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Anthracite Capital, Inc. Message Board

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  • Leonardo_Bazzani Leonardo_Bazzani Jul 3, 2002 12:09 PM Flag

    Risk Reward @ $10.85

    AHR @ 10.85. you were also buying @ 13.25..$13...12.75..12.50...?

    Leo

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    • Most of my purchases were between 10 and 11... some higher for a trade. I bought plenty the last 2 days. I'm a cheapskate. Ask my kids and wife. No joke. When mortgage reits went on sale I bought plenty. My favorite: AHR.

    • I continue to hear the argument that the market is still over valued and that you can lose more than two years dividends in a short time. I will conceed that point so what do I do? Take all my money out of the market and put it in the bank at 2%. That means I need a two million portfolio to make $40,000 a year. To me, that's a guaranteed failure.

      One approach is to look at the intrinsic value of these companies and not the market price. In the long run, the value of ahr and any other company is the present value of future benefits. If AHR continues to pay a dividend of 1.40 per year for 10 years, the present value of that income stream at a 6% discount is 10.30 per share. That's just the income stream even if you lose your entire principal. If you get $5.00 per share at the end, the PV is 13.1. You can argue with this approach but my opinion is that the ability of this company to provide a stable income stream is the key to intrinsic value. Prices will go up and down but if the income stream continues at this level the value is there. To me, other arguments are pointless.

      Another argument I hear from some knowledgeable posters is that the dividend will go to hell if short-term rates rise. Properly hedged, with the CDO in place, I doubt that but I will listen to other arguments.

      Regards

      Phil

      • 1 Reply to pstorms_80015
      • pstorms, I like your thinking but I think I've tweaked your strategy just a tad to take into account my aversion to life on a yoyo in these times.

        Basically, I've employed a bar bell strategy using the types of companies you are interested in coupled with abnornal amounts of guaranteed and unrestricted cash earning 3% equaling 35% of portfolio. This is mixed with a 20% reit position, 35% leveraged munis (c/yld 6.75%) and 10% equities tending towards high quality and value.

        Despite the high cash results so far have been acceptable for the environment we've been in. First half results overall were +9.25%. And though this week's reit action hurts a bit, drawdown on a weekly basis has not exceeded 2%.

        Don't like to carry high cash either but it smooths out the ride and I've always felt the best strategy is one which considers the environment we are in.

 

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