What to expect when AOD opens, and soon afterward?
What does AOD's history teach us? AOD cut its dividend twice before. From 18 cents to 12 cents in 2009. From 12 cents to 5.5 cents in 2010. Shares dropped severely after each cut, but then gradually came back. However each cut was followed by a strongly rising market and continued weakness in interest rates. That perfect recovery scenario is unlikely to occur again.
I'm looking for AOD to decline over the next two weeks. In the absence of a very strong market, I wouldn't count on an AOD recovery.
let me make one thing very clear - i would never 'go long' alpine mgmt and their strategy(ies). i'm not sure how new this mgmt team is, i think one guy has been with the firm, just 'promoted'. it is very likely they will continue the previous mgmt strategy which has led to dismal returns when compared to their benchmarks.
i will, however, go long AOD based on a temporary market 'dislocation'. if i can buy the 4.65 of assets at 3.95 (15% discount), i'll make the buy and hope to sell when the discount goes back to 10%. this trade could last as short as two weeks or maybe as long as 6 weeks. i just saw it happen with BOE and i jumped in on that action. i bought on 11/16 at 12.10 and on 11/19 at 12.50 (avg cost of 12.30). then i sold on 12/13 for 12.90. so i made .60 on the trade or 5% (.60/12.30) in less than a month.
i'll keep you posted on my actions. willing to invest 2% of my total assets.
I'm guessing that AOD will sink like a rock on Tuesday's open and can't even guess to what level. AOD's management has breached my trust and I can't foresee any circumstances where I could trust them going forward unless it were to drop through the $3 level near term, and that would only be for a trade. This was the final straw. Look at their chart over the past few years and if anyone disagrees, I'd like to hear your reasoning.
"I'm looking for AOD to decline over the next two weeks."
Why? When you buy into a closed end fund, are you not effectively purchasing the Net Assets (NAV) of the fund? If the net assets comprising the portfolio of investments in the fund rise in value over the next two weeks, are you saying the fund value will decline because it is not positively, and in fact, inversely correlated to the NAV? On Friday, the stock price closed at an 8% discount to NAV. Prior to the previous dividend cuts, the stock was priced at a significant premium to NAV.
So, I do not follow your assertion that the fund share price will continue spiraling down irrespective of the value of the underlying assets (NAV).
Now, that being said, you obviously are, in addition to buying NAV, also trusting in the investment acumen of the new fund managers. It seems to me that this is a last attempt to halt the erosion of NAV. The only way to do that is reduce the dividend to a more realistic percentage and make better investments. I would rather have a reduced dividend that can be paid only through Net Investment Income -- and not continuing to destroy NAV in order to pay out an annualized 15% monthly distribution no matter what the fund investment performance has been.
Yes, I purchase a share of the NAV when I buy a CEF; you purchase a share of the NAV. But it's clear that most high yield CEF buyers are attracted solely by the fantasy of the unsustainable 15%+ dividend. That's why this "product" category has become hot. For those who "need" 15% to live on, these few fantasy funds are about the only game in town. A Hail Mary for financially desperate elderly.
Sorry Charlie (or grandpa), there's no such thing nowadays as a safe double digit yield. You can excuse many AOD buyers for not accepting that. Many are probably older than the hills, financially unsophisticated and used to a lifetime of earning 6% or more from insured bank CDs.
I doubt one buyer in 10 understands how this fund works... the gimmicks.... the engineering... the obfuscation. Maybe one in 1000 reads a full annual filing (as I have). They want, with all their hearts to believe that Alpine alchemists have a secret for extracting double digit yields from boring blue chip stocks. It's cult-like. Notice how almost no one questions AOD's mysterious "dividend capture" that is supposed to transform the "lead" of 2% divs into double digit gold.
Traditionally junk CEFs like AOD sold at large discounts to NAV. Often over 20%. You still see perfectly good plain-Jane equity CEFs discounted by 15% (ADX and TY). Such funds do better than most of the Alpine ones but they don't come with Alpine's #$%$ and bull story. Their smaller divs don't get cut. Ever.
With each div cut it becomes clearer that there is no Alpine secret sauce. This fund survives by consuming its own limbs. AOD is just a terribly performing mix of ordinary stocks available to anyone at much lower cost. It's an especially dangerous fund for retirees. Some of them will figure that out when trading resumes.