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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35357  
Subject: Another Measure of Over-bought Date: 9/19/2012 3:14 PM
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I’ve been running the following bond scan for a couple of months now. So I have a good idea of how many issues it should return and who they are. Show me all bonds of any rating or maturity offering at least 7% YTM A couple of months ago, the returned results would slop over onto a second page, meaning, more than 500 bonds were returned. Now, the list has dwindled down to 368, or nearly one-quarter fewer choices, and possible yields have dropped as well. There is no question that anyone now trying to buy into the bond market is very, very late. But that doesn’t mean, as it never does, that those willing to do their due-diligence couldn’t find something worth buying. So here are some tips to keep in mind.

(1) At the minimum, pull the Moody’s report and the last four quarterly SEC filings, paying very close attention to trends. In all probability, you will lack the depth of experience that enables making sound qualitative judgments, but you can grind through an issuer’s numbers. If they don’t make sense to you, don’t buy.

(2) Pay close attention to Time & Sales (T&S) and the BID-ASK spreads. The dealers, who are generally a different group than the brokers (who are just middlemen), know their market, and they know they are dealing with sellers who are dumping their positions at steep discounts out of fear or need and panicky buyers who are willing to get in at nearly any price. If you’ve really gotta buy, make sure the spread is tight and the bond is well bid.

(3) Though you might consider yourself an ‘investor’ (with all that implies about depending on financial statement analysis for your buying decisions, in contrast to the technicals of supply-and-demand as they manifest themselves in price charts), never fail to pull a price chart for the bond (and one for the stock if the issuer is publicly-traded), as well as run issuer and industry comparatives. The sand is going to hit the fan soon enough, and you want to be owning only what will survive the coming downturn. Technicals can’t predict that. But they do provide early warnings when something is amiss that the rating-agencies haven’t yet caught up with.

(4) Lastly, have fun. Investing is just a game. It is socially-approved gambling that has no redeeming value at all. You make a few bucks. You lose a few bucks, and the world is no better or worse for it. But if you get too silly (or worse, too serious and grim), you’re going to lose for sure. So know when to walk away. The market will still be there tomorrow, and the day after, and the day after. Protecting your account from yourself is a must. Don’t make hurried decisions. Don’t make decisions when you’re tired, upset, or euphoric. This investing stuff shouldn’t be any more intellectually challenging --or exciting-- than brushing and flossing your teeth. You scan, vet, execute or back away, and then get on with the rest of your day.

Initially, not easy. But practice makes it so. 1-2-3-4, and then do it again.

Charlie
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