A Time for Giving

Every year many of us search and search for Holiday presents for members of our family. Some people, like my long time girlfriend, are SO easy to shop for; I could buy her countless things. Others are not so easy. That is why I have taken to gifting securities many years ago; it is better than just giving a person some cash (unless that’s what you know what they really want), they have the opportunity to earn some money from appreciation, and, frankly, it helps to gift chunks of large winning positions for my taxes.

I was blessed with my first nephew and godson this year, and stock gifting was one of the first things that crossed my mind. So I decided to open a custodial account for the little guy and fill it with long-dated maturity corporate bonds. The idea is to ignore price fluctuations over time, holding for maturity. One has to understand the idea that 20-30 year corporates will significantly get wacked when the Fed starts to raise interest rates, so understand what you are doing.

The two bonds that I decided to place in the account are third party preferred trust certificates. These are repackaged corporate bonds meant to be used as tradable fixed income securities. I recently bought CWZ (NYSE: CWZ), a Royal Caribbean Bond yielding 9.16% and trading at a discount to maturity of 5.2%. This means that held to maturity, the bond yields over 10% per year. The other is PZB (NYSE: PZB) A Limited Brands Bond yielding 9.63% and trading at a discount to maturity of 43.7%; meaning that this bonds, held to maturity of course, yields nearly 12% per year. Those certainly beat buying BB 30-year Treasury bonds, which barely yield 3% per year, for your new born.