No. of Recommendations: 1
I’ve found that bonds in the 50’s have offered me some of my best risk/reward results.


Thanks for your detailed reply.

If I had to name a price-range that offered my best rewards, that would be the sub-35's, like Internet's Cap's long-gone, somethings of sometime (I don't remember), that gave me 100% per year, or Xerox's 8's of '27 (recently called) that returned about the same, or even Hanson's 6.125 of '16 (which Scott and I got into mid-40). But that stuff's not available these days. So I was adjusting my prices to today's market.

Last week, I would have said 50 was a good, lower cutoff. Below that, there's one or two issuers that a 'Speculative' buyer (in Graham's sense) could consider. But even an 'Enterprising' one (in Graham's sense) shouldn't be looking there and, for sure, not a 'Defensive' one, either. This week, I'd argue 60 is the lower cutoff, now that prices for Sears' bond have rebounded. (Even the bids this week are higher than last week's offers).

But I'd argue that bond-buyers who self-identify themselves as 'Defensive' (those whose chief goal is "safety and freedom from worry") do themselves a disservice by excluding from their scan bonds trading at a premium to par. Yes, by definition, that group isn't low-priced. But does the group lack 'value'? That's where things get tricky.

When do bonds (issued at par) come to trade at a premium to par? When interest-rates drop. That's most of what the premium can be attributed to. Interest-rates were higher at issue than presently. For sure, adverse calls have to be avoided. But all brokers warn customers of that by providing the YTW. So that's not a number that even needs to be calculated (though it should always be checked).

Give me a couple of minutes (since this doesn't look to be a 'buying day'), and I'll run a frequency-distribution on the entry prices of my holdings.

Again, thanks for your detailed reply.

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