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Investing/Strategies / Bonds & Fixed Income Investments
|Subject: Re: Bonds & Fixed Income Investments: FAQS||Date: 12/16/2009 6:12 PM|
|Author: junkman02||Number: 29496 of 35573|
Have you and Pauleckler considered creating a new board? It's not that I don't appreciate Junkman, but the spirit of THIS post was the reason I came to the board. Just saying.
Let me turn your question around and ask it in reverse. Have you --or those who advocate a "cookbook approach" to investing, be it for bonds or whatever-- ever considered setting up a such a board?
Personally, I think FAQs, FAAQs, and investing "recipes" are shape-edged tools that shouldn't be made available to amateurs and beginners. They are just going to misunderstand them and hurt themselves with them.
I constantly review "basics", just because basics aren't very basic. They are foundational, and it takes a lot of investing experience to realize that what seems easy and obvious really isn't, and the ways by which one can get into trouble are endless and unlistable.
What I liked about the paragraph on corporates from that Scottrade FAQ was the writers' willingness to tie bond investing to stock investing and to argue that success in either depends on the same skills, because it is the same underlying company that issues both.
This brings us to the hidden question you are asking me. Primary, there are two groups of people who frequent this forum: those who make directional bets on interest-rates, and those who make directional bets on credit-worthiness. Both are gamblers in every meaningful sense of term. How they describe themselves is merely to identify the kind of gambling they are doing. Whether you buy a CD or a junk bond, a TIP or a PF, you are making a directional bet about a cluster of unknowable future events, any one of which could cause you a loss (or a gain).
If you traffic in principal-protected instruments (PPs), then you've chosen to duck default-risk but have accepted tax-risk, inflation-risk, re-investment-risk, and a dozen others. If you traffic in principal-at-risk instruments (PARs), you've chosen to accept default-risk, but you've likely reduced your exposures to some risks that the PP crowd suffers fully. So, there are trade-offs being made. By temperament, some people are innately-disposed to prefer one approach over another. They have no choice in the matter. Their biology is their destiny. Each of those groups barely tolerates the other. The former thinks the latter is reckless, just as the latter thinks the former is reckless.
I say to that: "Fantastic. Now, finally, we are getting somewhere. How do you PP gamblers propose to manage your inflation-risks? How do you PAR gamblers propose to manage your default-risks?
I appreciate your sentiment, and I applaud your courage for asking your question. But I ain't going nowhere else. By default, this is the only forum on the whole internet where bonds and fixed-income topics can be freely discussed. If there were any other place to go, I would have long ago. Yes, I fully agree that the tension between the two groups is annoying. But TMF, in its wisdom, also provide a means to reduce some of th