Sunday, May 9, 2010

Yet Another Update on My Wife's Junk

Last year I blogged about the junk bond portfolio that my wife put together all by herself (mostly). LINK. I also ran an update on it later in the year. LINK.

This is what that portfolio looked like last time I updated: (click to enlarge)

A few things have happened since. First and foremost, everything went up. A lot. The portfolio gained 45% in 2009 and is up around 5% so far this year. Not that my wife was keeping count. She’s content to just clip coupons. I’m the one doing the counting.

Second there were corporate actions. Starwood Hotels (Sheraton) made a tender offer (accepted) and Jo-Ann Stores called its bonds.

In addition, the Alcoa and Seagate Bonds rose enough in price to trigger the “mortgage” sell signal. That signal basically states that if the bond pays less than our (tax-adjusted) mortgage rate, sell it and either buy something else or pay down the mortgage.

In any case, she decided not to pay down the mortgage, but rather to buy some more junk.
What to buy?

For starters, she selected SmithField Foods, a company I blogged about around Thanksgiving. That’s good because it means she actually reads my blog. When I mentioned that she already had two food companies in Dole and Chiquita, she said “What do Pineapples and Bananas have to do with Turkeys?” OK. Point Taken. Of course, coming from a vegetarian, who knows?

She did take my advice on her next purchase. I thought she could have an energy company in the portfolio, so I showed her several options. There are quite a few smaller oil and gas producers and refiners with bonds in the market at attractive yields. She chose Clayton Williams Energy, an oil and gas company with operations in New Mexico, Texas and Lousiana. Hopefully, for my sake, that well doesn’t come up dry.

Finally, she got motorized with her last two picks. First, Ford Motors, which has been doing much better lately and is benefiting from the troubles that Toyota is having. Ford bonds were huge winners last year, but still could have room to run.
Second, Avis-Budget Rent a Car, which is a highly leveraged situation, but my wife figures if they try harder they’ll pull through.

Here’s what the portfolio looks like now:
Click on the table to enlarge:

It’s a bit junkier, longer in duration and the overall yield is lower.

Only averaging about 7.56% now. But confronted with the alternatives: bank CDs at under 1% or taking her chances on the stock market, she says she’ll stick with her junk for now. She’s happy just to collect the interest. Market crashes? She's like "What me worry?"

That being the case, she should be able to sit tight and just clip coupons for another year and a half until her next bond matures. We’ll see what the world looks like then. Maybe it will be time to pay down the mortgage.

As for the photo. Yes, that is my wife. I married up, I know.