Investment Thread

[budwom]

Spinning it off doesn't really tell you how many of the initial assets (including IP) were retained by the parent. I'm no expert in corporate finance, but even I know that implied valuation is missing a lot of the story. I can imagine a number of ways this could happen to the benefit of AT&T shareholders.

this is true, but in this example AT&T expected to take an enormous bath, and they took one...they greatly overpaid for DirecTV, then have lost hundreds of thousands of subscribers every quarter ....I think you will be hard pressed to find anyone who thinks this wasn't an absolute disaster for them

[YmoBeThere]

Those geniuses at AT&T, who paid $48 billion for DirecTV just a few years ago, have spun it off with an implied value of $16 billion. Nice job! CEO of AT&T is John Stankey, aptly named perhaps, he led the acquisition before he became CEO, well done John.

Spinning it off doesn't really tell you how many of the initial assets (including IP) were retained by the parent. I'm no expert in corporate finance, but even I know that implied valuation is missing a lot of the story. I can imagine a number of ways this could happen to the benefit of AT&T shareholders.

this is true, but in this example AT&T expected to take an enormous bath, and they took one...they greatly overpaid for DirecTV, then have lost hundreds of thousands of subscribers every quarter ...I think you will be hard pressed to find anyone who thinks this wasn't an absolute disaster for them

Berkshire Hathaway just took a $11 billion write down on their $32 billion purchase of Precision Castparts. Not as bad as the AT&T investment, but it happens to even the best.

[budwom]

here's a decent piece on the DirecTV debacle (I only care because I'm a DirecTV customer):https://www.cnn.com/2021/02/25/media...ing/index.html

[YmoBeThere]

here's a decent piece on the DirecTV debacle (I only care because I'm a DirecTV customer):https://www.cnn.com/2021/02/25/media...ing/index.html

I've held AT&T shares since 2019 so not that long. Most of the shares were bought in the 20s, but it has basically been dead money. The dividend is nice.

[Jeffrey]

I've held AT&T shares since 2019 so not that long. Most of the shares were bought in the 20s, but it has basically been dead money. The dividend is nice.

Yes, it is! Sure beats current money market rates.

[duke79]

Yes, it is! Sure beats current money market rates.

Yea, but a serious question of whether or not AT&T can maintain the current level of dividend payout. They have a terrible balance sheet (partly from borrowing huge amounts of money to buy DirectTV), with lots of debt still on the books. The CEO claims that they have plenty of cashflow to make the debt payments, pay the operating costs of the business, pay their necessary CapEx costs AND pay the current dividend. BUT a LOT of people on Wall Street are skeptical that they will have enough positive cash flow to cover all those costs and, undoubtedly, the first thing they will cut will be the dividend. It partly explains when AT&T stock has performed so poorly, compared to the overall market and even to Verizon (which has a lower dividend payout interest rate but a much better balance sheet). A lot of smart investors view AT&T as the classic "dividend trap".

[Jeffrey]

Yea, but a serious question of whether or not AT&T can maintain the current level of dividend payout. They have a terrible balance sheet (partly from borrowing huge amounts of money to buy DirectTV), with lots of debt still on the books. The CEO claims that they have plenty of cashflow to make the debt payments, pay the operating costs of the business, pay their necessary CapEx costs AND pay the current dividend. BUT a LOT of people on Wall Street are skeptical that they will have enough positive cash flow to cover all those costs and, undoubtedly, the first thing they will cut will be the dividend. It partly explains when AT&T stock has performed so poorly, compared to the overall market and even to Verizon (which has a lower dividend payout interest rate but a much better balance sheet). A lot of smart investors view AT&T as the classic "dividend trap".

I merely agreed “the dividend is nice” and was not trying to set up another stock debate or recommendation. I don’t want to continue publicly debating individual stock recommendations, because I will eventually miss on one. I think the two of us have already debated my decision to buy CFG at 17.5, CMA at 27, and C at 47. As of today, equally weighted, the three are up an average of ~ 120% in less than 11 months. At this point everyone who bought, at those entry points, is a big winner and I think I’ve fully paid my DBR membership fees.

[BlueTeuf]

Looking for actionable advice: how to park money for 8-20 months with a more attractive risk/return than what my current research uncovers?

Us currently: mostly through the college paying years, prepared for retirement (not retired), half-arsed prepared for the wedding years.

Accumulating toward a home construction project with first expenditures in fall 2021. Where do I shield money from real risk - while getting something better than 0.5% interest - which after Fed/NY taxes is rather uninspiring.

In my mind, laddering invites two challenges - hope to need/use the $$ in the next 24 months - and my credit union's certificate rates don't inspire enthusiasm:

Certificate Rates 2021-03-02 072931.jpg

[YmoBeThere]

Looking for actionable advice: how to park money for 8-20 months with a more attractive risk/return than what my current research uncovers?

Us currently: mostly through the college paying years, prepared for retirement (not retired), half-arsed prepared for the wedding years.

Accumulating toward a home construction project with first expenditures in fall 2021. Where do I shield money from real risk - while getting something better than 0.5% interest - which after Fed/NY taxes is rather uninspiring.

In my mind, laddering invites two challenges - hope to need/use the $$ in the next 24 months - and my credit union's certificate rates don't inspire enthusiasm:

Certificate Rates 2021-03-02 072931.jpg

Not a higher yield, but the online savings accounts offer similar yields without the lockup. As an ex-GE employee I got a whopping bonus +0.05% at Synchrony.

[BlueTeuf]

Not a higher yield, but the online savings accounts offer similar yields without the lockup. As an ex-GE employee I got a whopping bonus +0.05% at Synchrony.

Agreed. Not worth the effort/constraint.

So, am looking for alternatives that benefit from my willingness to accept some down-side risk in trade for a stouter yield. Restated, if I'm willing to accept ~3% downside risk can I improve my chances of getting a 5% yield (before taxes)? While preserving the necessary liquidity.

[Jeffrey]

Agreed. Not worth the effort/constraint.

So, am looking for alternatives that benefit from my willingness to accept some down-side risk in trade for a stouter yield. Restated, if I'm willing to accept ~3% downside risk can I improve my chances of getting a 5% yield (before taxes)? While preserving the necessary liquidity.

Maybe, buy one or more stocks yielding at least 5% and set stop losses at - 3%. I’d buy multiple, in different industries, equally weighted.

[duke79]

Agreed. Not worth the effort/constraint.

So, am looking for alternatives that benefit from my willingness to accept some down-side risk in trade for a stouter yield. Restated, if I'm willing to accept ~3% downside risk can I improve my chances of getting a 5% yield (before taxes)? While preserving the necessary liquidity.

Please let me know if you find a (relatively) safe, liquid investment, with little downside risk, that pays out a 5% yield.

[Bluedog]

Crypto banks offer like 5-9% yield...BlockFi is a popular one. <devil emoji>

(I don't personally partake.)

[budwom]

Please let me know if you find a (relatively) safe, liquid investment, with little downside risk, that pays out a 5% yield.

When the nice Nigerian man comes thru with my oil fortune money the $3 million from him in return for my $3,000 expense check will constitute a handsome yield, indeed!

[Jeffrey]

When the nice Nigerian man comes thru with my oil fortune money the $3 million from him in return for my $3,000 expense check will constitute a handsome yield, indeed!

I'd call that a bargain, the best I ever had!

[YmoBeThere]

Please let me know if you find a (relatively) safe, liquid investment, with little downside risk, that pays out a 5% yield.

Define little downside risk...

[Kdogg]

Agreed. Not worth the effort/constraint.

So, am looking for alternatives that benefit from my willingness to accept some down-side risk in trade for a stouter yield. Restated, if I'm willing to accept ~3% downside risk can I improve my chances of getting a 5% yield (before taxes)? While preserving the necessary liquidity.

Would munis work here? I’m talking about individual short term (or short remainder) bonds not funds. I doubt you can get 5% but maybe 2-3% effectively return depending on your tax bracket. Of course you may wish to steer clear of Puerto Rico or Alabama bonds. Maybe New York State bonds to save on state taxes too? They are not sexy and you will never get the “pop” of stocks but it offers an option for conservative yield. The bond market is a different beast that stock so research is parimount.

[Jeffrey]

Of course you may wish to steer clear of Puerto Rico or Alabama bonds.

Why don't we just give Alabama
Rope enough to hang himself?

- Robert Hunter

[CrazyNotCrazie]

Would munis work here? I’m talking about individual short term (or short remainder) bonds not funds. I doubt you can get 5% but maybe 2-3% effectively return depending on your tax bracket. Of course you may wish to steer clear of Puerto Rico or Alabama bonds. Maybe New York State bonds to save on state taxes too? They are not sexy and you will never get the “pop” of stocks but it offers an option for conservative yield. The bond market is a different beast that stock so research is parimount.

Muni yields have actually bumped a fair amount in the last week or two but you still won't get much more than 1% yield on a high grade muni 10 years and under. As you noted, the tax break bumps that a little bit in state, but not much.

By the way, State of Alabama is roughly AA rated. I wouldn't be actively looking for their bonds if I didn't live there but there's nothing wrong with them.

[Kdogg]

By the way, State of Alabama is roughly AA rated. I wouldn't be actively looking for their bonds if I didn't live there but there's nothing wrong with them.

I was referencing the higher yielding, riskier stuff that can lead to this:

https://www.nytimes.com/2011/12/24/business/in-alabama-a-test-of-the-full-faith-and-credit-pledge-to-repay-bonds.html

We haven’t seen anything on this scale in munis in the past. The problem predated the pandemic.