It is a small position... bleary, Excellent. That's what I was hoping to hear.Let me give you some anecdotal perspective. I carry hundreds of bond positions, spread across the yield-curve and across the credit-spectrum. Maybe a third of those are spec-grade issues. At any given time, there are always a couple of them in Chapter 11. On some workouts, I've been made whole, as in, the payment of accrued interest and the full return of principal. That's rare, but it happens. On others, the recovery was zero. On some, the workout was reasonable. On others, it was meager. On a few, I actually made a profit on the workout. (K-Mart) So workouts vary. But my working assumption is that I will get nothing. Hence, I never bet more than I'm willing to lose, and across the whole portfolio that amounts to 2%-3% of capital each year.OTOH, my theoretical best case for the portfolio is in the neighborhood of 10%-12%. So the achieved result ends up being something in the neighborhood of 8%-9%, which, after taxes and inflation, is merely a breakeven rate of return. But 'breakeven' is my investment objective, because it means I'm moving my purchasing-power forward to the future against the time it might be needed. But without the losses (and gains) I make from owning junk bonds, I wouldn't be making half the rate of return I am. So the losses have to be accepted, because the gains are needed. The two go together. There's no upside without downside. Yeah, we all strive to chop left-hand tails. But it's impossible to clip everyone of them as tightly as we'd like. In retrospect it's easy to say, "Woulda, coulda, shoulda". But the reality is that every investing decision is just a speculative bet about something that has the chance of not working out as we hope. Nothing is safe. Nothing is sure except this. What seems 'safe' probably isn't. What seem 'risky' might not be so if properly managed. In the end, if profits (on average) exceed losses (on average), then the game is being won. Charlie
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