No. of Recommendations: 2
No doubt you’ve been tracking Dell’s bonds, because that’s what those who are serious about their bond investing do. They track bond prices daily, and they make their moves (to buy or to sell) when conditions are favorable. "What constitutes “a favorable move”? I’m glad you asked, grasshopper, and the intention of this post is to provide some thoughts on the matter.

The advice given to stock traders is to “never, ever average down”, and there’s good arguments for not doing so, not the least of which is that ‘averaging down’ is a highly speculative technique that is going to fail more often than not. In other words, it’s a dumb way to make bets. ‘Averaging up', OTOH, is highly thought of. In adding to your position, you’re betting on a known winner. Your average entry-costs are going to be higher. But the likelihood of making a profit on the position has also increased. So, that’s the trade-off you’re making. You can choose to try to get in cheaply, thus lowering your price-risk but at the cost of accepting greater information-risk. One, or the other? You can’t have *both* low price-risk *and* low information-risk. You've gotta choose.

Now, let’s consider Dell’s bonds. What’s the direction of prices? If you’ve been tracking their bonds --as you should have been doing-- you’ll know that prices are on the upswing. (And if you haven’t been tracking their bonds, you could confirm this is so by pulling price charts or just the raw T&S data.) Now comes the dilemma. If traders are bidding up the bonds, because they think the earlier worries surrounding Dell have abated, should you follow their lead? Or has the window for getting in passed you by? That’s an interesting problem, right? And if you're a disciplined bond-investor, you already know the answer to that question, because it is written into your investment plan.

“What’s that you say?” “You don’t have a written investment plan?”
“Well, now. That is a problem, isn’t it?”

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When Life Gives You Lemons
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