is an “interesting” time. Unlike treasuries, muni’s are not considered “risk free” and they have offered an after-tax yield (AT Yield) higher than available through treasuries. Compared to historical norms, the spread between the AT Yield and the yield on treasuries is high. Why? Many muni borrowers are faced with declining revenues (taxes and use fees) as the economy sours.
Before anyone invests in munis, they need to know there are two types of municipal bonds.
1. General Obligation Bonds – backed by the full faith and credit of the borrower, they are considered “safer” than revenue bonds. Bottom line, the creditworthiness of the critical to valuing GO Bonds.
2. Revenue Bonds – not backed by the full faith and credit, the “payback” of the bonds depends upon the revenue generated by the project backing the bonds. Common revenue bonds – infrastructure (sewers, toll roads, etc.) and special projects (stadiums).
Because I perceive the overall risk of munis as manageable, I have money invested in a tax free money market fund and think many of them offer a fair risk/reward at current pricing. Nevertheless, I would avoid a few issuers like the plague:
1. New York State and New York City. As Wall Street prospered, employers paid enormous bonuses to employees of investment banks, hedge funds, and other financial professionals. Eventually, both the city and the state became dependant on income taxes on these bonuses and taxes on things purchased with bonus dollars (real estate, sales, etc.). With “bonus” tax revenues gone for the short term (and probably the long term), both the city and state face enormous annual budget holes.
2. California: Enormous government spending and the implosion of the housing market is a bad combination.
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