The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments

URL:  http://boards.fool.com/charlie-clearly-we-see-things-a-bit-differently-18130311.aspx

Subject:  Re: Building Bond Portfolios Date:  11/10/2002  9:20 AM
Author:  nnn12345 Number:  5165 of 35392

Charlie--

Clearly we see things a bit differently, but the focus is similar, we are both discussing fixed income- bond investments and how to improve one's investments and returns, at least I think that is what we are both discussing. That is my basic interest at least.

If you truely believe as you stated in a previous post that the risk of default of 5 year A rated bonds is 0.1 %, then what is the math behind sacrificing yield to chase higher ratings???? I understand the sleep better part of the equation very well and in fact agree that this is very important and is in fact why I like AAA's and some AA's. But if I were creating a large diversified portfolio to maximize returns and safety I don't think I would weight it as much in the AAA direction as you think is needed. If I did, and in fact I have done so,(my portfolio is heavily weighted AAA) I would readily admit that I am doing it for peace of mind and ability to sleep well, and not really creating the ideal maximum return vs risk bond portfolio.

In addition to buying many AAA bonds, I have bought A rated tobacco bonds, but this is due to what I consider a market imbalance creating a unique opportunity for the bond buyer, or in other words, a good deal in this market. This was done with considerable research. I like getting an A rated 9 year bond paying me 50% more than other bonds. Of course it has some unusual features and/or some risk, or why else would it be paying me 50% more yield??? What I especially liked about this particular issue was the relatively short maturity of 9 years.

I believe that default risk is minimized with decreasing bond term. This is important if you are considering buying bonds of less than AAA or AA quality, IMHO. At what I would consider short term, or in the 5 to 10 year range, there is much less default risk with the same credit rating vs long term of say 20 to 30 years. I prefer AAA's or strong AA's for long term, and for short term I am willing to consider A's.

I am not very keen on your strategy of purchasing real junk. This, IMHO, is best left to the big boys. But I try to keep an open mind and maybe some day I will test the junk bond waters.

I think your terminology of "screwing around" with bonds is more appropriate discussing the buying and selling of your junk bonds vs the buying and selling of investment grade bonds.
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us