year has been difficult for BDCs due to being removed from the S&P and
Russell indices, continued interest rate fears, general declines in small caps,
selling institutional shareholders over the last two quarters and December
tax-loss sellers.I believe that some
investors have been selling baskets of investments, including higher quality BDCs,
which has created an opportunity for investors. At some point, BDCs will
rebound and I will have a series of articles coming out that discusses many of
the positive signs that we are seeing including lower borrowing costs,
stabilizing or even increasing portfolio yields and less competition from banks
as they continue to exit level 3 assets.
the next two to three weeks, BDCs will either continue to fall, have a ‘dead
cat bounce’ or potentially have a sustained rally into 2015. Investors should
be ready for all three of these
scenarios and to buy preferred BDCs over the coming weeks. As shown in the
previous chart, I believe investors are currently reacting out of fear (in both
the general and BDC markets).The
following chart shows the VIX hitting a high in mid-October at the same time
BDCs hit a low for the year and there are signs that the VIX is headed to these
levels yet again. Volatility – or “market whiplash” – is clearly back
in the market.
The CNN Money Fear & Greed Index:
are driven by two emotions: fear and greed. Too much fear can sink stocks well
below where they should be. When investors get greedy, they can bid up stock
prices way too far.
look at 7 indicators:For each
indicator, we look at how far they've veered from their average relative to how
far they normally veer. We look at each on a scale from 0 - 100. The higher the
reading, the greedier investors are being, and 50 is neutral.”
should be ready to buy BDCs that fit their investment profile.Recently I have noticed that pricing
multiples have changed to reflect investors’ perceptions of dividend coverage
and risk or capital preservation.BDCs
that continue to trade at lower NAV per share multiples will be capital
constrained and could risk losing various credit ratings that could contribute
to a higher cost of capital.
will likely be continued basket and tax-loss selling but at some point I
believe BDCs will rebound sharply as
they did after the October 15th lows. Also I believe investors will
continue to pay higher multiples for higher quality BDCs giving them a clear
advantage going into 2015.
are currently over 35 reports available as discussed in “Premium Reports”.
In Internet slang, a troll is a person who sows discord on
the Internet by starting arguments or upsetting people, by posting
inflammatory, extraneous, or off-topic messages in an online community (such
as a newsgroup, forum, chat room, or blog) with the deliberate intent of
provoking readers into an emotional response or of otherwise disrupting
normal on-topic discussion.
I will keep track of comments (even the ones that are deleted from
Seeking Alpha due to being considered 'abusive') so that readers have
context for our continued conversation and hope that others find humor in this blog.
Recent comments from 'koleffstephan':
you can sell some of the Hercules BDC stock that you are touting (all
of the insiders of Hercules have been selling, why not you too and join
the club!) and use the money to have a mental health care professional
give you some humbling self-deprecating attitude reality check. Jusy
" Mr. Buzz:
You too "write the same content and hidden biased verbiage on PSEC."
Please "don't try next week," to write some more on PSEC - save your
time and our eyesight." " You really
are writing and drinking koolaid. I am entitled to read any and all
articles on my investments - including PSEC - and while many articles on
PSEC are worthwhile, yours are not."
" It is
"absurdly extreme" to think that Hercules insiders "have more skin in
the game" than the PSEC insiders (including the CEO's of each respective
company). Just saying."