The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments


Subject:  Re: Bond Investors Aren’t Date:  5/10/2013  11:43 AM
Author:  globalist2013 Number:  34916 of 36218

…but E*Trade has a min order of 10 - too many for my tastes.


Gaming min’s can be tough. If you can get in one single, you can assume the desk is dumping and you shouldn’t be buying. But the converse isn’t necessarily true. So, “…it all depends.” There’s times I’ve bought a single when my position-size should have been zero. There’s times I’ve bought a single, and my position-size should have been five or ten, and not just retrospectively so. At the time I was buying, I should have known to buy bigger. But by and large, I generally get it right enough, and my current ranking among bond fund managers with my same objective is top 2% (which says more about a fortuitous curve-fitting to current conditions than persistent skills. LOL)

As bad as the 10-min for Colt is (I got in on 5), the jump in prices is worse. The offer is now 78.533. As recently as a couple weeks ago, the offer was mid 60’s (where I got in). So the bond presents a dilemma. Do you chase? Or do you conclude you’ve missed this one and look for another opportunity? That’s not an easy question to answer, and arguments can be made on both sides. It might seem that a classic, Ben Graham-style value investor would have made the later choice. He/she would have seen from a chart that a low-priced, low-risk entry had been missed and backed away. But a good interview on Yahoo’s Breakout with Tilson suggests otherwise.

"This time is different," is widely accepted as the most dangerous phrase in investing. Author of the new book The Art of Value Investing , Whitney Tilson has a 3-word phrase that's done even more damage to investors this year: "I missed it." "It's the phenomenon where you look at a stock that's doubled in the last year and you just say 'I missed it' and you don't do any further research,"

If 'Buy low; sell high' is the mantra of a value investor, and if 'Buy high; sell higher' is the mantra of growth investors (and momentum players, such as Wm O’Neil, for whom I have the utmost respect), into which bucket is put Colt’s current price and price-direction? Is it a missed, value opportunity? Or is it a situation that requires re-examination, as Tilson might suggest?

I’m not urging that anyone buy or avoid this bond. That’s your job to determine its suitableness for your portfolio. But the bond is a paradigmatic example of what most bond investor do NOT have, namely, a consistent, disciplined framework with which to think about what they are doing, such that, no matter what bond is thrown at them, they can decide, fast and accurately, what to do about it. So by default, they pass, and they end up making the crappy returns they do, as is well documented by Dalbar’s 20-year studies of investor results.

Again, I am NOT urging that anyone buy or avoid this bond. But you cannot afford to ignore it, because it is a paradigmatic example of a problem that must be solved if your skills are to improve. Buy? Sell? Or stand aside? You’ve gotta know what your answer will be for every bond or every stock that is thrown your way, or else you’re just guessing. You have no investment plan at all, and you’re just shooting from the hip, hoping the fact that markets generally rise will bail you out of your mistakes.

Hope is not an investment strategy.
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us