Great Recession Investing Update

Back some time ago, I informed our readers that the Mrs. and I had both been laid off our day jobs--the summer of 2008 to be exact. We're still gainfully unemployed, and no manner of networking and resume emailing has produced more than a peep since December of 2008 when I almost snagged the writing job on a contract that was purportedly going to entail compiling a detailed report on the TARP for the White House. When the contractor decided to "no bid" the contract (good choice, actually), that was the end of the opportunity.

I did get a call two weeks ago to fly up to Syracuse, NY to work on a proposal for an unnamed client, but they weren't offering expenses, so I nixed it.

Meanwhile, I've been running and gunning my investment portfolios, largely from rolled over 401(k)s, trying to "get back to even" in the catch phrase of Jim Cramer's latest book (which has quite a few good tips, BTW).

If I hadn't mentioned it already, I'm pleased to report that not only have I gotten back to even from the double market crash of Oct-Nov 2008 and Feb-early March 2009. I've actually gotten into the black enough that I've been able to take some money out of our one non-IRA account and start paying down some debt.

My basic strategy since late February 2009 has been more or less as follows:

• First, play guts-ball with the financials and the energy complex, picking up large money center banks (Bank of America, Wells Fargo) a couple regionals I'm familiar with (USB, BB&T), and two insurance companies (MetLife and Prudential); and major oils with high dividends whose stock prices were asininely cheap (Chevron, Conoco-Philips, BP).
• Next, stacked up, even as the market was tanking, on any large company whose price had fallen so far that it's dividend had become absurdly huge.
• Closed my eyes at the market bottom and prayed.

As a onetime stockbroker myself who was at my desk when the notorious Hunt Brothers' silver debacle came to a head, I basically know when something's gone way too high, or, conversely, when the market has collapsed into the final black hole of selling known in the trade as "capitulation." In the first few days of March, 2009, we definitely had capitulation. Yeah, I didn't know that exactly, but it was a good guess, based on the obvious fact that people were just frantically selling everything indiscriminately, hand over fist, like there was no tomorrow. It's so overdone that you just know.

I had thought this was happening in October of 2008 and loaded up on the banks at that time--but got killed, as this drop turned out to not have been the real thing. March 2009 was far fiercer, however, and I knew the drop was over, at least for that phase of the Great Bear. So, unlike the dumpers, I bought hand over fist. In the case of the banks, since the Feds had basically said that no more large money center banks would fail, I felt confident in buying, say, Bank of America (BAC) in the single digits. Yeah, they were and are in trouble, but it's because the Feds basically coerced them into buying the trashed remnants of once-great Merrill Lynch on top of their takeover (under) of the criminal enterprise known as Countrywide (with which I had a mortgage, BTW). So, contrary to their price, they weren't going out of biz.

These stocks, of course, and others were in short order swept up by what may go down as the greatest market comeback of all time, made even more fierce by the fact that everyone has been bad-mouthing it all the way up.

As bull fever took over the market in April-June, I swept out of a great deal of positions for a profit, replacing a number of them with some of the market's best-kept secrets: preferred stocks. These are non-voting shares of a company that basically swap your vote (which tends not to count anyway, statistically) for a nice, abnormally high fixed dividend--a dividend that's senior to any dividend on the common stock if bad times hit. Interestingly, most of the preferreds I started buying were in the same beat up banks I've just mentioned, plus others. Since their prices were so depressed, the preferred dividends, as a percentage, were huge, some as high as 14%. It's these stocks I began to use for income. The kicker is that as the banks recovered, so did the preferreds. As their prices went up, the fixed yields went down as a percentage toward a more normal 7-9% or so. Most I'm still holding for the swell income.

Some banks weren't affected by the crisis due to their own peculiar markets and the fact they didn't need TARP money or had paid it back. Two of these banks are really strange beasts I discovered on my own, although to New Yorkers, they're probably old hat. The first is New York Bank (NYB). It specializes in loans used by investors to purchase rent-controlled apartment buildings in New York City. Stock has basically gone nowhere after a mild recovery (people are a little nervous about some of the noises the city is making, re: how some apt. owners may have fudged their numbers). But while I wait, it pays an 8% dividend.

NYB's strange counterpart, Medallion (TAXI) is also a specialty play. The name and the stock symbol tell you all you need to know. This is a bank that, almost exclusively, makes loans that businesses use to purchase NYC taxi medallions. Not being a New Yorker, I had to do a little research on this. What I discovered was that "medallions"--essentially, certificates sold by the city that allow you to operate fleets of taxis in the city--are monstrously expensive and basically require large loans to finance. Which is why TAXI exists. It makes the loans. It makes the money on the loans. And, unlike almost anything else in this rotten economy, taxis in New York City are a highly profitable business model. So densely packed is this city, particularly in Manhattan, that, except for the occasional country excursion, it makes no sense whatsoever to own a car. So if you need to get around on schedule, or if you're a touristo who doesn't know the streets or address system or subway and bus lines, you have to take a cab to get there. Captive customers, the perfect business even in bad times, and thus very little risk to the loans. So TAXI also, currently underpriced, offers a fat dividend of around 8%.

High dividend stocks, preferreds of normal and oddball banks (plus the Preferred M series of storage renting giant American Storage) now serve as a core of my portfolios, along with carefully selected oil and gas drilling trusts and/or partnerships which trade like stocks. Also helping out are another neglected play, closed end investment companies, essentially mutual funds that don't issue any more shares and so trade like stocks on the New York Stock Exchange. Closed end funds that invest in junk bonds are somewhat risky (in my opinion), but the huge dividends, often payable every month, are quite appealing if you're seeking income. And again, I bought most of mine when they were deeply discounted, which closed end funds tend to be, unlike regular mutual funds. The company known as BlackRock has a bunch of them, and I consider these guys pretty good and pretty shrewd managers as opposed to the clowns who went belly-up in the recent debacle.

For tax-haters, BlackRock also has several closed-end funds of municipal bonds of various states, particularly New York and California. The appeal? For those who don't know, the interest on most muni bonds is TAX FREE!! Hurray!! BlackRock has a somewhat thinly traded Virginia muni bond fund (BHV) and I've had a chunk of it for quite some time now, with an average TAX FREE yield of circa 5.5% in Virginia. (I live here. The Feds can't tax muni bonds, although they give it a shot from time to time. Each state can tax the interest on another state's bonds. But nearly always, states don't tax the interest on their own bonds, so if you buy muni bonds or muni bond funds of your home state, you don't have to pay any taxes on them at all, unless you're in the AMT bind. FYI, muni bonds of Washington DC and Puerto Rico are, by statute, untaxable by any state. Last time I looked, cheapskate states that tax their own muni bonds are Wisconsin and Tennessee.)

The other thing that's been important in recovering your money is that you largely need to forget about the old "buy and hold" adage. It's suicide right now. I trade daily--no, I don't consider myself a day-trader, but I move the merchandise a lot, except for some of the high yielding stuff I hold for income.

Finally, I hold a number of small bond positions. Normally, these things are vehicles you buy and hold to collect the interest. You don't expect a capital gain. But many of these bonds got so cheap in the double-crash that I scooped about 2 dozen issues and have capital gains on nearly all. I did make a mistake here, though. When I was in the business, "round lots" of muni and corporate bonds were in 5-10K increments. Well, that's still true for munis, but these days, a round lot of corporates is 25K face value. Having picked up smaller positions based on my previous knowledge, I'm not getting the best prices when I sell some of these "odd lots" which I hadn't thought were odd lots. This old dog has now learned a new trick. Irritating, but not fatal.

Well, I've gone on for a long time, but I felt I should bring this irregular series up to date. Before I head off though, the usual caveat. I'm no longer a registered investment rep, and even if I were, beware: I'm not soliciting or giving advice. I'm only telling you what I know. And nothing I say here either assures or guarantees similar result for anyone else either today, tomorrow, or ever. Travel at your own risk.

Bottom line: you yourself may still be outta work. But you can still make money. And, frankly, I like me as a boss far better than any of the goofballs I've worked for over the last two decades and more.