Charlie,

I have been reading your contributions to TMFII for the last year and a half and I have learned a lot. I understand the mechanics of bond investing, i.e., ytm, ytc, par value, etc, etc, but I don't have a feel for risk. That's probably because I don't have any experience. Maybe investing in bonds is safer than investing in stocks....barring default, you get your money back plus some interest, and if a company gets in trouble the bondholder gets paid before any stock dividends are issued. Investing in 50 or more bonds would take a lot of work, but it ought to keep one entertained.

Here's how I see things. I can make 5% to 6% in bonds even after figuring in defaults and capital losses (selling bonds at a loss when the issuer turns South). There is currently little opportunity for a capital gain because interest rates can't go any lower, so the 5% to 6% return is the max I can expect. But looking around, 5% or 6% ain't bad. The eighties and nineties are gone. I remember 72','73, and "74 when the market tanked year after year. Taking a pounding and waiting 3-5 years to break even is not for me. Going forward I expect a 2000-2010 style stock market with lots bear and bull action. A bond portfolio might steady things up some, but as you said, bond prices will tank just like stocks in a bear market. Nevertheless, barring default, you will eventually get your money back with bonds...not so with stocks.

I laughed out loud with your "not betting on the horse, but betting on the jockey" analogy. Good one.

Would you mind disclosing a few of your recent bond trades? I'll do some research and try to figure out the reasoning behind your selection.

Codger