The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments


Subject:  Re: The Bond FAQ Brouhaha Date:  11/25/2006  3:10 PM
Author:  Crosenfield Number:  18904 of 36300

FAQ means "frequently asked questions". I don't remember many if any questions asking for details on how to pick a bond. There are lots of questions about which is better, a bond or a bond fund, and about what TIPS are, that sort of thing.
A FAQ is not supposed to be a crash course. It is supposed to save us time when the umptieth person comes here asking whether they should get this bond mutual fund or that one. We can point to the FAQ and not have to go through THAT again.
I think you fellows have lost sight of what you are doing. A course syllabus is not what a FAQ is, nor what it should be.
When the price of a particular bond is rising on rising volume despite rising interest rates, a bond trader paying attention notices this, asks why. If it is an impending annouuncement of improvement in quality, the trend may have further to go, and Charlie may see this and get interested. But that doesn't belong in a FAQ, IMHO. Or GMAC starts calling bonds. We ask why and may want to get on the bandwagon, but that is a game for experienced traders.
I'm happy telline newbies just what I do: buy a bond and hold it until it matures or gets called away. "A bond is something you own, not something you buy and sell." Few retail customers make a living buying and selling bonds. If somebody is interested enough to want to play Charlie's game, that person doesn't need a FAQ, and s/he can be referred to books on the subject. We get folks coming who can't figure out how much their broker is making on the bond trade. That's OK, neither can we much of the time. If your vantage point is buy and hold, it is much easier to figure out what YOU make: yield to maturity and/or to call. What would you get if you turned right around and tried to sell the bond? Significantly less. Maybe a couple of points. It that were always the focus, nobody would buy a bond. People think they are cheated because the broker is making a buck.
Another technique: pick a stock you really like. Then buy the bonds. You stand ahead of stockholders in any liquidation and you are probably getting a lot more coupon than stockholders are getting dividend. If you are buying top quality bonds, your selection is more on the basis of what fits your ladder and what the yield will be.
That doesn't go in a FAQ either.
Best wishes, Chris
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us