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Bond ratings are the informed opinions of authoritative agencies as to the credit-worthiness of debt issuers.

Let me repeat that, so that even someone who knows so little about corporate bond investing as my (unnamed) nemesis in this forum will understand what I’ve said. Bond ratings are guesses about the outcomes of unknowable futures whose reliability can be no better than the facts made available to the raters, their ability to interpret them and/or gather new facts on their own, the persistence of the trends implied by the facts, etc. etc., etc. In other words, there are so many totally unpredictable things going on, that it is a small miracle that the batting average of the three major rating houses is as good as it is (which historical studies do confirm). Therefore, to trust ratings on blind faith, or to reject their work as totally untrustworthy, is to make two equally egregious mistakes.

The proper attitude to take toward bond-rating is to use them when it makes sense to do and to do one’s own work when that is what is required. Which is When? Ah, now we come to the part where experience matters, and why some investors can make effective use of bond-ratings and why some can’t and why they want to throw out the baby with the bath water.

Again, let’s go back to the basis definition of a securities rating. No matter the security, and no matter the quality of the information made available to the rater, and no matter the skills of the rater (or the efficacy of the rating-system), no rater or ratings system is going to achieve 100% accuracy, 100% reliability, or 100% dependability, and it is stupid to expect that kind of perfection. Instead, the better question to ask is this.

Are bond-ratings an investment tool I find useful when I do my own due-diligence?

To that question, there are no wrong answers. If you find bond-ratings useful, then use them. If you don’t, then don’t. The matter really is that simple. Use the investment tools you find effective to do the investing tasks you need to do, and if you need a tool that doesn't yet exist, then exercise a little initiative and build it.

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Key point Charlie on not standing on one side of the proverbial rainbow. I will run into folks who don't trust the agencies at all or trust implicitly with unbridled faith.

I am somewhere in the middle. Basically I like to peak at the ratings agencies grade on any particular corporate note before I jump in and start doing my own research, because for the most part I will at least have some level of expectation to one of my most important areas of interest which is exactly how much debt the company has vs. cash on hand & incoming cash flow.
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For the most part, my post was a counterpoint to one written by a person who calls himself "Locicious" and with whom I've gone round and round over the last decade about nearly everything having to do with bonds and fixed-income investing. If you read his post, he was using his favorite trick of "proof by assertion, rather than evidence", and he was dismissing the work of the rating-agencies as worthless, which is a huge irony, given that he freely admits he has never bought a corporate bond in his life.

So, the situation seemed to be this. A person who had no need to use a tool in his own investing was condemning the tool as useless for others. As a counterpoint, I argued that each person should decide for her or himself the usefulness of bond-ratings, and I'll stand by that claim. Each investor should use (and do) what makes sense to him or her with this caveat. Anyone stupid/greedy enough to accept bond-ratings on blind faith without the least bit of effort to verify them through independent credit-analysis deserves exactly the losses they will suffer.

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