No. of Recommendations: 4
I’m totally sympathetic with bond beginners not wanting to jump into a junk bond situation like Hanson’s 6.125% of ’16 [and its 31%YTM] whose case for investigating further Scott laid out in a very journeyman fashion. But at the opposite end of the credit-worthiness spectrum are solid companies like Toyota that don’t have American, short-term, “this-quarter’s numbers” planning goals. Japanese companies think 50 years into the future. That’s why, temporarily troubled some of them are, I don’t hesitate to buy long-dated bonds from the better of them.

Exactly eight days ago, after market close, I stumbled onto Toyota’s 0% of ’37 priced to yield 7.06%. I knew instantly that they were under-priced for this market and for this interest-rate environment. So I scrambled to grab five on Monday morning. My entry was 14.747. Today, five days later, I’m being marked to market at 15.480. That’s not a huge capital gain, only 4.98%, but that’s nearly 1% per day. Do the math. That’s a fantastic, annualized rate of return. And it is also nonsense. The only important fact is that the present price is higher than the entry price, meaning, the market itself has confirmed that my entry was correct. The neat thing about that bond is that it is callable. The sooner the call, the higher yield I will make over the projected YTM [which is also the YTW]. But 7.06% [and possibly, better] for a high-quality bond isn’t shabby.

Such a situation is exactly the kind of positive reinforcement that a beginner needs. He sees what he believes is a bargain, and he takes a chance. Maybe the risk taken proves to be a good one. Maybe it doesn’t. But do a couple dozen such entries, some good, some bad, some indifferent, and he begins to develop a tolerance for uncertainty. He develops the emotional stability he needs to make good decisions with imperfect information [all information is imperfect] and, more importantly, to recognize when he’s getting tired, anxious, sloppy, greedy, fearful, etc. so he can bench himself for the day, week, month, until he’s in synch with himself again.

Anyone in this discussion forum could have bought that bond for their retirement account, and they could have been proud of themselves for seizing that opportunity. That bond was as good a low-risk/high yield opportunity as this market offers. But no one else saw it, because no one else was looking. If you don’t buy the easy money opportunities, how will you learn to buy the harder ones? The learning has to begin somewhere, not that the learning ever has to begin. One can give up before one even starts. “Been there, done that” myself many a time. And I always regretted it later.

The gods who watch over us give us opportunities in our life times –for friendship, for happiness, for creative accomplishment, for financial success - that would sound like fairy tales if they were so common, just as they also present us with grief, tragedy, and uncertainty. Which opportunities we accept, which we avoid, determine the course of our lives. Frost’s oft-quoted poem underscores that point:

The Road Not Taken

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth; 5

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same, 10

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back. 15

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

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