I sold off my two bank bonds at :
HSBC 5 perp 99.55
CMZB 7 perp 100.25
These represent a loss of about $30,000, since I bought the HSBC bond at 104.4 and the CMBZB one at 106.85. After taking away the estimated coupons of $20,000 I earned in my 11 month holding period, it’s a total loss of about $10,000.
I had also a significant opportunity cost to this because I sold off stock in Tesla, Netflix, and Apple to put money into bonds. Easily hundreds of thousands.
The reason I sold them at a loss was that I think there will be increased volatility over the next few months. I’m still haunted by the flash crash of Feb – Mar, where these dropped 20% – 30%. While it’s unlikely to happen again and soon, I want to drop more cash into stocks during this period. Looking back, the Feb – Mar period was the best time to buy stocks, and I think that can be repeated over the next few months.
The sales also drops my passive income significantly, from about $6,000 to just about $4,000. However, I realise that passive income is overrated. In the end, I want my money to grow the fastest way possible. It doesn’t really matter if its a regular stream or a big lump sum. Money is money.
The journey will be bumpy. I fully expect that my stocks holdings can drop 20% or more. However, I have enough cash on hand to wait it out. This is cash I don’t need to touch for years.
What I realised margin does is that it stops you from taking opportunities. You become fearful of taking risks, because the value of your assets can drop further, and you need to conserve your ammunition.
I think the banks are still healthy and its unlikely that their bonds will fail. Many of them actually want to restart giving their dividends. But as a bondholder, that isn’t very positive for me. I would want them to keep conserving cash and keep their CET 1 ratio high. I also worry about a prolonged economic slump. Eventually the banks will start eating the losses as businesses go bankrupt and governments pull back their support.
I also considered that while my upside was stable at about 10% a year, the downside is 300%. If the bank defaults or regulations change, I would eat a $250,000 loss for each bond.
But I wouldn’t rule out buying back again either. This is probably still a better passive income source than property, and if prices drop or crash I’m likely to buy back in again.
Just also a quick heads-up on my watchlist. I would likely have a flurry of trading over the next few weeks, but will keep you guys posted.
Have a good weekend all!