Y's 10 year growth is very similar to WTM or BRK.B's annualized book value growth - all three are around 8-9%. What I see with Y is an opportunity to make slightly above average return at below average risk. Y also trades at ~80% of fair value, which i peg a little bit above book. I think both WTM and BRK.B showed more volatility - WTM because they got into the financial crisis with a fairly high equity exposure and BRK.B has a high equity exposure by design.
If you buy high yielding preferred's, you take some credit risk but most importan interest rate risk, if rates really go up. There is also liquidity risk, because they are thinly traded and often get indiscriminantly sold when there is credit market upheavel. I do think that the most important issue is interest rate risk. Y has some too as their book value will be hit, but then they will earn more on their float too. so far, the latest rise in interest rates has not made a dent in their book value, unlike with some long tail insurance companies, i follow.
So i think Y is 80c on the $ stock, not a 50c on the $ stock. I think it might serve as a source of funds for a better idea, but I have decided to reinvest part of my Nestle proceeds into this compounder probably for the long run, and I think the results will be similar or better than buying Nestle at this point. There is just not a whole lot out there, that promises double digit appreciation, without doing some serious work, or taking quite a bit of risk. |
