. The triangle investor: risk-return-liquidity. BOOKS Good afternoon , all / as
a good friend ask me what to do with the issuance of bonds Catalan Generalitat, to 4.75% one year and two days, from 1,000 euros. Another good friend ask me Gamesa at "unreasonably low prices", in his opinion. Some time ago a reader of this blog, whom I have not the pleasure of knowing personally, I sent a mail telling me your situation and asking for advice on what to do with your money. Only for the courage they had, I spent part of my time thinking what I would do in your situation and I told him. All I have given my humble opinion on the consultations that I have done.
I thought it would be interesting to make a post about the three elements that I consider very important when we see what worked with our savings . The analysis of these three elements should be used to obtain a more or less formed on the pros and cons when making an investment, whether on an exchange, whether in housing, whether in bonds, either in warehouses, etc.
Before making an investment, we should have the habit to analyze to what extent are these three factors appear in the title of this post: PROFITABILITY, LIQUIDITY RISK and investment. A calm analysis of these factors, we can help you decide if we go ahead or not an investment.
When we think the financial PROFITABILITY we can make an investment, the first thing you should do is think about what minimum return would have to get for our money at least not lose some of its value as a means of payment. This would require a minimum return set as last known CPI data. aspire to do unless our money to at least retain its value, ie, at least prop up what will make the CPI (Consumer Price Index) or cost of living.
Now, when comparing financial return on investment with the CPI, right, in my opinion, is it thinking about the financial and tax ie descontanto taxes will have to pay . For example, the last known CPI data is 2.1%. Suppose that a few days ago we put money on deposit at 4.75% Catalunyacaixa. After paying the 19% withholding income tax, the 4.75% is left in a 3.84%. This would be the data that would compare with the CPI, and the difference would be the real value would earn our money. In the example point, 1.74%.
Any investment that had a financial and tax (after tax), down from 2.1%, would in practice a loss of real value for our money. So that at least our money retains its buying power, after tax, our financial and tax should be equal to the IPC, in the example, 2.1%.
Another important factor is the liquidity . Or what is, to have our money when we want, without financial penalty or any time limit. Here the type of investment we make is critical. If someone invests in real estate , it must be clear that is an extremely illiquid investment . Spends much time, sometimes weeks, months, until you can sell your property and, therefore, make liquidity is not automatic, not even close. If someone invests in the stock market, provide liquidity to only depend on the sales order, and within seconds, have shares converted into cash, ie cash in our bank account.
For example, tank Catalunyacaixa
commenting a few days ago, was extremely illiquid
as 12 months could not have the money. That is a constraint to consider. Given a choice, for someone very important to consider the liquidity, you may find interesting ActivoBank tank, recently reduced to 4%, although 0.75% is expected to offer you less, you can have your money in two / three days.
RISK factor may be the one that makes us think. This factor is closely linked to profitability. The more risky the investment is more return I can get ........... or before I can lose all my money.
When one reads in the press, that a well-known toy brand, will offer 9.75% for obligations of the company for three years or, when one sees on television that a well-known food processing company, offers 10% return on an issue of promissory notes to two years, must take into account the risk-reward ratio is very clear. can earn much more because you assume more risk. It's that simple.
If a company has to offer these returns, it is because the "big money" refuses to fund it. The professional money, banks refuse to lend to these companies. So go to individuals who have less financial training and therefore are easier when companies buy what we want to sell, but we seem that we are financial geniuses to find companies offer these returns. Only after having closed the tap on bank financing, much cheaper, it goes to the private financing, much more expensive, because nobody wants to borrow money and to get it, you have to pay extra yield investors.
If one also takes into account the
indebtedness of the firm (in some cases, debt is 15 times EBITDA) , any sensible person, would appreciate quiet all these nuances. Many times, these new issues of bonds or commercial paper, is intended to refinance previous debts. That is, to pay debts incurred in the past, have to acquire new debt today. Is the snake biting its tail. Another symptom of the plight of some of these companies. Within
risk, I always think,
what if the company I invest is declared insolvent and go to ruin?. I put myself in the worst cases and protect myself. When buying commercial paper and obligations of the same, if you have the misfortune to see how the company declares bankruptcy because they can not pay its debts, a creditor is only over when you expect to collect that you owe. When you open bank accounts or deposits paid on member institutions
the Deposit Guarantee Fund , in the worst case, we covered the first 100,000 euros law we have. For some, a 9.75% or 10% is twice the better returns offered by bank deposits.
When an investor thinks about investing in bonds a year and two days of the Catalan, remunerated at 4.75%, should know that, as published by the business press, the Government also had to pay a 3% commission to the underwriters. That is, the actual cost was 7.75%, close to the levels of a Greek bond. You should also know that the English government pays about 2% for bond issues a year. That is less than half of what is going to have to pay Catalonia. And you should also know that the S & P rating in this issue is A +, when the maximum levels of rating agency's risk rating, is the famous triple A. That is, the bonds are issued various positions below the credit rating solvent.
not think this matters much to some investors, since the first day of issue, covered 1,000 million euros, of which 1,890 million are thought to emit. Given the success and to meet the demand from individuals, not institutional investors (the "big money"), will be expanded to 2,500 million euros the total amount of the issue.
If we also note that Catalunya is about 30,000 million (twice the Generalitat Valencia or triple the Community of Madrid), does not seem very rational to run to subscribe to these bonds.
Regards,
José Antonio
