The Motley Fool Discussion Boards
Investing/Strategies / Bonds & Fixed Income Investments
|Subject: SLM’s Bonds||Date: 1/8/2013 1:03 PM|
|Author: globalist2013||Number: 34624 of 35593|
First, a preface.
How To Get Unstuck
Every trader gets stuck at one time or another. Doesn’t matter the level of skill attained – no one is immune. Contrary to what you might believe, professionals don’t knuckle down and “power through” either. They do just the opposite: they back off. Sometimes you have to surrender the day to win the week, or surrender the week for the month, the month for the year. Obviously, I’m speaking about perspective.
In yoga, it’s possible to be able to do a pose one day but not the next. It’s baffling, but try to go too deep on a hamstring stretch and you’ll be out of action for quite a while. You have to back off and say “not today.” This is not a sign of weakness, but one of strength – for a few reasons. One, your competition may not have this skill and --sadly--- grind themselves into lower returns because they get too invested in doing things their way, not on the market’s terms. The second is, you preserve your sanity and a great deal of brain cells by backing off. If you plan on trading as a career for many years, what does a month mean? Not much.
In order to get unstuck, read fiction, go to the museum, take a new language class, or learn to play the banjo. Do something disruptive to your spirit that has nothing to do with trading. You’ll eventually find out that it has everything to do with trading. In each of these cases, you also preserve your equity – which is the first order of business. After many years you’ll come to know, as I know, that the best traders are the ones who play superior defense. http://www.martinkronicle.com/?s=How+to+gt+unstuck
A few minutes into my bond shopping today, and I had to admit I was “stuck”. My heart just wasn’t into doing the work it takes to find, vet, and then execute. So I backed off and ran a practice scan instead on Sally Mae (reproduced below). A couple of points are obvious. Even the trash has gotten expensive. And it just doesn’t pay to go very far out on the yield-curve. If you read my posts (and I hope I’ve chased most people away by now), you’ll know how to interpret the column labeled “Adj_YTM”. For those of you new to the class, here’s a quick translation.
Broker’s calculated yields aren’t what you can spend. What you can spend is net of taxes and net of inflation. Everyone’s tax-rates and personally-experienced inflation-rates are going to be slightly different. But something in the range of 25% to 30% is a good estimate of the impact of taxes on yields, and something into the range of 5% to 6% is a good estimate of the impact of inflation on purchasing-power. The net-effect of the two is that is takes a nominal YTM in the range of 8% just to break even with respect to preserving one’s purchasing-power, never mind actually appreciating one’s capital. 8% is a tough benchmark to meet. But if you’re pulling less out markets, you’re just a hobbyist, not an investor. You’re having fun. But you’re paying to play.