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Subject:  Re: Municipal bonds: A train wreck waiting to ha Date:  12/7/2012  7:57 PM
Author:  yodaorange Number:  410779 of 482012

Crackdlaw said:

I would think someone buying individual bonds, especially those requiring an initial investment of $10,000. +, would have some degree of savvy and an intelligent investing approach if they are managing their own money. These individuals should be aware of call dates on bonds.

Crackd, unfortunately some folks that buy individual bonds clearly do NOT understand what they are buying. A while back, I had a long meeting with the head of bond trading for a nationally recognized firm that caters to individual investors. We talked about the range of individual investors. He confirmed my suspicion that some investors only understand and look at “current yield.” They take the annual dividend and divide it by purchase price. These folks do NOT understand “calls” or “sinks.” Many of them also do NOT understand or appreciate credit quality.

For example, immediately after Stockton, California declared bankruptcy, the market was flooded with Stockton bonds for sale around 100 cents on the dollar, as if nothing was wrong. The bond head told me that individual buyers were coming out of the woodwork, eager to get these great deals! I do NOT know what percentage of individual bond buyers fit into this category. Clearly folks like this would be better served to buy bond funds. Some bond dealers are ready, willing and able to sell bonds