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Author: altstrat91 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Re: Need some beginner help Date: 2/7/2013 8:53 AM
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bobcat

i would add one caveat. in terms of perspective, please keep in mind, at this point of the interest cycle, we are at the worst possible moment to be buying specific types of corps -- corps that would most likely be suitable for someone with your experience level; meaning possibly longer term, higher credit quality.

there is an inverse relationship that exists right now in the marketplace which is>> the longer til redemption + the higher credit quality + the higher coupon = insane premiums to face value

there are corps out there trading at 30%-40% premiums to par. at this stage of the game, the risk reward really makes no sense. yes of course you could lock in your yield right now immediately; a great advantage of buying individual corps vs. a mutual fund, because all you have to do is hold til redemption.

however a 12-18 months from now, most likely the majority of the good caliber stuff will be cheaper and yields will be better.

right now, the only way to offset some of the interest rate cycle inevitable phenom risk, would be to take on short term <3-4 years maturing corps that have some degree of credit risk trading slightly above/at/or below face value. this would offset some or a good chunk of a superior rated/classified corp trading at a premium to par. basically it boils down to trade offs.

however this kind of trade would most likely not be suitable for you at this point in time of your development. but you are definitely on the right track. there is allot of money to be made in buying/trading individual corps. run as many scans as possible using different parameters and watch price action.

one last footnote that charlie has submitted numerous DD posts on and that i would chime in on with my own opinion here is that you CAN use ETF's, CEF's, and even MF's to put on a trade. not park your money there indefinitely as an investment, because then you are at the mercy of the interest rate cycle having locked your funds into a specific NAV at a certain day in time.

BUT lets say right now you are thinking of getting short or long for a limited amount of time; a more simplistic approach in doing so would be looking at one of the vehicles mentioned above and then getting out at a point in the near term future.

another way to hedge your long individual corp portfolios is also looking at one of the inverse short themed CEF's or ETF's as well and even going long some VIX.
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