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Since the summer of 2009, I’ve been saying that “the low-hanging fruit is gone from the bond market”, that “there’s little worth buying”. But when I actually went looking, I found bonds to buy. This year has been no different. My whining has gotten louder and more strident. “Interest-rates are going up”, I say. “Bond prices are ridiculously expensive”, I say. “There’s nothing worth buying”, I say. But, in fact, when I look at what I actually did, instead of what I merely said, I find that I’ve been putting money to work at the same, leisurely pace I generally have done, week after week, year after year, which is to make a couple of new purchases per week and then call it quits for the day, so I can do an afternoon walk or bike ride.

Some mornings, I really can’t find anything to buy, and I give up in total disgust. No matter what I’m looking at, a tolerable risk/reward just can’t be found, never mind trying to find an attractive one. When that happens, I tell myself to back away. “Don’t spend money just because you have money to spend. Patience, Grasshopper. Patience. Don’t chase prices. Let them come to you.” On other days, the shopping is easy, almost too easy. The issuer has a decent balance sheet. It’s paying bills from current revenues (not borrowings). The bonds can be bought in small quantities, and they offer a real rate of return after taxes and inflation. When this happens, I say to myself. “Why wait for more favorable conditions before taking a position? What you’re seeing is good enough. You know enough to act right now . Stop stalling. Stop looking for excuses not to act. Put on a prudently-sized position, or else get out of the bond game. Fish, or cut bait.”

YTD, I’ve put on 20 new positions. Said another way, I bought $24k face at a cost of $19,866. The Current Yields average 10.3%, and they range from 5.1% to 26.6%. The projected YTMs average 13.5%, and they range from 6.3% to 53.9%. The ratings range from A2 to Caa2, but they probably average single B. Maturities average 8.8 years, and they range from 1.7 years to 27.6 years. In other words, what I’m buying is entirely consistent with what my investment mandate has always been: “Buy across the yield-curve, and across the credit-spectrum, what would be attractive to a hard-core, Ben Graham-style, value investor.”

If the next 43 weeks continue as the past 9 weeks have been, then in 2013 I'll spend about $114k and make about 95 purchases (which will be about half of what I did in 2012, but pretty much what I did each year 2007 through 2011). Thus, despite my constant whining about the difficulties of the current bond game, I’m also doing the job that I committed myself to doing when I retired some eight years ago, which is managing my own money, and I continue to be able support myself more than twice over from my investing efforts alone. Not many investors can say that. But, also, not many self-identified ‘investors’ are really ‘investors’. They’re just clueless gamblers who are “paying to play”, which is why I become annoyed with them. Why pretend to be an "investor" when your track record proves you are not?

But everyone needs a hobby, right? and for most people that hobby is “investing” done exactly as Wall Street (and the fund companies and the advisory services) would like them to do it, so that a constant stream of fees comes their way from the dumb, gullible money waiting to be told what to do or what to buy. How to buy? Now, that's entirely a different matter, and no one needs to look elsewhere for guidance than to the Value Master himself and his classic intro, The Intelligent Investor. Everything of importance is contained there. The rest is just tiny details, easily looked up or easily invented as needed. Caminate, no hay comino. Se hace comino al andar. http://www.youtube.com/watch?v=2DA3pRht2MA

Charlie
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A loose translation: "There are no roads but by walking."
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Not only are you finding what to buy, but it sounds like you are also having fun doing it. And that counts for a lot too!
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Not only are you finding what to buy, but it sounds like you are also having fun doing it. And that counts for a lot too!

markr33,

It's fun for any investor when he/she is winning, but not so fun when they aren't. This week hasn't been fun, not because I'm losing money, because the game has gotten tough again.

Yesterday, I was in and out of the market in maybe forty minutes with nothing to show for it. I found some senior secured debt that was attractive, and I was ready to buy, because their financials were decent. But when I checked my holdings (one of the steps I do as part of my due-diligence), I saw that I had already put on a marketable position (which is different for me than a full position) last fall at a much better price. So I was faced with the decision to add or not. But I backed away, mainly on the basis of Moody's estimate of the company's prospects should the economy continue to slow.

Also, on the basis of marking myself to market over the weekend, I pulled the current offering-list of an issuer whose bonds had moved back into the money for me. With them, I have a full position. But if their prospects looked good, I'd be willing to add. Their financials seemed to be decent. However, my reading of the Moody's report again steered me away, especially their warning about how the privately-held company was disadvantaging bond-holder claims. So, the obvious response was not to add. I've got as much exposure is as prudent for my account size.

Also, yesterday, I did something I generally don't do. I looked at the slice of corporates offering at least 5% but no more than 6%. But that turned up no leads. So I was done for the day.

Today, what I saw in the slice I generally troll, anything paying 6% or better, was more rising prices. So I backed out of there and switched over to munis and spent some time digging into Puerto Rico's debt. But I didn't like what I saw. So, again, it was a case of fast-in/fast-out with nothing to show for it.

Some days/weeks are like that. But they aren't fun. I'd rather be finding things to buy and spending down my cash. Last year, through a truly heroic effort, I got cash down to sub 5% of AUM. But the persistent calls have pushed cash back over 11%, which drives me crazy. I HATE carrying cash. I love it when I have to sell something in order to buy something. That's when you've got a target-rich environment and the shopping is easy and fun. But this grind, grind, grind can be a drag. But that, too, is part of the game. Good investing, effective investing, is never all sea shells and balloons. Most of it is the dull, dull work of scan-vet-execute, scan-vet-execute, and then get up the next morning and do it again. But bonds have provided me with more than a good living for over a decade now. So I shouldn't complain too loudly. When all is said and done, it's a easy, easy gig. Not as sexy as stock investing, but mostly worry-free, and long ago --as the trader's quip goes-- I decided I'd rather "sleep well, than eat well".

Charlie
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