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Subject:  Re: Bonds vs Bond Funds--Again Date:  12/31/2009  1:06 AM
Author:  jackcrow Number:  29621 of 35992

The more you trade, the more you lose.

The more you trade the more expenses you generate. If one can overcome the friction costs, and not everyone can, trade away. Wal-Mart makes its money on very low margins with exceedingly high turnover. Fast Food stores are built on a similar model. It is one of many valid business plans and one that may not work for many people because they are time intensive models.

what does a bond hyper-trader like Junkie's TOR look like
Less than BND if you read what he has posted. Primarily because Charlie tends to buy long on the maturity date, when he can, and he holds to maturity, he isn't a trader he is a buyer. By holding bonds directly he creates an income stream that can be reinvested much as many reinvest dividends in their funds; purchases made from that income stream are not part of a portfolios turn over.

BND's is following an index which is a thermometer for that market segment, it adjusts to paint the picture of that market segment. When the index adjusts, the fund follows creating turn over. Certainly some bonds held in the fund may mature but I read in their strategy that they don't hold many bonds under 1 year in maturity. In reality that turn over rate is mostly noise to the holder of the fund, the expense ratio - the cost of the TOR is far more important.

The Barclays index that this fund follows has a 10 year return of 6.45% a nice and reasonable bull run. The fund has an expense ratio of .14%. 6.45 - .14 = 6.31%. If I can build a portfolio with an "expense ratio" of .5% and generate a return of 7% or better I'm ahead. I only need to win by 55 basis points. We can agree to disagree on how plausible that is which does not change the math.

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