Forum Archive Index - February 2003

["patrick mcgill" <patrick_mcgill@hotmail.com>]

Thanks for your comments Snoopy!

I have tried the high yielding shares route.  You are obviously a better 
picker of high yielding shares than I am.  I have had mixed results to date. 
Some have been good investments.  Others have dropped up to 20% shortly 
after I have brought them!

You are correct in your comments that the value of Capital Notes can go up 
and down on the secondary market. The term of the notes are typically 2-5 
years duration so if you hold to end term your return is steady (which is 
what I do) but if you sell before end term you are subject to the market 
rate which may be higher or lower than what you paid for them.

Paddy


>From: "tennyson@caverock.net.nz" <tennyson@caverock.net.nz>
>Reply-To: sharechat@sharechat.co.nz
>To: sharechat@sharechat.co.nz
>Subject: Re: [sharechat] Capital Notes
>Date: Sat, 1 Feb 2003 23:23:20 +0000
>
>Hi Paddy,
>
> >
> >
> >I was interested in your comments on Capital Notes and while I agree
> >with what you say, in general, I consider there is a place in
> >everyones portfolio for some Capital Notes.  My comments on Capital
> >notes are as follows: - they can provide a good yield in times of
> >low interest returns and low or negative share returns(such as at
> >present);
> >
>
>
>Yes, but high yielding shares can also provide a good return during
>those times.  I made 20% overall (after tax) on my portfolio of high
>yield shares (my substitute for capital notes) last year.   The idea
>that there are times that *all* share returns are low or negative is
>a myth.
>
>
> >
> >
> >- you need to diversify your portfolio so that a
> >particular note is no more than 5-10% of a portfolio because there
> >may be a payment default(but this rarely occurs);
> >
> >
>
>
>I guess that if you go into capital notes with the idea that one in
>ten of your investments may go bad, and this is your trade off for
>getting higher interest than putting your money in term deposits,
>then that is a rational approach.
>
>
> >
> >
> >- the returns once purchased are steady
> >(attractive to those who do not like the
> >volatility of share returns);
> >
> >
>
>
>Actually that's not quite so.  The *payments* on capital notes are
>steady.  But the value of the capital notes *do* go up and down with
>the market.  These aren't all printed in the paper each day like
>share prices.   But if you ring your broker you will find the
>value of the capital notes does indeed go up and down.  Because the
>value of the note varies, even with a constant payment, your return
>will also vary.   Granted this variation in value of capital notes is
>usually less than you might expect from shares though.
>
>
> >
> >- you need to investigate each note
> >before purchase to ensure that your notes yield is commensurate with
> >the risk taken; - there is a good secondary market for all the major
> >Capital Note issuers; - many Capital Note issuers, such as BIL, will
> >provide cash rather than shares if this option is chosen at the end
> >of a notes term.
> >
> >
>
>I think in the case of BIL notes the company has the discretion as to
>whether they pay you back in cash or shares.   I went into this
>when I considered buying some last year.  My broker thinks that the
>notes maturing this year will be paid back in cash, but this is not
>guaranteed.   Actually I wouldn't have minded getting a few more BIL
>shares at below asset backing.  But in the end, I had the chance to
>buy some more WRI shares at that attractive 15% yield.  So I didn't
>buy the notes.
>
>SNOOPY
>
>
>
>---------------------------------
>Message sent by Snoopy
>e-mail  tennyson@caverock.net.nz
>on Pegasus Mail version 2.55
>----------------------------------
>"Sometimes to see the wood from the trees,
>you have to cut down all the trees."
>
>
>
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