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Subject:  Re: Building Bond Portfolios Date:  11/9/2002  7:49 PM
Author:  imcharliehm Number:  5149 of 35623


Would that obtaining yield with safety were that simple.

I understand the source of your suggestion, which is classic MPT theory, but I also think those guys are full of sh*t, for being rear-view mirror theorists, rather the "average" investors trying to manage retail amounts of money in real time without the admitted benefits of institutionally-sized research departments, institutionally-sized trading desks, plus the willingness to lie their asses off with tricks like end-of-quarter "window dressing" when their theories blow up and they have to make excuses about "relative underperformance" to their share holders. We real-world bond investors can't spend relative performance at the grocery store, and sometimes, maybe most times, the bird-in-the-hand promised by an AAA rating spends a lot better than chasing single A's. Mind you, I'm not saying to avoid single A's -- as I definitely would argue that any investor who wants to focus on investment-grade bonds should avoid triple B's. But I do think an over-weighting of single A's to chase a few basis point of yield is foolishness that will be rewarded by default. Increasing exposure increases risk.

I own some truly scary stuff, but I also own some very blue-chip stuff, because they serve different purposes, and anyone who grabbed Treasuries --which are better than AAA-- 2 years ago, and 5 years ago, and 10 years ago is sitting in the cat bird's seat today. Selecting for quality and safety doesn't