Weekend mornings, when markets are closed and the daily hysteria of Wall Street has faded away, when it's still dark and quiet outside and covers are warm and snuggly, are good for thinking about the larger, more important things of life, like trout fishing and past times spent on lakes or streams, casting to rising fish. Classically, trout fishing is dry fly fishing in creeks and rivers, but for me it was small lakes, almost ponds. Late afternoons, as shadows lengthened toward early evening, we'd slap on enough bug juice to thwart mosquitoes and row to where the fish were working, flip for bow or stern position, and begin an hour or two of casting flies as fish fed on the surfacing hatch.Not much to do with bonds in that picture, but consider another one. You're a trout who lives in waters such as W.D.Wetherell describes in his collection of fishing essays, "Vermont River." When you're hungry, you don't drive to the grocery store. You move from your resting station that is sheltered and away from the current, to your feeding station, perhaps the downside edge of a mid-stream boulder deposited there in the last ice age, and you begin to watch the conveyor belt of objects floating past you, selecting between the debris carried from land to water by wind and the truly tasty stuff also fallen there. If you're an experienced trout, you know bugs from things that might look like bugs, and ignore that #12 Gray Drake that guy in waders just drifted past you, and sip instead a true Siphlonurus from the surface and ease back to your station.Such a picture describes late spring or early summer, when the raging, disclored, winter floods have receded and the river has resumed what we, as fishermen, think of as its normal pace and rhythm. But the whole cycle of the river, from January's floods to August's low waters, is the cycle of the river, with each year's cycle being a variation of previous ones, and Wetherell does a good job of capturing the misery of cold, wet days when wading was foolhearty, as well as the blistering, hot days of July, when fishing was equally a waste of time.It occurred to me this morning, still snuggled in bed, that fishing for trout according to the rhythms of nature and the seasons of the river had a lot in common with buying bonds, which also have their seasons, driven not by rains but interest rates, and not annually, but in longer, waxing and waning, but recognizable and repeating cycles of 4 to 5 years.Trout don't buy bonds. People do, but how would a trout buy bonds if he were to? My guess is that he'd accept the fact of rhythms and seasons and cycles and wouldn't go charging into the full current of the river at just any time of year, madly chasing after every apparent opportunity that floated by. Instead, he'd choose a feeding station, out of the buffet and torrent of daily events but at its edge, and patiently watch the conveyor belt of market events bring the opportunities to him, selecting those he recognized as genuine, rejecting those that were merely fancy feathers and a hook.One could argue that bonds are as varied in their kinds as are fish, and the methods to pursue the individual kinds of each must be as individually chosen. But emphasizing the admittedly event-driven, equity-like nature of junk bonds, for example, over the fact they do relate to interest rates, however complexly, ignores the forest for the trees and loses the main value of the metaphor, namely investing is about the long haul, about history and patience. And right now isn't the Spring of the year for bonds. Go fishing instead. Charlie
I composed that mini-essay in Word then retyped it to the Fool, but in doing so dropped a line from the penultimate paragraph that I'd like to restore, and could do so easily if the Fool allowed editing of the original post, as do some BB's. The thought is important, so I'll reproduce the whole sentence. ...but how would a trout buy bonds if he were to? My guess is that he'd accept the fact of rhythms and seasons and cycles and wouldn't go charging into the full current of the river at just any time of year, madly chasing after every apparent opportunity that floated by. Instead, he'd look at the larger picute of things, see where in the cycle of interest rates he was, then choose a feeding station, out of the buffet and torrent of daily events but at its edge, and patiently watch the conveyor belt of market events bring the opportunities to him, selecting those he recognized as genuine, rejecting those that were merely fancy feathers and a hook.In Trading for a Living Elder takes great pains to introduce Eliot wave concepts like ripple, wave, and tide as metaphors for different time frames, arguing that decisions in one time frame should be made with reference to the next higher one. (If you're trading one minute bars, be aware of what the five minute charts are saying; if you're trading off of daily charts, pay attention to what the weekly charts are doing.) Our bond-buying trout would be doing the same thing in looking at the larger picuture. Is a 7% YTM worth swimming after or not? He'd answer that question by being aware of what the conveyor belt would be likely to bring his way, as should you. Charlie
Charlie,I won't try to speak to the validity of the analogy, though I'm always one to take a parable over the pseudo-economic "analysis" of the talking heads. However, I would like to celebrate the sentiment.We'd all be better off if we spent more time discussing trout fishing.Ah, for a fast flowing stream in the forest primeval.
Loki, Nor will I agrue for the validity of the analogy, nor the lessons that might be derived from it, but follow instead the example of Thoreau who, in his opening chapter, in discussing the reasons he wrote Walden and for whom it might be intended, said simply: As for the rest of my readers, they will accept such portions as apply to them. I trust that none will stretch the seams in putting on the coat, for it may do good service to him whom it fits. Thanks for your kinds words, and, yes, let's all wet a line this season, rather than merely grub after dollars, if only in the pages of such writers as Wetherell or Steve Raymond, another favorite. Markets have a way of shrilly insisting they are the most important things, virtual suns around which the planets of our other lives revolve. But sometimes it is useful just to take a walk and be thankful that trees and trout don't invest. They'd beat us to the financial goal posts for their simplicity and patience. I'll freely confess it's been too long since I've put a boat in the water, doing nothing more permanent or profitable than creating oar-prints across a lake in the deepening twilight.Charlie
Somehow that post stuck a responsive cord way beyond its simple lesson of market patience. 12 reccomendations so far is heartwarming. Friends and fans, I thank you. My prudent and patient, bond-buying trout thanks you, and we're plotting a return with further adventures. Stay tuned.
Friends and Fans,I'm sorry to announce that the trout isn't going to return afterall. I was thinking I could get him into stocks somehow - a bit of diversification, right? - and then have him use his investment gains to do a real estate deal in which he bought up his section of the river, so he and his buddies could live out their remaining days, peacefully doing what trout do best, instead of having to contend with guys in waders who unthinkingly intended them harm. There's a model for such a thing, a childrens' story by VanWettering (sp) - who also wrote of his experiences with Zen in "The Empty Mirror" and "A Glimpse of Nothingness" - called "Hugh Pine" which is about a procupine who organizes the animals into traffic guards so automobilies don't kill so many of them as they cross the roads from one part of their forest to another. Yeah, syrupy stuff, but such stories are what my kids grew up being read to: green politics and the whole granola thing of the '70s, which, aging Berkeley hippie I am, is still where I'm at.Reflecting on the writing task that composing "The Trout Returns" might be, convinces me it was a "nonce" piece, a happy accident such as the unconscious gifts us with occasionally, rather than everyday coin that can be spent repeatedly. I have a lot of affection for my bond-buying trout, but I think he has done good work and merits a retirement. But - possibly good news - I might take on another animal, who is a worthy adversary.As I read over the flurry of posts I've put up on this board recently, and the thousands of words, it occurs to me that there are really just a few basic and constant themes: asset allocation, risk management, and self-determination. I haven't argued that people should buy junk bonds, only that they should consider them. If they can evaluate for themselves the opportunities that might be there, or not, then they also have - or will have had to acquire - the skills they need to make prudent and responsible investment decisions generally, which is the far larger, far more important goal, and one that is exactly co-incident to the intentions and puposes of The Motley Fool and this message board: self-determination (and a bit fun.) Junk bonds are one path of many financial instruments there are, but it's an asset class that interests me greatly. There's sufficient technical literature on junk bonds already available - a good intro is Barnhill's "High Yield Bonds" - so that anything I might say about the subject in an expository or academic way would be redundant and trivial at best, and outrageously wrong at worst. But, there is a way of talking about junk bonds, and my ideas about them, which allows me to say whatever I want to say and to go wherever I want to with my ideas, as well as become an equal subject myself, namely the personal essay. Obviously I like to write. It's my way of finding out what I think or feel about something. Learning how to invest is nothing if not a complex skill, so writing about investing is my way of grapping with the separate pieces that make up the whole, which in turn, is a part of life generally, to which I apply the same process again, reflexsively creating objectifications of ideas that give me further ideas, which I then write about. My working title is going to be: "Junk Bonds: the 800 Pound Gorilla", which is probably going to end up being a book-length effort, rather than just an essay. Without even realizing it, I've shared bits and pieces of it with you already. I didn't know a book was happening, but it was. So, I thank all you for your indulgence as I hogged this board more than was my share, because this was a safe place to work out ideas in front of an audience with a common interest in fixed-income. But I need to pull back from posting so much to the board and start crafting a manuscript instead. My intentions aren't commercial, but purely personal. If I finish the project- and that's a big "if" - more than likely it will be spirel-bound in an of edition of 25 and sent to family and friends who tolerated my bending their ears over the years with a barrrge of e-mails. Such parts as I can separate out that might be of relevance to this board I'll gladly post, but no promises. Mostly, I just want to play with language for a few months, using skills I've let get rusty, that posting here has awaken. Why a gorilla? He's a perfect foil, someone scary I have to deal with, come to terms with, an objectification of the destructive power of risk.
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