What are junk bonds. Junk Money: What You Need to Know About High Yield Bonds. Junk bond issuers
Recently, more and more often, we come across strategies associated with junk stocks. But, the problem is that not all cheap shares (pennystocks) are junk. And, accordingly, not all garbage companies are necessarily cheap stocks. Without realizing this, many investors lose money.
On the Russian-speaking Internet, it is generally accepted that if the share price is small, then this means garbage share... As a rule, if the price is less than $ 5-10, then it is immediately classified as junk. But this is fundamentally not true, it is necessary to clearly distinguish between junk stocks, from just cheap stocks.
And the quality of such cheap stocks ( pennystocks), the direction of trade depends. Good but cheap stocks are a potentially interesting investment. But junk stocks, bad companies, but even with a high value of shares - this is a good contender for short.
Cheap stocks (pennystocks)
Let's see an example. Chesapeake Energy Corporation - a company whose share price is spinning about $ 5
At first glance, this is an ordinary cheap thing, isn't this a garbage action? Definitely not. It is a giant corporation with a market capitalization of nearly $ 5 billion. She has good corporate reporting, etc. Moreover, it is included in the S & P500 stock index, that is, in fact, it is included in the top 500 US companies.
Junk shares (junk stocks)
Now we clearly understand that not all cheap stuff is garbage stocks. To clarify, the company is garbage, or just cheap, you need to dig deeper. The company needs to be considered in more detail, it is necessary to look at the reporting, what it is doing, the prospects - “to cut everyone one size fits all” will not work. So losses will be inevitable.
Of course, there are criteria according to which, by 90-99%, it is possible to quickly and efficiently establish whether the action is wasteful, or simply cheap. This greatly increases the efficiency of trading. The point is that junk stocks - one should look at the short, and good, but cheap stocks - either buy or generally neutral.
Both buying and selling at pennystocks have their own advantages.
1. Cheap stocks do not correlate (or weakly correlate) with stock indices. This gives us the opportunity to earn not depending on various crises and euphoria in the market.
2. As a percentage, cheap stuff is sold a lot - passing 100-200% in a short time is not a problem, which is good when shopping. But, under a bad combination of circumstances, they very quickly fall in price - several tens of percent a day - not a problem for a junk stock, on which shortists (those who are short selling) make good money.
3. Low volatility. Many people think this is a minus, but in fact it is a plus. Since when a big player takes a position, or exits it, then he strongly moves the market, which gives us a quick profit.
4. Low share price. By itself, this property gives us the advantage that even with a small deposit, we can confidently work with such shares. Moreover, one can create portfolios of cheap ones, and thus, diversify risks.
5. Manipulation. In decent, but cheap promotions, manipulation is practically impossible, but in junk promotions, this is a standard phenomenon. Most consider this a negative phenomenon, but if you know in which stock and when manipulative actions will be carried out, then you can earn decent money on this. From such shares, you can take up to 90%, and more, of the value of the share. And this is not an empty phrase - here are the proofs of my real transactions - (+ 86.73%), (+ 86.31%), (+ 64.94%) - all transactions are verified (confirmed) by the broker.
But, nevertheless, the main confirming factor, whether it is a cheap stock (just pennystock), or a junk stock, are "". They give almost 100% (there is simply no absolute 100%) an answer to what the company is like - to look at a sale, to buy, or simply to bypass it.
Want to learn how to identify cheap stocks? Moreover, do you want to make money on it? , I will teach you. And I will teach you how to invest in cheap stuff ( short sales - this is also an investment!). You will not have to sit at the computer all day to take 1-3% of the price, and half of this profit (and it is so tiny for intraday traders) to pay for a commission.
Cheap stocks (pennystocks)
Against the background of low interest rates in the US, Europe and Japan, investors are actively interested in junk bonds, market participants say. What are interesting about these securities and what you need to know when investing in them
In August on debt market The United States has seen a sharp increase in the issuance of high-yield corporate bonds with non-investment (speculative) ratings - in three weeks of the month the volume of issue amounted to $ 17.65 billion, which is $ 7.34 billion more than in July this year, and $ 865 million more than in the same period 2016, according to the data of the analytical platform Informa Global Markets. In general, the volume of issuance of new speculative bonds in the United States reached its maximum level in three years.
Analysts explain the increase in the issue of "junk" securities by the fact that corporations are seeking to attract as much borrowed funds as possible before the likely increase in the Fed's interest rate at the end of the year, which will force issuers to place their debt at less favorable terms... "Top corporate executives are rushing [to place debt] ahead of a period of rising borrowing costs in September-October, due to the expectation of a Fed rate hike," Jonathan Dunsing, senior portfolio manager at Amundi Pioneer, quoted CNBC as saying.
In turn, global investors are willing to buy securities with a "junk" rating because of the ultra-low yields of higher quality debt instruments, experts interviewed by RBC note. Thus, the yield on ten-year bonds of the US Treasury is now near an annual minimum, amounting to 2.1% per annum, while the average yield of American "junk" bonds, according to Bloomberg, hovers around 5.8% per annum. The Solactive USD High Yield Corporates Total Market Index has been climbing since the beginning of the year, currently trading near an annual high of 1,077 points. Since January, the indicator has added about 4.9%.
According to the recent Deutsche Bank, US junk bonds were the second best performing asset after the S&P 500 ETFs in the ten-year period from August 9, 2007 to August 9, 2017. During this time, they brought investors an income of 95%. And in the rating of profitable assets of Bloomberg for the same period in the first place were European, and the third - dollar "junk" bonds.
Among Russian investors, interest in securities with non-investment ratings is also very high, the interviewed portfolio managers admit. "During the period low rates in the USA, Europe and Japan, the demand for high yield securities has grown significantly. We see it from both private and institutional clients, "says Konstantin Glazov, head of the debt instruments trading department at Aton Investment Company.
And we are talking not only about American, but also about Russian issuers, says Konstantin Bushuev, head of the Otkritie Broker market analysis department. “Currently Russian and world economy grow in Russian banking system large liquidity surplus, and the Bank of Russia is likely to continue the cycle of rate cuts. In such circumstances, the purchase of high-yield bonds is justified, ”the financier notes. RBC figured out which of the debt securities can be considered "junk" and how risky it really is to invest in them.
What are junk bonds?
Junk bonds are high yielding debt securities with a credit rating below investment grade... Bonds that have received ratings Ba1 and lower from Moody’s and BB and lower from Fitch and Standard and Poor’s fall under this definition. Due to low credit ratings, "junk" bonds carry significant risks of default, but it is this circumstance that ensures high yield on them - issuers are forced to offer an increased risk premium in order to place their debt. Junk bond yields may exceed key rate The Central Bank both by several percentage points and several dozen times.
Interlocutors of RBC from investment companies, however, note that the very term “high yield bonds” is rather vague. “For some, everything that is below the investment rating is high-yielding securities, and so will Russia's sovereign Eurobonds. For some, high-yield instruments are those issued by issuers with a rating of B and have a yield spread to sovereign securities above 400 bp, ”Glazov gives an example.
Alexei Kovalev, an analyst at the Finam Group of Companies, agrees with him, who notes that since all international agencies have assigned a speculative rating to Russia, there are no purely technical corporate bonds from domestic issuers with investment ratings on the market. Thus, the S&P agency assigned the country a BB + credit rating with a positive outlook, and Moody's and Fitch - Ba1 and BBB- with a "stable" outlook. “We now have issuers of the first echelon (state, quasi-state and large raw material companies), and there is everything else that can be conditionally referred to the category of“ garbage ”, - told RBC the head of the department for attracting clients investment services and underwriting of Svyaz-Bank Alexander Nikonov.
Also, according to him, there is a category of companies that fell into the category of "junk" issuers for non-financial reasons - because of anti-Russian sanctions or problems in a specific sector of the economy. “For example, the metallurgical sector is under pressure amid falling demand for metal, and rating agencies downgrade the ratings of all companies in this sector, without exception,” explains Nikonov.
In order to understand the degree of risk associated with investments in junk bonds, investors usually study the statistics of defaults on such securities. According to S&P, in 2016, 5.1% of corporate issuers with speculative ratings defaulted on the US debt market. On the world market, according to Moody’s estimates, 4.5% of issuers with non-investment ratings could not fulfill their obligations to debt holders. In 2017, agencies expect these indicators to decline to 3.9% for the US market and 3% for the global market.
In Russia, according to the head of the Department of Debt Capital Markets at BCS Alexei Kupriyanov, 155 issuers defaulted over the past ten years, of which 130 did not have ratings from international agencies at all. And half of the defaults among rated issuers fell on banks, whose licenses were revoked by the Central Bank. Against this background, it is rather difficult to determine how risky investments in Russian securities with speculative ratings are compared to investments in other bonds, experts admit. Therefore, they propose by default to consider “junk” bonds of Russian issuers as high-risk assets and take into account all possible risks associated with them.
How to choose junk bonds
Portfolio managers, with whom RBC spoke, recommend not investing in junk bonds most of the savings. According to Bushuev, no more than a quarter of the portfolio should fall on high-yield debt securities. “At the same time, in order to reduce the risk, it is desirable that the share of each issuer in the portfolio of high-yield bonds should not exceed 5%,” he emphasizes. Dmitry Postolenko, portfolio manager of Capital Management Company, notes that most often investors are ready to use up to 10% of their savings to purchase junk bonds.
When choosing "junk" bonds, you should pay attention to whether the issuer has other issues valuable papers, in what volume and what price they have, says the Deputy General Director for Investments of the National management company Andrey Vallejo-Roman. It also matters whether the issuer has a lot of public debts. Determining the size of the debt burden will make it possible to understand whether the company will be able to refinance if the risk of default increases, the financier explains.
Nikonov advises the investor to look not at how bad the financial condition of the issuer looks, but at the horizons of the business in which the company is engaged. If a business idea looks promising, then such an issuer will most likely be able to return money to its creditors, the expert is convinced.
To reduce their risks, the investor should focus on bonds of issuers from the real sector, which generate cash flow and have production assets, Postolenko adds. It is desirable that the assets are not pledged against bank loans. “Then in the worst-case scenario it will be easier with the company to negotiate the terms of the loan restructuring,” says the financier. At the same time, he advises to refrain from investing in junk bonds of financial or IT companies whose liabilities exceed real assetsavailable on the balance sheet.
Bushuev considers the most attractive for purchase "junk" bonds of the PIK group of companies (issue BO-P01), since in the coming years one can count on the financial stability of this issuer. Bonds of Pioneer Group of Companies (B1R2 issue) before the offer in October 2018 and bonds of RSG-FinB7 issued by Kortros Group may also be of interest. “All these companies are connected with the construction market and are still under pressure, but, in our opinion, as the economy grows and the population's effective demand recovers, the situation here may improve,” says Bushuev.
Kovalev also singles out an exchange issue of 001P-01 series bonds from Domashniye Dengi with a yield of around 17%. In the segment of Eurobonds, the issue of AFK Sistema with maturity in 2019 has a certain potential - it can now be bought at an attractive price, the analyst adds. "There are still double-digit dollar yields, which are rapidly returning to normal following the latest court decisions," he concludes.
When investing in junk bonds of foreign issuers, it is better to focus on the indices of high-yield bonds, since they allow for better portfolio diversification and reduce the risks associated with default by individual issuers, says Eric Legunn, strategist at Deutsche Asset Management in a recent review. He recommends investors to invest in exchange-traded funds on indices of "junk" US corporate bonds Bloomberg Barclays US Corporate High Yield Total Return Index and Solactive USD High Yield Corporates Total Market Index. On these indices, you can earn about 5.5-6% per annum in dollars, says Legund.
In international financial language, junk bonds are high-yield bonds with a high risk of default. They can be government bonds with dubious solvency, as well as bonds of companies with a bad financial reputation or on the verge of bankruptcy.
It will seem strange to the novice investor why such high percent... The yield on junk securities is 150-300% per annum (the yield on bonds of reliable issuers is 6-9% per annum). But there is nothing surprising here. The high yield on securities is a compensation for the additional risk that investors take on when purchasing high-risk bonds.
There are quite a few investors who buy "trash" and expect that a bankrupt company will be bought by a reliable company and will pay off the loan, as well as pay the promised high interest rates. However, such investors should be aware that deteriorating market conditions may lead to the inability of the issuing company to service its debts, to its default. The history of the appearance of junk bonds is quite interesting. The fact is that for many institutional investors (banks, pension funds, insurance companies) the possibility of investing in corporate debentures was legally limited to investment grade bonds. Bonds of issuers with low credit quality - rated by BB Standard & Poor's and Ba Moody's - were not in demand until the early 1980s. It is because of their lack of demand that they are called "trash". In the United States, until the end of the 70s, all new bond issues intended for public offering had an investment rating. The only publicly traded junk bonds were those of those issuers that received a downgrade due to a deteriorating financial position and lost their investment quality (they are also called fallen angels - "fallen angels").
The debt market revolution
The debt market revolution was made by Michael Milken, who later received the nickname “the king junk bonds”. He is considered the founding father of the junk bond market.
Studying statistics on the corporate bond market, Milken came to the following conclusions. First, debt securities with low credit ratings show better long-term yields than bonds with higher ratings, despite the increased risk of default. Second, corporate bond yields are cyclical: they perform best when the market is discouraged, and worst when the market is already “overheated,” and investor confidence is limitless.
On this basis, Milken found that junk bonds are not junk bonds, and their yield depends on the nature of market expectations. As a result of these conclusions and the subsequent practical activities of Milkin and his followers on the US stock exchange, by 1983, more than a third of all corporate bonds in circulation had a non-investment rating. The reasons for such a rapid rise in junk debt are simple. First, these securities have been an extremely attractive instrument for corporate borrowers - publicly traded bonds tend to carry a lower interest rate than those traded in a private offering and place fewer restrictions on issuers. Secondly, these securities are much more interesting for investors.
Research shows that on lower-rated bonds, investors earned higher risk-adjusted returns. The risk premium (premium to interest rates on risk-free obligations) of bonds with a low rating exceeded the level justified by the probability of a default occurring, i.e. real losses on liabilities of companies that declared their insolvency were more than offset by higher interest payments from other firms.
Therefore, investors who bought a diversified portfolio of high yield bonds performed better than those who purchased a portfolio of investment grade debt securities. And this is even taking into account the losses from those securities for which the issuer declared a default.
Analysis is indispensable
High-yield bonds are considered a tool for the most aggressive investors, who are not only willing to take risks, but also ready to face serious losses in the event of a default.
Working with junk bonds requires a complex analysis, which includes studying the current economic situation, forecasting the dynamics of interest rates, identifying promising industries and companies, assessing the financial position of a particular issuer, calculating the potential yield of bonds. An untrained investor cannot cope with such a task in 99 cases out of 100.
In addition, when building a portfolio of junk commitments, special attention should be paid to diversification. However, not every investor will have the funds available to him to create a wide portfolio of these debt instruments. In this situation, the most optimal solution is to buy shares of junk bond funds, the initial investment in which ranges from $ 1 to $ 5 thousand.
When choosing a “junk” mutual fund, one should take into account the level of expenses (it should not exceed the average for this category - 1.3% at the moment) and the period of tenure (preferably over 5 years). For the category of junk bond funds, the most commonly used are the Lipper High-Yield Bond Index and the Lehman High-Yield Index.
If we talk about the issuers of "junk" bonds, we distinguish the following groups:
- rising stars ("rising stars" - young, dynamically developing companies that do not have a long operating history, the size of assets or financial sustainabilityrequired to obtain an investment rating);
- fallen angels (“fallen angels” - companies that once had an investment rating, but lost it due to financial difficulties);
- high-debt companies (companies with large debt);
- capital-intensive companies (capital-intensive companies are forced to enter the junk bond market when they cannot cover their need for capital at the expense of own funds or bank loans).
It should also be remembered that the choice of junk bonds should be very selective and focus on the highest quality of them, with a BB rating. Do not forget about the risks that are an integral part of junk bonds. These include:
- the risk of interest rates (in the context of rising interest rates, new bonds will be issued with a higher coupon, leading to a decrease in the prices of bonds already in circulation and making them less attractive);
- the risk of default (means the inability of the borrower to service and repay its debt obligations);
- the risk of a rating downgrade (deterioration of the credit quality of bonds in the eyes of rating agencies makes investors doubt the issuer's solvency, which leads to a decrease in the market price of its debt securities);
- inflation risk;
- revocation risk (the likelihood that the issuer exercises its right to revoke bonds before maturity).
Time to buy
The well-being of the economy is an important condition for the success of investments in junk bonds.
Today, most US companies with non-investment ratings have a heavy burden of debt that, if a strong economic recovery takes place, would boost sales and make it easier for borrowers to service their debts.
In addition, in the initial phase of economic recovery, interest rates rise. This leads to a decrease in the value of more reliable debt instruments (for example, government bonds) and increases the attractiveness of junk bonds.
With the recovery of economic growth, the risk of default decreases, and if rates on treasury bonds in these conditions increase, then on high-yield bonds, they decrease. After all, the risk premium that investors demand as compensation for the likelihood of non-payment decreases.
Scandals surrounding fraudulent corporate reporting of large companies in 2001, negative forecasts regarding the state of the American economy led to an increase in the yield of "junk" bonds. Due to the increased perception of risk, corporate borrowers had to offer investors a higher interest rate. However, next year analysts' forecasts regarding further growth of income from investments in "junk" bonds did not come true. This was due to losses associated with a series of bankruptcies, as well as downgrades of the credit ratings of telecommunications and energy companies. The deterioration of the financial condition of the issuers of these two sectors led to the stagnation of the entire corporate bond market.
Junk bonds bounced back in 2003. High quality debt securities, i.e. with an investment rating have grown in value, becoming the object of close attention of investors. Naturally, this reduced their attractiveness, because they are no longer cheap. Now it's time to look at lower quality corporate bonds.
In 2004, the demand for “junk” bonds was no longer called “crazy”. Companies were keen to wind up trades and attract investors as quickly as possible by placing shares in a matter of days. Since January 1, high-yield bonds have been issued for about $ 42 billion, that is, on an annualized basis, the increase was 75%.
Everything is different with us. Sometimes the bonds of Russian companies also try to be classified as “junk”. However, this is not always true. Despite the fact that formally Russian corporate bonds fall under the definition of "junk" (their rating cannot exceed the B mark - Russia's sovereign rating), they are hardly such.
First, they cannot be classified as highly profitable. If we bring the ruble yield of Russian corporate bonds (18-22%) to the currency yield, it turns out that the latter will be rather low.
Second, the risk assessment of many Russian bonds is clearly overestimated by international agencies. Their methods are structured in such a way that in our conditions they are guided not so much by the borrower's business as by country risks. The rating of the country went up, and after it the ratings of Russian companies crept, although nothing has fundamentally changed in them.
Many market participants cite the bond issue tax as one of the reasons hindering the development of junk bonds, which puts corporate bonds at a disadvantage in relation to promissory notes and government bonds, on which no emission tax is levied. Tax deductionsmaking the issue of bonds more expensive negatively affect the ability of enterprises to attract borrowed funds... Other market participants advocate the introduction of different levels of taxation (progressive scale) depending on the maturity of the bonds being issued.
The tax cut will allow issuers to offer higher returns to investors, which could cause money outflow from the public debt market and complicate the conditions for further government borrowing... The advance tax payment procedure is also subject to criticism, which means that the issuer will have to pay it even before raising funds in the market. In addition, if the placement fails (in case of refusal to register or due to incomplete placement), tax payments are not refunded.
The complicated procedure of state registration also raises criticism. It lasts for months, and during this time, as experience shows, the conjuncture can change dramatically.
The ban on trading bonds before the end of the placement period looks completely incomprehensible, depriving underwriters of the opportunity to maintain quotes on secondary market... Where does the liquidity come from if the investor who bought the bond from the issuer cannot sell it until the placement of the entire issue is completed.
From profit to loss - one step Current volumes russian market "Junk" bonds are quite modest. However, the growth in the number of investors, who are consciously willing to take risks for higher incomes, noted in the last 1-2 years, will allow increasing the market volume. This will help the medium-sized business, as it is he who is developing and, therefore, in dire need of investment, and is the issuer of most of the "junk" bond issues.
Already, investors are not embarrassed by the appearance of bonds with high credit risks on the stock market. In the first four months of 2004, 8 times more high-risk bonds were placed on the Russian stock market than in the same period last year, and their share in the total volume of newly placed securities doubled to 15%. According to experts, this proposal is direct evidence that the stock market is becoming a tool for attracting money to a growing economy.
The July banking “confidence crisis” was a logical and inevitable consequence of financial stabilization (low inflation, stable exchange rate, low yield on the bond market). But it is the problems in the banking sector (revocation of licenses from a number of financial structures) that will lead to an even greater increase in the market for "junk" bonds. True, analysts are skeptical about the possibility of making money on them, but losing, and everything, is quite simple. After all, when it comes to junk bonds, there is one step from profit to loss.
Roman Zubarev
Recently, on Smartlab, there has been just some kind of wave of exposure of all sorts of leftist grails and methods. I propose to consider one of them - I will not say that I had a lot of light in it, but I "smoked" a little :)
Many have heard such a term as "garbage shares" - they are on any stock exchange the world, but not everyone knows what it is.
So let's figure it out: what kind of animal is it and what they are eaten with :))
So, according to Wikipedia, "Garbage is one of the categories of human waste." But how does it come about that the shares, that the shares of some sometimes very successful companies in the past, turn into elementary "rubbish"?
And why can this “rubbish” be dangerous for a trader and an investor? We will talk about the American market, but with some amendments, they are also true for others stock markets.
Let's start with the characteristics by which most experts classify these shares as "junk".
So, first characteristic
- they are very cheap (most of them are less than 5 bucks).
Second characteristic - these shares are trading at too low a volume - less than 300,000 per day. This is too much for the MICEX, but too little for amers.
So what is the danger of enthi trading penny stacks? Indeed, at first glance, it may seem that cheap stocks are just attractive because they can greatly increase in price ... Well, let's figure it out.
Maybe someone has read Bill Onil - and he correctly noticed that cheap stocks are cheap for a reason, because stocks are a commodity. And if the product is too cheap, then there are logical reasons to consider it not too high quality.
Tobish, if a share is too cheap, it means that there is no interest in it from big capital - and, as a rule, such shares have a very weak foundation and are on the verge of bankruptcy.
An investor who has bought such shares runs the risk that their value may fall to zero at any time. And this risk is so great that amerov's funds are simply prohibited from buying shares for less than $ 5.
Well, AMD can be cited as an example of a "junk" action - in the past a successful microchip manufacturer, and now the company is on the verge of bankruptcy:
Back in 2006, the shares of this company were worth more than $ 40, and now they have dropped below 5 ...
The graph shows that the company has not grown for several years.
And it may turn out that the shares of this company will fall even lower, because in 2009 they were already near zero. Are you ready to buy it now at a low price? Or maybe you should figure out the reasons before throwing yourself with a joyful cry "I take it for everything"?
The question immediately arises: if these stocks are dangerous for investors, then can an intraday trader benefit from them - a simple specul like you and me?
Unfortunately, many dangers await those who want to “ride” on penny stacks. To begin with, most of these stocks are classified as low volatility. This means that these stocks go so little within the day that it is extremely difficult to "squeeze" anything out of them - one can only hope for a miracle for years.
And these miracles sometimes happen - but only insiders make money on this, and no one will give us this information, and you will not get it anywhere, even in paid sources.
For example, AMD stocks have an average move (ATR) of only 16 cents a day.
And this is not just a little, but very little - such low volatility makes it possible to “beat off” the commission with difficulty, not to mention trying to make money on it.
Of course, there are penn-stacks with a higher ATR, but I found only 6 stocks with a high ATR\u003e 0.50 (more than 50 cents) for the entire American stock market (as of yesterday - 08.16.13):
And this while the rest of the shares are about 7 thousand !!!
So is it worth trading 6 volatile penny stacks after that when you can trade hundreds and thousands of more expensive stocks with much better characteristics? The answer is obvious - in this situation, penny stacks lose all their attractiveness, even for any crazy day trader.
These examples clearly show that on modern market penny stacks are no longer interesting for either the trader or the investor.
And if you connect the second criterion to this - too low a volume, then this makes their trading in large funds completely futile.
Yes, another risk when trading too thin stocks is a wide spread and, as a result, rather strong slippage. On such stocks, you cannot keep low risk and have a high MM (risk-reward ratio).
What conclusion can be drawn from all this? Only one thing: do not trade such stacks intraday, and in the medium term they are more likely to be scrapped.
The main objection to this statement is usually the "successes" of the freaky guy - Timothy Sykes, whom many have seen in the TV series Wall Street Warriors (there was AMG and other characters). Yes, these guys earned at a certain time - there is no bazaar and respect and respect for them.
But times have changed and Sykes himself (probably one of all the kin) at a seminar in Moscow admitted that his strategy stopped working immediately after the end of the series, and he gave all the profits back to the market and closed the fund. Now, more than one investor does not trust him with money for management, and Tim himself has retired - he rarely trades and travels a lot.
The only truth now is that he just travels and seminars - and all his seminars are profitable - not a single loss-making one :)))
The reality is that his strategy had a short-term effect on the fall of dotcoms, but the market changed after that and the strategy simply stopped working. And many try to repeat it and slowly drain ...
Apparently, the thought comes that all strategies with "junk" in which penny-stacks are involved are doomed from the very beginning by the very nature of these "garbage" stacks.
May all those who cut money on this forgive me ...
Article by Alexey Smirnov
Only he who sees the invisible can achieve the impossible
(unspoken FSB motto)
And now, dear reader, hold your breath, because all the ins and outs of the Russian stock market will open before you.
And for starters, the simplest question: how much exactly in Russia stocks in which you can invest and in which you can not? Even the readers of the site cannot answer: ten-twenty-fifty ... Digging through the entire Internet, you will not find an answer, and the ratings of Russian issuers from international rating agencies are simply disgusting.
So we have to do it. But for this, dear reader, you need to define the criteria, and I propose the following:
First, we will mark companies that have at least some sustainable competitive advantage over other Russian companies, and even more so over their foreign competitors. Second, it is the company's competitive advantage skillfully uses, i.e. through competent marketing and distribution, it achieves maximum value in the eyes of customers. And even more so, a company should love to grow in value from a loyal customer base.
As you can see, I rated these three factors as 100% success. Without them, I a priori will not invest a penny in at least some russian share, and I do not advise you. I will add right away that for me it is not a competitive advantage to have access to cheap government resources: gas (Gazprom), oil (Rosneft), money (Sberbank), etc.
And now what most Russian issuers have trouble with:
- Majority
people who do not respect other co-shareholders (like us, minority shareholders) deserve only bankruptcy - Managers
we want to find those who are active, honest and open to customers and all shareholders and competently steers their money. The rest go through the forest. - Information about the company in the media and its financial statements
here the majority have an absolutely gray area - normal analytics, reporting, and even simple interviews with management are often difficult to find at first, and then even double-check. We also send such companies across the forest.
These factors do not have my assessment of success, because all this should be built normally from the beginning. With any even the slightest ignorance of our interests or finding a "skeleton in the closet" we immediately pass by.
And now about the "roller coaster". We all know that our world is cyclical, and even more so. States, industries, companies and goods have their own life cycle:
first, the emergence of an idea (point A1), then its development and the development of critical mass (segment A1-B), then a sharp growth due to extensive or intensive growth (B-G), and then fading (G-A2). And the next cycle.
For any investor, the ideal entry points are between A1 and B [as well as the new A2]. At the same time, investments on the B-C segment should be assessed as soberly as possible, and even more so not to get into the Titanic at the last moment (C-D). The Titanic itself is marked with a black line. I'm sure you understand that a great company that fits all our criteria, but is in a cycle from B to A2, is not an appropriate issuer for investment.
The last thing you need is our own rating. Alas, I don't know how well you are aware of all Russian companies, so I apologize right away if my sorting does not match yours. So, this is how I will filter out all suspects and minimal actions with them:
And the Moscow Exchange itself has left us a hint in the form of the level of listing of issuers (there are only three of them) - getting into the second and third quotation lists, we "plunge" into low-liquid stocks and start playing the lottery.
From the latest data (as of 18.04.2016) about all listed issuers on the Moscow Exchange, we know that the varieties common shares and depositary receipts Total 260 .
So, let's begin.
Banks, investment offices and other guys
There are 31 of them. Of these, the first and most delicious is the Moscow Exchange itself (Vlad and I have already described it). And she's still in the buy and hold zone.
The second issue - AFK Sistema - has obvious flaws: firstly, for me it is the internal network Intourist and the Sitronics holding. They cannot be sold, but it is also weak to bring them into an active plus. That is, the company has "ballast". Secondly, it is the lost Bashneft and Uzbekistan. If the purchase of Bashneft according to the scheme of the 90s can be forgiven, then the loss of at least $ 2 billion by MTS in Uzbekistan (first because of the expulsion from the country, and then because of the revealed bribes of the president's daughter) raises big questions. On the plus side: there is obvious arbitrage. After the affair with Bashneft, AFK Sistema is still worth 185 billion rubles, owning, in addition to 50% of MTS, a bunch of tasty assets. Although MTS itself is estimated by the market at 534 billion rubles. What already gives us fair price for shares not 19.21 rubles. (on 04/22/16), and 27,67 rub. with a growth potential of at least 44% .
As soon as the System itself gets rid of the ballast, and MTS deals with the American prosecutor's office, it will be possible to paint it green.
Rosgosstrakh simply has huge potential: Russians have not even begun to fully insure their homes and lives, and there are still a bunch of underrealized options with liability insurance - cars, managers, civil servants, etc. The current crisis in the economy and the actions of the Central Bank of the Russian Federation should clear the insurance swamp of unnecessary competitors. In general, and Rosgosuzhas on a pencil.
Orange. QIWI on an obvious descent: people are moving en masse from terminals to bank cards, - and there is no new shock business idea. And all russian banks initially "eat up" free from Sberbank and VTB. I have already written about Promsvyazbank and others like it, so I will not repeat myself - during a crisis (read: downward slope) your investments are doomed to zigzags down.
The red zone management is doing everything to make you shudder.
From the gray zone, I would single out only Europlan: the very idea of \u200b\u200bbecoming a leasing leader in Russia is interesting, but it is very, very difficult to collect all the market data for normal analysis. The rest of the gray ones are really low-liquid unknowns: to invest in them you need to have awesome analytics and a super-strong nervous system.
IT
Only three, and only Yandex.
There are only four countries in the world (Czech Republic, South Korea, China and Russia), who managed to create their own search engine and not fall victim to Google. All other things being equal, the government will do everything to get Google out of Russia, so Yandex has a country advantage and my respect for fighting on equal terms with the world champion. Yandex will require a full analysis ... The remaining two gray companies are weak.
Communication, telecom
10 companies, only 3 interesting.
In Russia there are only 4 "toll bridges" in mobile communication: MegaFon, MTS, Beeline and Tele2. With the final transition to the 4G communication standard and, as a result, the opportunity for everyone to enjoy media everywhere on the super-fast Internet, MTS and MegaFon will become very desirable “cash cows”. MGTS has much more problems, but it is also able to use the advantages of its sister MTS through the integration of households in the Moscow region into the 4G Internet paradise. The rest are for the hussars.
Agrarians
Thanks to the sanctions, at least four of the nine shares are covered in chocolate.
Both Cherkizovo, RusAgro and Ostankino are doomed to growth. Abrau-Dyurso is also starting to use a barrier for European wines and growing vineyards. I painted it orange, not red because of the "savior" in the person of RusAgro: the company was clearly not yet shredded, but it was also saved from bankruptcy. There is little information about the rest.
Trade, retail, restaurants
Everything is simple here: the best go ahead, the rest catch up. There are 11 issuers to choose from, but there are also very interesting ones.
Alas, the most effective in the world - the Magnet - is already too expensive. His story will soon approach point B in the above diagram. Plus there is Uncle Misha Fridman's bulldog X5 Retail Group catching up, and among the yellow ones there are those who want to bite the champion's profit. But if suddenly a panic starts on the stock exchange with shares of Magnet, then I will be their first buyer "at the bottom".
The children's world is a story of the transition of growth from point A1 to B. Watch it more closely: this or next year the company will start a leap up.
The yellow ones have their own obvious business ideas, but also an overly aggressive competitive environment. Here I will not impose myself - decide for yourself whether they are worthy of you.
Orange Rostix deserves respect for being still alive, but you will not see phenomenal growth at the McDonald's competitor. Plus the current crisis.
Red Pharmacies 36.6: too many debts and too much leapfrog with the majority shareholders. The rest are gray biomass.
Pharmaceuticals
So far, not a single Russian pharmaceutical manufacturer has been able to come close to world champions in terms of development, efficiency, or finance. indicators, so I advise you not to touch the entire top five.
Good prospects of Pharmstandard cancel out the desire of the majority shareholder to buy back shares from the stock exchange and investments in the dregs such as the German Formula 1 racetrack. Gray for extreme sportsmen.
Aviation and space
Run, run past these stocks as far as possible.
UTair was rescued at the last moment by Surgutneftegaz. Transaero is bankrupt. The best European airline of 2015 - Aeroflot - with a monopoly on rent ($ 200 million) from other airlines for a flight over Siberia again managed to get into a loss. GAZKON is a subsidiary of Gazprom, and that's enough. The state-owned RSC Energia has never been in the black, and it's even scary to read about three NGOs.
Media, media
Everything is in loss and uncertainty. Amen.
Motor transport and agricultural machinery
Only GAZ has relative prospects. The rest, with varying degrees of poverty, drown or are unknown. Who wants to drown their money - you are here.
Gas workers
Of all those connected with gas, the most interesting is NOVATEK Mikhelson. This pretzel managed to build a new port (Sabetta) and almost completed the entire infrastructure there for transporting Yamal gas by gas carriers. Thus, he actually got rid of the Gazprom monopoly. And he also insured himself: he has a friend of Putin (Timchenko) and a bunch of foreign monsters (from the French Total to the Chinese "Silk Road Fund") as co-shareholders. And everything goes to the fact that NOVATEK, together with Rosneft, will soon uncover Gazprom's monopoly on pipeline gas exports. Take a closer look.
It is better to follow Gazprom and others from afar.
Oil and petrochemicals
The royal industry, and there are few ideas.
I paint Lukoil green for adequate growth and the absence of the state in its shareholders. but foreign investment companies at gas stations and refineries are causing concern. There are too many unprofitable (such as gas stations and refineries in Ukraine) and dangerous (West Qurna-2 field in warring Iraq).
Bashneft is yellow due to impending privatization.
Surgutneftegaz is beautiful, but the management does not know what an honest and full information for minority shareholders. Tatneft has regional supervision, therefore it is better not to touch it.
State-owned Rosneft and GazpromNeft are the history of the “when” question. When will the next major capex appear and the minority shareholders will say goodbye to normal dividends forever?
The gray zone rarely appears in the news - either to suffer for the sake of information, or immediately pass.
Gold, diamonds and coal
Everything is simple here: guess at what stage of the commodity cycle these goods are - you are in communism, otherwise you will be guaranteed a trip down the black line of the above diagram.
It seems that the world has been storming more and more lately, so the gold is growing in value again, so let us yellow all worthy ones.
The coal flounders near the bottom, and it is generally better not to remember the Southern Kuzbass (as part of the over-credited Mechel).
I hope you will not get into state-owned Alrosa during the upcoming IPO. Everyone else is in an incomprehensible gray area.
Fertilizers and chemicals
The meat grinder arranged by the Uralkali lads (remember the story of the arrest of Vladislav Baumgertner) with the Belarusian Potash Company reduced the efficiency of Uralkali: as a result, instead of a calm oligopolistic potash fertilizer market, a dumping struggle of all against all arose. It seems that the global market has almost calmed down and has been divided again.
Akron and PhosAgro are interesting and worthy of analysis. The rest are past.
Metallurgy
The fallen ruble made this industry mega-efficient, but there are still losers here.
NorNickel has one problem - one of its majority shareholders - Vladimir Potanin. We remember: in 1995, Potanin threw Fridman at a loans-for-shares auction for the purchase of the plant - he took the plant for himself, and he simply returned the money (although the papers he signed clearly stated separate ownership). 2008 - Potanin throws Alisher Usmanov, who has already bought 4% of NorNickel, with a promise to merge the plant with Metallinvest. 2009 - Potanin starts a "war" with Deripaska for the company and dividends. His 2014 divorce and litigation with his ex-wife may still reshape the composition of shareholders. Plus, the history of the Yukos case in The Hague (worth $ 50 billion) reminds that it is better for Volodya Potanin to sell his stake in the plant as soon as possible, while the story of the loans-for-shares auction from the 90s didn’t come around. And the price of the key asset - nickel - fell in the world, which made the company reconsider its dividend policy. Even so, NorNickel is worthy of your analysis.
NLMK is the most efficient and quietest of their metallurgists. It is also worth seeing through a microscope.
The yellow ones have some problems: big debts (Rusal, TMK and ChTPZ), outdated equipment that will soon require a large capex, or the management itself ruins profits on foreign projects (Severstal and MMK). But given the current market conditions, they are absolutely not afraid.
Borrowed Mechel and the state-owned VSMPO-AVISMA have no investment opportunities. I won't say anything about the gray ones.
Energy
With all the wealth of choice (and this industry has given the country the maximum number of issuers of ordinary shares), I do not see a single worthy one.
A key player in the industry - federal Service at rates. And even die, but the profits of all these companies are limited by the glass ceiling on the principle of "costs + ...". In addition, the wear and tear of equipment, the creeping population and the constant capex scare away at all.
The only worthy ones are foreigners who already know how to kill costs. But, judging by the news, they are exhausted from the Russian reality and want to leave.
Only having some kind of superknowledge about all these issuers can you throw yourself into such a pool with your head. But I definitely did.
Industry
The level of listing and the absolute uncertainty about changes in such companies make them uninteresting. All risks are on you.
Construction
The crisis construction industry outside the window makes you stay away from these guys.
If you need to choose the best of the worst, then here is:
According to the results of 2015, LSR is among the champions in terms of profit among relatives, and Mostotrest is loaded with private and state orders until 2020. But both of them are still in the “stay out” zone: maximum for analysis and understanding of industry trends. No one has clear competitive advantages.
PIK is still getting out of debt, and Hals-Development belongs to VTB, ugh.
Transport and port
The current drop in the international transportation market forces this industry to pass by. Only TransContainer stands out from the rest and can shoot in the future.
NMTK was a great investment idea when it remained private. But the current majority shareholders - state-owned Transneft and the Summa group (Z. Magomedova) - also manage to quarrel among themselves. In general, we stay away from the rest.
Various
This section includes companies outside the group.
Only the vodka company (Synergy) stands out, for which there is at least a little news and relatively clear prospects: it strives to become a leader.
All the rest can not yet be analyzed - their future is uncertain. Well, someone is absolutely gray.
TOTAL
And only now, dear reader, do you know the correct answer: from 260 - these ordinary shares / depositary receipts on the Russian stock exchange are worthy of our most sincere interest 14
And you have to keep it under control 28
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