We’re four weeks into the new year, and now is a good time to gauge how things are going as a way of estimating what the whole year might look like. Since the summer of 2009, I’ve been whining that the low hanging fruit was gone, that there were few opportunities still left in the bond market. But I kept being able to find bonds to buy. This year is turning out to be no different. The game is tougher. But buying opportunities are still showing up. YTD, I’ve added 9 new positions, with an average credit quality of spec-grade, at an average cost of about 88, with an average Current Yield of 10.0%, and an average YTM of 12.0%. In other words, decent enough money in today’s market. Bought Mdy S&P CY YTM Price P/L 1 01/07/13 Caa1 CCC 15.1% 17.1% 75.995 3% 2 01/10/13 B3 BB- 7.7% 7.5% 101.250 -2% 3 01/10/13 B3 B+ 11.6% 13.6% 90.553 -2% 4 01/15/13 B2 - 11.6% 13.0% 66.990 5% 5 01/18/13 B2 B 10.4% 16.7% 66.995 -2% 6 01/22/13 A2 A- 6.9% 6.8% 102.470 0% 7 01/23/13 A2 A- 6.6% 9.4% 82.050 7% 8 01/23/13 Caa1 B- 10.5% 10.0% 102.870 -2% 9 01/24/13 B3 B- 10.9% 11.0% 98.995 -2% A couple of comments: My P/l is flat, as should be expected. The instant you put on a new bond position, you should expect to show an average -2% loss due to having to pay a commish and suffer the spread. That’s just how the bond game is. Occasionally, if you bought really well --or just got lucky--you’ll end the day in the money. But that’s a rare event that deserves you a dish of ice cream (or whatever your favorite evil treat is). Over the course of four weeks, I initiated nine new positions, or an average of 2 per week. That is NOT a frantic buying pace. Sometimes, a week will go by when I’ve done no buying. Other weeks, I’ll add 3-4 positions. It all depends on what’s available. But I do shop daily, because if you’re serious about your bond investing, that’s what you’ve gotta do. The ‘weekend warrior’ routine just doesn’t cut it. You’ve gotta be tracking prices 'closely', which means 'daily', so that when you see a pricing anomaly, you can jump on it. That doesn’t mean you’ve gotta spend hours and hours in front of a computer screen. Once you’ve set up your basic scans and vetting procedures, you could be in and out of the market in as little as fifteen minutes, having seen for that day whatever needed to be seen and executed on. Obviously, a bond newbie isn’t going to have that kind of speed. But if you’re an experienced hand who knows the bond market well, you could be in and out in as little as fifteen minutes with a new position in your account (or not). This bond-investing stuff ain’t rocket science, and it don’t take hours and hours of agonizing over details to do a competent job of buying individual bonds. But to get to the point of where those investing decisions can be made quickly and nearly unerringly, it does take hundreds and hundreds of hours of practice, which is merely the same-same as with any performance sport. You can’t read the water on a small, brushy creek and make your cast, dropping a fly within 12” of where it needs to be so that you don’t ‘line’ the fish or hang on an obstruction, without having spent lots and of time on the water making those casts, with a good part of that learning time spent reversing your mistakes and then trying again. Investing is no different. If you want to be good, you practice, practice, practice, always trying to get better. Profits are going to come to you, or they're not, and generally for reasons beyond your control. What you can control is how much you're willing to lose. That's why you automate everything you can and stick to a simple, consistent, disciplined, nearly 'no-brainer' routine. Your process is how you manage the risks and uncertainties you have to accept. Your process is what you live by, or die by. Charlie
Bought Mdy S&P CY YTM Price P/L 1 01/07/13 Caa1 CCC 15.1% 17.1% 75.995 3% 2 01/10/13 B3 BB- 7.7% 7.5% 101.250 -2% 3 01/10/13 B3 B+ 11.6% 13.6% 90.553 -2% 4 01/15/13 B2 - 11.6% 13.0% 66.990 5% 5 01/18/13 B2 B 10.4% 16.7% 66.995 -2% 6 01/22/13 A2 A- 6.9% 6.8% 102.470 0% 7 01/23/13 A2 A- 6.6% 9.4% 82.050 7% 8 01/23/13 Caa1 B- 10.5% 10.0% 102.870 -2% 9 01/24/13 B3 B- 10.9% 11.0% 98.995 -2%
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