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Prospect Capital Corporation Message Board

  • jadelover888888888 jadelover888888888 Mar 26, 2013 1:02 PM Flag

    Think before you buy.......

    despite any downgrades or upgrades of any rating agencies or anything anybody said in this or other boards on any stocks including BDCs.

    Most BDCs will go up and down with the whole BDC sector and with the general market, very often much faster, therefore you can either make a lot of money or lose a fortune. Do not just look at the yield of a stock in making your buying or selling decision, rather do some homework in learning their NAV (Net Asset Value or Book Value), their debt/equity ratio, their future EPS (earnings per share) or NII (Net Investment Income) because this may indicate its ability to continue to pay its future dividends.

    It is true that most BDCs in general may be safer than most risky stocks such as REITs because they are only allowed to borrow up to 100% of their equity (1:1 ratio) by law but some of them may hold SBIC loans (up to 225M, 150M from first license and 75M from second license) that can be exempt from counting toward this debt/equity ratio. It is also true that they are supposed to pay out 90% of their earnings to their shareholders in order to avoid paying taxes, but there are exceptions to this, such as ACAS, a BDC, has yet paid any dividends.

    Most BDCs have risen sharply in 2012 and had continued to rise because of the exceptional stock market rally, however, the primary reason for this continued rally was probably due to many large equity firms' continuing dumping big money (of their clients) into equities to make up for their subpar performance in 2012. If they do not employ their clients' money by the end of this year, it will mean saying goodbye to their 2% fee (on the whole balance) and their 20% bonuses (on profit). A small reason is due to Fed's artificially holds interest rate low, forcing many investors and retirees to get into more risky investments that will give them more yields.

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    • Many investment experts have been foretelling that people will start moving out of bond funds into stock funds. Unfortunately, this had not happened yet because many investors are still holding on to their bonds for dear life and any time there is a crisis such as that in Cyprus, you will actually see more investors getting out of stock funds and into bond funds. Again, bond funds are not a real safe haven like most people thought especially when interest rate goes up.

      There are still some good BDC buys out there especially if you can buy them at a good discount and they will continue to pay a respectable yield. But you must do your own homework in deciding if you can tolerate the risk vs reward ratio of any of them. You must ask yourself why you are buying any BDCs, just because of their high yields? If that is the case, you may be better off buying some good REITs recommended by Wayne:
      RST, NCT, TWO, IVR. I also like MTGE, AGNC, NLY.

      PSEC is not a bad BDC because it had not reduced its dividend since it changed from paying quarterly dividend to monthly dividend, instead it had steadily raised 1/10 of a penny of its monthly dividend so it can continue to brag. The only consideration is now that the whole BDC sector appears to be slightly overpriced and is therefor ripe for a general correction, PSEC is still being traded above its recent NAV (I believe around 10.81) and it had to keep making more and more new investments by issuing more and more convertible senior notes (about 1B right now). If it continues to pay such high dividend (12%) it may come to a point they may not be able to sustain its dividend payout or it has to take more risk. I cannot tell you if it is a good buy at its current price, if more and more buyers snap it up, it may very well go up to and above $12 by the end of this year, then earlier next year, the whole market will tank.

      At this time, I believe the best investment may be floating rate CEFs such as PPR that pays a 7.02%. J

      • 4 Replies to jadelover888888888
      • Instanatwin the other thing I like about PSEc is the ability to get in and out with large positions as the volume is huge on the bid ask.

      • Instantwin, congrats I would have guessed you a lot older and you don't have the usual youth trash mouth, that is quite a feat on the accumulation I am glad it has worked so well for you. It is also imo wise to now invest in PSEC since you have done so well why risk it for more gain except for ego and that doesn't pay bills 12% plus what you can pick up trading this on that amount of money is enough to live well on. keep up the good work

      • Many of PSEC's loans are floating rate too and... about 88% of PSEC's loans are secured.. PSEC has never had a loan originated after 2008 go on non-accrual status yet.. that should tell you something about PSEC's standards and procedures in this business. If you are going to buy a loan portfolio, there is no publicly traded loan portfolio that you can buy better then PSEC's right now. Over 106 portfolio companies with around 88% secured loans. So what did i buy today? 48,000 shares of PSEC.. I bought into PSEC's loan portfolio. There is no better place i would want to be to ride out interest rates going higher.. just think of all the run off that comes off PSEC's loans... the prepayments.. being reinvested at better rates... and most of the loans PSEC makes come due within 5 years... they are short term loans. This is a really good business to be in. It's far less risky then buying a bunch of doggie equity stocks while you "HOPE" the price goes up. The reason I bought this stock has to do more with the fact that its the best place for me to be. I am a trader, i'm not employed at some job somewhere... My wife doesn't work either.. I'm 26 years old... And i'm basically retired. Having 50% of my portfolio in PSEC MAINTAINS my lifestyle... PAYS ALL OF MY EXPENSES.. while the remaining 50% can be used to trade anything else i want.. but I am thinking... of buying MORE PSEC if we get down to $10. Yes.. thats right... MORE PSEC. CALL ME CRAZY, but I came this far from only having about 70k of assets in January 2008 to almost 1.1m today. Tell me i'm a liar.. tell me i'm full of it. I don't care. No one else cares anyways, My dad still thinks i'm a #$%$ up" even with everything I have done in the markets.

      • PFLT, a senior floating rate capital that is managed by PNNT (a BDC) will be a very good buy at or below 13.65, considering its recent SPO of 3M shares on 3/12 was at $14 a share, now being traded at around 13.87 and it has been steadily raised its dividend. Of course, you must exercise your own diligence.

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