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URL:  http://boards.fool.com/in-a-previous-thread-i-asked-a-question-to-you-30289680.aspx

Subject:  Re: Bond Offers a YTM of 522.5%! Date:  9/28/2012  8:31 PM
Author:  trader2012 Number:  34421 of 35357

in a previous thread, I asked a question to you in light of the fact that you revealed your YTD buy list in terms of are you actively managing positions, or are you sticking with a process in the sense that you are buying across a broad range spectrum in order to achieve a specific annualized ROR or possibly something in the middle?

alt,

Actually, I'm doing none of those things. When I say that "Ben Graham provides my playbook", I mean just that. I'm a 'fixed-income value-investor' (at least for now). I do exactly what he says a value-investor does "...buys at a discount to intrinsic-value in order to create a margin of safety". No more, no less. What gets bought doesn't matter. It could be Agencies, Treasuries, Munis, Corporates, Sovereigns, or even CDs. But the estimated price-to-value ratio matters hugely. I make no attempt to "ladder" maturities (for being the stupid, expensive tactic that it is), but I do try not to get over-weight any issuers or industries as a way of helping to manage my risks. I never do not grind through an issuer's SEC filings. I never do not look at T&S, etc., etc.

In short, I run through a check-list of things, as does every good investor or trader, no matter what they are making bets on, that in no way has any secrets, because there are none to be found. Anything worthwhile any investor or trader wants to know about markets is all there in the classic literature that no one but those who are serious about their game take the time to read, much less think about in any meaningful way. Instead, most depend on the trash written by sh*t-for-brains, financially-dyslexic idiots like John Bogle, William Bernstein, Jeremy Siegel, Burton Malkiel, etc., not a one of whom knows anything worth knowing about 'investing', much less 'trading'.

What's at issue here is the 'paradigm' (in Kuhn's sense of term. See his The Structure of Scientific Revolutions) one chooses to work within. In bull markets, anything works, and everyone pats themselves on the back, thinking they are investing geniuses. But when the investing/trading gets tough, those who didn't have a sound plan wash out. What is the estimated, cumulative loss to the net-worth of retail investors (which, in 401k America, is nearly everyone) from the 2007-2009 correction? $12 Trillion or something similar. That money didn't disappear. It went from weak hands to strong hands, with 'strong' being those who rejected the fable of "Modern Portfolio Theory" in favor of what they themselves, through their actual experience of markets, discovered was useful.

It takes no more brains than that required to play a simple game of cards, like Euchre, to become an effective investor. What it does take, which almost no investor attempts to do, is to tie the two together in any meaningful way. In classic closed-systems (where strategies based on simple probability are useful), it's easy to determine if a game has a positive expectancy and to exploit that expectancy to the max. In the quasi-open, quasi-closed systems of markets, where the deck of cards in the shoe can vary randomly in number and composition according to the whims of the gremlins at the card factory, classic statistics goes out the window, as Taleb has proved in his technical papers. Nonetheless, risks have to be managed, which means that left-hand tails have to be chopped. Not one in a freaking hundred bond-investors has any idea of what their risks are, nor how to manage them, and, as the Dalbar studies persistently document, those investors on average achieve a mere 15% of their relevant benchmark.

Charlie
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