RE:RE:RE:RE:FIRE.DB up 15% todayjohnale wrote: I just mean the added liquidity may make it a more attractive investment for people who have a shorter investment time horizon - a few months or so.
- other investors will want this type of flexibility - which will give a premium to the equity.
It is generally not true that equity gets a premium because it's not as liquid as equity. In fact, the cost of equity is by definition higher than the cost of debt when determining a company's WACC.
It just so happens in this case that there is no natural owner for these debentures so they trade at a giant discount to the equity value which usually never happens.
I think this is because they are not investment grade and most retail investors don't understand them. Sophisticated investors like you do, of course, since you know the stock will be up more than 400% in the next 18 months so you don't need the security that some of us less knowledgable investors take when we can get it.
Because of the higher protection of the debentures vs the equity, one should also be willing to have a much bigger position in the debentures than they would in the equity all else being equal. Its especially the case here given the expected return of the common equity is the same for the first few hundred percent. That reason might even get you to reconsider your allocation across the the common and debentures but I don't know how much of your net portfolio you allocate to FIRE equity.
Anyway, I agree with you that the FIRE is better for day traders and short term investors than the debentures but I continue to think that if the common is going higher the FIRE.DB will be fast to follow. Plus the 20% current yield helps offset the liquidity concerrns because at least you are earning even if the bonds are not trading much and every day is another step towards maturity.