Anyone who reads personal finance blogs is clearly more interested in money than the average person. If you write a personal finance blog, you’re even more interested in money (even if blogging won’t make you any).

Can you be too interested? Are we deluding ourselves into thinking we’re being economically literate, whereas really we’re just being tight?

Andy over on Saving to Invest recently asked himself if he’s a cheapskate:

I admit I am much more careful with my expenses and probably question purchases much more than I used to. Still, being called a cheapskate? That hurt. I like to think of myself as Frugal. I am well aware that hoarding money is unhealthy and have no issue spending money where needed. But unnecessary and impulse spending really frustrates me. For example why pay full price for a great purse, when most likely it will be on sale in a couple of weeks. Patience is a big money saver!

I’ve seen more people ponder this sort of thing as the financial markets have unraveled. Perhaps people wonder what they’ll do if they lose their jobs: you can’t save money when you’re not making any. Or maybe the fact that money is now top of the news agenda makes us finance bloggers feel like our passion has gone mainstream. Being frugal was cool when it was underground – like listening to Arcade Fire before they became mall music.

When your dad visits and he asks to borrow your records, it’s natural to think you should get into jazz. When your spendthrift cousin tells you he’s selling his car to use public transport because of the recession, you might wonder if it’s time to buy a discounted Porsche.

Expecting this recession for a long time, I’ve:

• Spent less than I earned
• Avoided buying a house, because I saw prices were in a bubble
• Saved and invested 30-50% of my income for years
• Tried to remember what’s more important than material things
• Been inspired by everything from family illness to immigrants in kick-starting my journey to financial freedom

But now that house prices are falling and we’ve been racked by crisis after financial crisis, I can’t help wondering what I was waiting for. Was being frugal actually a safety blanket of sorts?

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Important: What follows is not a recommendation to buy or sell Prodesse Investment Limited. I’m just a private investor, storing and sharing notes. Read my disclaimer.

Name: Prodesse Investment Limited Ticker: PRD
Listed in: London (FTSE Small Cap) Business: Investment Entities
More information: Digital Look / Google Finance
Official Site: Prodesse Investment

Key numbers for Prodesse (18/12/08)

Share price: 266.50p
Market cap: £83 million
Total assets: £1096 million
Net Asset Value per share: 351p
High/low (12 months): 448.50p / 266.50p
Yield: 16.2%

Summary of Prodesse’s business

First off, for this write-up of Prodesse I’m repeating my usual warning, with underlining: I am not an advisor, nor an expert. This is my amateur analysis of Prodesse, for your entertainment only.

Prodesse looks a very risky share, and it’s hard for professionals let alone amateur investors to assess its true value. It is an investment trust that buys AAA mortgage-backed securities (MBS) in the US, principally those of Fannie Mae and Freddie Mac.

If alarm bells aren’t already going off, they should be. The collapse of confidence in MBS market is what triggered the global credit crunch.

Prodesse only invests in top-rated MBS, but half of the problem has been nobody fully believes these ratings anymore, hence MBS have been marked down significantly. Besides cutting off the main source of money for mortgage lending (which caused Northern Rock to fail), this has also forced banks to declare huge write-downs on their devalued assets, and to return to the market for recapitalization.

(The other half of the problem are the lower-rated ‘sub-prime’ mortgages that are defaulting in huge numbers).

It all looks a toxic soup to wade into, but a couple of years ago MBS seemed a very boring investment. That’s exactly why so many institutions around the world ended up with MBS on their books.

It’s not even like Prodesse was set up to make spectacular returns. According to the company FAQ:

The investment objective is to achieve distributable income yield on net assets (in US dollar terms) of at least 3.5% greater than the yield on the ten-year US Treasury on an annualised basis while preserving net asset value (in US dollar terms) over the long term.

Prodesse aimed to make up these returns through leverage. You’ll note from the key numbers above that the assets under management is over £1 billion, while the company has a market cap of less than £100 million.

You’ll also notice that:

• Prodesse is apparently trading for 25% less than its asset value per share
• It is yielding over 16%

What this tells me, particularly the huge yield in excess of Prodesse’s target, is that the market is skeptical about Prodesse’s business model. Hardly shocking news; these are mortgage backed securities we’re talking about. Hiring six-year old boys to sweep chimneys would probably be less controversial right now.

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