Pelican on a Piling

It might be the silliest and saddest looking bird we regularly see in South Florida, seen resting here on a piling of our dock this morning, but the Pelican has a certain beauty, especially when it cruises only feet above the water, suddenly climbs and then dives into the water, tucking its wings at the last moment to turn its inelegant body almost into an arrow, taking a fish into its beak.

Dawn Rises on a Fresh Snow

As much as I generally do not miss the winters in the Northeast, there is that magical time when the snow is still pristine and the stillness of the dawn arrives, that a certain majesty of nature's creation is in evidence. Luckily, sites like WestportNow.com capture such moments in their photographs, and here is an exceptional one they posted today of Westport's Compo Beach (CT).

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Senseless to the Sublime

The last two nights make me think of Franz Kafka's The Hunger Artist, in which a famous fasting artist is on display in a circus menagerie, the crowds pushing past him to get to watch the lions stalk and feed. "He immediately got an earful from the shouting of the two steadily increasing groups, the ones who wanted to take their time looking at the hunger artist, not with any understanding but on a whim or from mere defiance—for him these ones were soon the more painful—and a second group of people whose only demand was to go straight to the animal stalls." It is a highly symbolic story of how artists sacrifice themselves for their art and the general public's ignorance of what great artistry demands and preference for sensational pursuits.

One of the reasons we live in this area of Florida is for the cultural diversity it has to offer. True, it does not have the advantages of a London or a New York in its breadth or consistently high quality, but knowing where to go can uncover some wonderful cultural events. Case in point, our favorite small theatre where we never miss a production, Palm Beach Dramaworks. But the largest theatre in the area is West Palm Beach's Kravis Center for the Performing Arts and we've seen some fine musical revivals there over the last several years, South Pacific standing out in my mind, and some special programs such as when Sondheim visited for an evening discussion of his works.
Admittedly, it was with some trepidation that we got tickets for the Kravis’ production of Beauty and the Beast but Ann had tried to see the Broadway version, liked some of the music, and never could get tickets so we were hoping that this touring production would at least be on par. Tuesday night we saw the opening and it was so dreadful that we left at intermission. This review gives some of the details although it is actually very restrained in its criticism.


It is a Disney dumb-down production presumably for the kiddies, with one dimensional slapstick characters, but, amazingly, most of the adult audience seemed to be laughing at the childish humor which at best rose to the level of a sitcom. The fact that a Beauty and the Beast could flourish for so long on the Great White Way says much about the public's taste in musicals. We should have known better!

The following evening we sought redemption, having long ago booked tickets for a series we have followed for years, Keyboard Conversations ® with Jeffrey Siegel at The Society of the Four Arts in Palm Beach. These are "unique concert-plus-commentary format in which he speaks to the audience about the music before performing each work" in their entirety. Wednesday night was one of the most demanding programs we've ever heard this highly-acclaimed American pianist perform, tackling three of the most difficult pieces written for the piano by Johann Sebastian Bach (Chromatic Fantasia and Fugue, BWV 903), Samuel Barber (Fugue from Piano Sonata, Op. 26), and Ludwig Van Beethoven (Sonata No. 23 in F minor, Op. 57 --- the "Appassionata). Mr. Siegel playfully calls the program "Three Great B's Bach, Beethoven and Barber" (the latter B normally reserved for Brahms, but this is the 100th birthday celebration of Barber, one of America's leading composers, a contemporary of Bernstein and Copeland). In addition he played two of Barber's "Excursions" which I had never heard and reminded me so much of some of Gershwin and Copeland.

The physicality of the performance was astounding. As I play the piano myself, I have a special appreciation for what Siegel accomplished last night, performing the entire program without sheet music, keeping up with the tremendous technical demands of these pieces. Indeed at the end of the night, when he conducted his traditional audience question and answer portion of the program, he seemed, justifiably, physically spent, perhaps like the artist in Kafka's story. But this audience was brought to a standing ovation in appreciation.


Antidote du jour.......

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We're On a Crazy Carousel

The passage of still another year reminds me of Jacquel Brel's brilliant waltz from the late 1960's musical review: Jacques Brel Is Alive and Well and Living in Paris. It is a song that begins slowly, sanely, gathering tempo as it culminates breathlessly at the end. I was playing that song during the anticlimax of Y2K.

We're on a carousel / A crazy carousel / And now we go around / Again we go around / And now we spin around / We're high above the ground / And down again around / And up again around / So high above the ground / We feel we've got to yell / We're on a carousel / A crazy carousel

My "blogger friend" Mark over at Fund My Mutual Fund, whom I've referenced before in these virtual pages, has been writing, strategizing, constantly working towards the goal of starting his own mutual fund. He is pursuing the golden ring on this carousel of life, following his dream, and this year he will finally realize it. His New Year's message revealed many of the details that led to this culminating moment and I applaud him for his tenacity.

Decades earlier, like Mark, I followed my own dream, carving out a niche in the publishing world, one that fascinates me to this day, but at one time in my life I had considered a career change and perhaps if the Internet existed then, I might have followed a different path. It wasn't that I had a falling out with my interest in publishing, but I too had become enamored by "the markets" and fancied myself an "investor."

My interest started out by investing in some of the Nifty Fifty ( many of which crashed and burned under their own overvalued weight in the poor economic, high inflationary years of the 1970's), and then with the help of VisiCalc (the precursor of Lotus 1-2-3, in turn the precursor of Excel) and my first computer (an Apple II), came up with what I thought was a "bullet proof" system of investing in convertible debentures. I even marketed a VisiCalc template ("Converticalc") to analyze them. Well, as we all sooner or later recognize, there is no infallible system, and making investing an avocation can be as dangerous as being your own surgeon, so now I rely on people like Mark and, I am not ashamed to admit (in this era of "fast money"), I'm also a buy-and-holder, investing in selected dividend aristocrats selling at reasonable price/earnings to growth ratios. But Mark's New Year's message reminds me that things might have turned out differently if I followed my other dream to its logical conclusion.

The program drew interest at the time and there was even some discussion with a major brokerage house about starting a mutual fund based on it. By today's computer standards the program is laughable, but mind you this was nearly thirty years ago. A new publication, Financial & Investment Software Review, which was dedicated to "microcomputerized investing" carried my article on investing in "converts" in its Summer, 1983 issue. I wish I could just give a link to the article, but I have to paste it below in its entity as it doesn't exist anywhere on the Web. Actually, the concepts haven't changed that much -- as far as straight investing in Convertibles is concerned -- but the nature of these instruments have changed with the advent of computer driven arbitrage. They are not for the faint of heart.

So, this is now water under the proverbial bridge for me, but things could have turned out differently if my interest in investing finally outweighed my passion for the publishing business. Follow your dream in 2011 and watch for the launch of Mark's "Paladin Long-Short Fund."

Evaluating Convertible Debentures by Robert Hagelstein (Financial & Investment Software Review, Summer, 1983, Volume 1, No. 3)

Convertible debentures are an unusual investment opportunity but largely have been overlooked because of the complexities in evaluating them and because of the relative illiquidity of the marketplace. During the last several years, however, convertible debentures have been issued by a growing number of companies and in larger numbers, significantly improving their liquidity. This factor, in combination with the widespread availability of the microcomputer for analysis, makes convertible debentures suitable for most portfolios. Much of the following discussion of convertibles has been adapted from the manual that accompanies CONVERTICALC , a VISICALC® template that was developed for the evaluation of convertible debentures.

Convertible debentures are debt instruments that are convertible into common stock. They share the most attractive aspects of both kinds of investments, the appreciation prospects of equity with the high current income of a bond. In addition, the debt characteristic of the convertible creates an investment floor, a point at which the convertible will not decline, even if, theoretically, the common declines to nearly no value (assuming bankruptcy is not the cause of the decline).

Despite the focus on convertible debentures in this article, there are also convertible preferred issues that may be of interest to the investor. A drawback to this convertible security is preferred stock has no maturity date at which time one can expect to receive par value for the investment. Nonetheless, many of the evaluation techniques discussed below can be applied to these convertibles should the investor wish to include such issues in an investment portfolio.

Corporations issue convertible bonds as an inexpensive means of raising capital. In effect, a convertible offering is an equity offering in the future, allowing the corporation to issue a debt instrument with a coupon rate much lower than prevailing rates. Until recently, convertibles were mostly the exclusive province of corporations with lower debt ratings. Persistent high interest rates have changed this; even Kodak and IBM have issued or filed to issue convertible securities.

There are several publications that follow convertible debentures, each providing essential information needed to evaluate them: the number of shares into which each debenture is convertible (the "conversion ratio"), the coupon and maturity date, the quality rating as a debt issue, the amount of debentures outstanding, and the identification of the issuer and the issue into which it is convertible (some are convertible into the common stock of companies other that that of the issuer). These publications include Standard & Poor's Bond Guide, Moody's Bond Record, and the Value Line Convertibles Service. They also provide some of the computations used to analyze convertibles, particularly Value Line.

SOFTWARE PROGRAM
CONVERTICALC not only gives the critical formulas for evaluating convertibles, but it also provides the data on approximately one-hundred of the most actively traded issues on the NYSE and AMEX exchanges. The user can add or substitute other issues, replicating the evaluation formulas.

Nevertheless, there is no computer program that can forecast the direction of security prices. There are a host of intangibles affecting investors' perceptions of value, many of these relating to investor psychology rather than to fundamental values. CONVERTICALC is intended to be an investment aid and does not offer any prescribed buy/sell decisions, It endeavors to supply information to evaluate convertible debentures in relation to one another and in relation to the underlying common stock.

As convertible debentures can be exchanged into the underlying common stock, at the option of the holder, the appreciation prospects of the common is crucial to evaluating its corresponding convertible, Traders convinced that the common will move substantially higher within a short period of time, are normally better off buying the common than the convertible. Longer term investors, particularly conservative ones to whom current income is important, may find the convertible to be the better choice. In both cases, however, the first step in making a buy decision is determining whether the common stock is desirable.

Convertibles selling at a large discount from par may be especially attractive to long-term investors. Such issues enable one to "lock" into a virtually guaranteed capital gain, even if the underlying common stock should fail to appreciate during the period. Another consideration is the convertible's bid and asked price. This spread will normally be small for issues actively traded on the NYSE or AMEX. It can be considerable for issues with a relatively small float and for those traded over-the-counter.

Most convertible are "callable" by the issuer, requiring the holder to either sell at the call price or convert into common stock. It is not unusual for convertibles to be called once the issue is selling at substantially more than par. Usually, convertibles are callable at prices higher than par during the first few years after issuance, declining to par as the date of maturity approaches. Many are callable at par long before maturity. For this reason Moody's Bond Record is an invaluable companion for investors considering buying convertibles: current call terms are specified.

CONVERSION PREMIUM
A key element in evaluating convertibles is the issue's "conversion premium." This premium represents the percentage at which the convertible is selling over its "conversion value" (the number of shares into which one debenture is convertible multiplied by the current price of the common stock). The lower the premium, the more likely the convertible will move in relation to the underlying common stock while the higher the premium the more likely the convertible will move in relation to interest rates. Convertibles with low premiums, having relatively high yields and fast "payback" periods (see below), are generally the best buys (if, of course, the common stock merits a buy). Such convertibles will appreciate with the common stock and provide greater yields than the common stock, giving the investor the best of two worlds: capital gains and lower downside risk.

As the conversion premium is intrinsic to evaluating convertible values, the CONVERTICALC disk includes a section sorted by conversion premium. Generally, those convertibles carrying premiums of less than 5% will follow nearly all of the underlying common stock's rise. However, some of these same issues may be equally vulnerable to a substantial decline of the common while others may follow only half the common's decline. The potential magnitude of a convertible's downside risk relates to its yield in relation to those paid by non-convertibles of similar quality. Obviously, convertibles with yields to maturity approaching those prevailing for straight debt issues that would decline the least even if the underlying common stock should decline (see the discussion of the "investment premium" below).

It is possible to quantify the potential price relationship between an underlying common stock and a convertible debenture, plotting what is known as the "convertible curve" on a x/y axis graph. An awareness, however, of a convertible's conversion and investment premiums generally obviates the need to maintain such graphs.
Then, there is the concept of "payback period," the amount of time it will take to recover the conversion premium from the additional yield provided by the convertible over the common stock, This is important when considering whether one buys the convertible or the underlying common, When a convertible has a relatively long payback period and the premium is not excessive the common stock yields nearly the same as the convertible. If the dividend is relatively secure, the common stock may be a better value than the convertible,

INVESTMENT PREMIUM
The concept of "investment premium" can be as important to one's investment decision as the conversion premium, The former represents the percentage a convertible debenture is selling above its investment value (as if it is devoid of its convertibility feature). In order to ascertain this percentage, it is necessary to identify the debt quality of the convertible being considered. Access to Moody's or Standard & Poor's bond publications will provide a bond rating for the issue, For this reason, it is necessary for the investor to know the yield to maturity of the convertible being considered. Even if the investor is not looking for high current yield, yield to maturity is the basis for comparing convertible to straight bonds, CONVERTICALC provides an approximate yield to maturity calculation.

Quantifying the investment premium is a method of judging the potential "floor" for the price of a convertible, a means of establishing the magnitude of the investment risk, A convertible with virtually no investment premium is selling at its investment value. Such issues are more likely to be more sensitive to changes in interest rates than movement of the underlying common stock This is also a characteristic of convertibles with high conversion premiums. Therefore, generally, the investment premium and the conversion premium will tend to be the reciprocal of the other, high investment premiums following low conversion premiums and vice versa, Sometimes one can find convertibles with relatively low investment AND conversion premiums, These are the undervalued issues that should be sought by the investor; they have nearly the same upside potential as the common stock with very little downside risk if the common stock should decline (assuming static interest rates).

The investment premium may be quantified by using a hand-held calculator or the remaining memory available on the VISICALC matrix. After the bond rating for the convertible issue being evaluated has been ascertained, and the prevailing yield for equivalent non-convertible debt issues has been established, a bond table would reveal at what price the convertible would have to sell to yield the prevailing rate. Then, by subtracting the current price from the price at which it would have to sell to yield the prevailing rate and dividing the remainder by the current price, the investment premium can be calculated. Common sense can generally substitute for an actual calculation. In comparing a number of convertibles chosen on the basis of relatively low conversion premiums, ones of roughly the same investment grade, those with the highest yields to maturity have the lowest investment premiums.

Convertibles should not only be analyzed against one another and against the underlying common stock; they should also be evaluated against themselves over a period of time. Maintaining a file on a regular basis and recording changes in the key convertible evaluation components - conversion premium, yield, and payback period - enables the investor to "plot" bands of values. Market volatility, earnings growth, interest rate movements will profoundly affect these statistics. By observing these movements as computed by CONVERTICALC, the investor can decide when the common is overpriced in relation to the convertible or vice versa. One may want to sell a convertible whose conversion and investment premiums have become too excessive and switch into one with lower premiums and/or a higher yield. By observing diligent portfolio management the investor can maximize return and minimize risk.
"Evaluating Convertible Debentures" © 1983 by Robert Hagelstein. CONVERTICALC, is a VISICALC® template formatted for 64 K APPLE II® DOS 3.3. APPLE® is a registered trademark of Apple Computer, Inc. VISICALC® is a registered trademark of VISICORP''.

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The Kindle is a Grinch

Ann wanted one thing for the holidays, a Kindle, so badly in fact, she opened that box from Amazon as soon as my gift arrived, activated the device and now she carries it with her wherever she goes.

But I was not thinking through the serious collateral damage in giving her such a Christmas present. It now deprives me of the one great gift giving pleasure I have had at this time of the year, deciding what books to give her, wrapping them carefully, taking such pleasure in hopefully guessing what she would love, handling those handsome books, some with deckled edges or beautiful illustrations, and then sharing the experience of watching her open them on Christmas morning. Simply put, I now no longer have anything that I love to buy for the holidays as I really don't enjoy almost any other gift giving.

The truth be told, I would also slip in a book or two that I know I would enjoy reading, maybe a recent novel by Anne Tyler who we both love. And that is another Kindle theft -- how does she share a downloaded Tyler novel with me after she is finished reading it if she is always on the Kindle?

I'm not a Luddite, and see the advantages of the Kindle, particularly for traveling, but apparently it is addictive -- once hooked, that is how one reads. The holidays have changed enough for us, having raised our children, they now living far away, so we have segued from the snowy family Christmases in Connecticut, the big fresh cut tree, setting up the train set for the kids and wrapping their presents, and let's not forget one another, to the artificial holidays here in Florida (although there is a wonderful tradition here to light luminaria all along our road on Christmas Eve) .

The only remnant of our own Christmas decorations is now a wreath on our door, but, still, there was always the anticipation of giving books for the holiday, a pleasure now stolen by the Kindle Grinch.

Nonetheless, from Christmases past, Happy Holidays to all, and to all a good-night!

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Winter Solstice

The winter solstice was special this year because of a rare eclipse of the moon. But for the last thirty years or so it also has been a special day for my friend, Ray, and myself. Wherever we may be, we always made it a point to speak on that day. This ritual was to acknowledge that although the long cold days of winter were just beginning, the days were getting longer and it will only be a matter of time until our families would be back boating together again on the Long Island Sound and spending many weekends at our mooring off the Norwalk Islands. It also marked the beginning of our thinking about our traditional summer vacation at Block Island

Now, with our families grown, and both being retired, our boating lives have changed and in fact as he and Sue now spend their winters in the Bahamas on their boat 'Last Dance,' and we live in Florida, except during the summers when we still live on our boat 'Swept Away' in Connecticut (and they return to Norwalk as well on their boat), perhaps this particular day has lost some of its significance. Nonetheless, I will make the call or await Ray's call and we will talk, perhaps of days gone by but also of next summer, but certainly to commemorate the moment.

Coincidentally, when Google Maps updated last summer, Ann and I just happened to be out on our boat that day, alone at the mooring we had shared for so many of those summer days. By putting in the Lat/Lon coordinates in Google Maps 41.061561,-73.388698 will first show the nearest land, and below that point the green arrow points to our boat on that particular day. A rare happenstance, a satellite view of the moment, perhaps like an eclipse on the winter solstice?
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My Second Session with Freud

In the blink of an eye almost a half year has gone by since we saw the NYC premiere of Freud’s Last Session by Mark St. Germain, wondering how it will translate to the venue of Dramaworks in West Palm Beach. Last night we attended the preview of the production which was directed by Bill Hayes, who is also the Producing Artistic Director of Dramaworks, the best (and most serious) theater in South Florida. He had promised something "different" than the NYC production, and he delivered.

The play is about a fictitious meeting between two great thinkers, C.S. Lewis, the Christian apologist, and Sigmund Freud, the father of psychoanalysis and a staunch atheist, towards the end of Freud's life and at the onset of WW II and is set in Freud's study in London. In a sense, the outbreak of war is another "character" in the play, one which helps develop the dramatic tension. It is a perfect conceit to spin a play about great ideas confronting the inexplicable transience of life and the gathering storm of man's inhumanity to man. Still there is a playful humor between these two great philosophers and this helps to relieve some of the tension of the intellectual dialogue. They both seem to agree on one thing: "humor tips the scales."

The New York Times review of the NYC production, while overall praising the work, was critical of there being a “lack of tension” or lack of “suspense.” Dramaworks has addressed that, getting to more of the core emotions of the two, sometimes finding they share more as human beings in spite of their philosophical differences. Of course it helps to have two fine actors to direct, Dennis Creaghan who I will always remember for his role as Don, the owner of the junk shop in David Mamet's American Buffalo which played last year. It shows the range of his acting abilities to go from the staccato street dialogue of Mamet to the thoughtful, brooding pronouncements of a Freud. Chris Oden, playing Freud's foil, C.S. Lewis, always seems to have the perfect theist rejoinder to Freud's scientific view, and Oden plays the role convincingly with passion.

I had said in my "review" of the NYC production that we felt as if we were in Freud's study, but that sensation has been used to even greater advantage by Hayes, and his set designer Michael Amico, in the intimate setting of Dramaworks' theatre, where the audience sits, literally, on the very edge of the stage in a stadium seating configuration -- rather than having to look up at the action as it was presented in NY. Dramaworks has perfectly replicated a typical London mews apartment and faithfully captured Freud's study with his ancient artifacts, even down to copying the chair he sat in!

Kudos again to Palm Beach Dramaworks, theater to think about which always rises to the occasion.