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A followup comment on my bond losses, now that I've completed my morning's looking for bonds.

Typically, the minute you put on a bond position, you can expect to post a 2% loss, due to having to pay the commish and suffer the spread. That's just how things are in the world of bond-investing, though, sometimes, if you can grab a bond on a dip, you might end the day in the money. But that's rare. Generally, you take a beating that, hopefully, the next week or so will erase.

But where are we right now in the interest-rate and credit cycles? The good stuff's going up in price. The junk is going down. Therefore, to buy the lesser-qualities issues is to buy with the tide going out on you, likely leaving you stranded on the rocks and sands. This is why position-sizing is so important. If you're putting on big positions, at unfavorable prices, in an unfavorable direction, you're asking for trouble. Even if you're just nibbling, you're still asking for trouble. But some trouble cannot be avoided if opportunities are to be pursued. So you bet widely, and you bet small and/or you back away, which is what I've been doing a lot of lately. I might want to buy an issuer I don't already own. But the price still isn't unfavorable and/or the size is too big. So I watch and wait, looking for my entry.

Patience. Investing (stocks, bonds, whatever) is a game of patience. Eventually, prices will come to you, or they might not. That, too, is part of the game. Sometimes, prices never do come down to your entry point, but reverse and never look back, and we kick ourselves with woulda/coulda/shoulda. There isn't a day when I do my long ride out to the confluence of the Willamette and the Columbia and then pass pas the warehouses of Land o' Lakes that I don't regret not having bought their bonds. The coupon was fat, and prices had fallen on unfavorable news. I should have made my move. But I hesitated and lost the opportunity and lost it again when I failed to chase.

But is always buying the dip a good policy? Is chasing prices a good policy? Probably not, right? But we investors still tend to beat ourselves up over "lost opportunities", because we remember the ones that worked out, not the ones that didn't.

So, be careful out there. Yields are getting fatter. But risks are increasing, too.

Charlie
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