No. of Recommendations: 2
In an informative post, #33695, Howard said that, these days, he’s not looking at anything priced under 50 and that the rule is keeping him out of trouble. I’d suggest that the cutoff-price could be bumped up to 60 as an easy way to avoid bonds that probably offer more grief than reward. It would be nice if there were also an upper price above which it isn’t prudent to buy. But there doesn’t seem to be one, as you can verify for yourself (just as you should also verify the utility of the lower cutoff price). But let’s focus for a bit on the upper-end of the price-range.

If you grab the 500 highest-priced bonds, what you will notice is that a mere 11.8% fail to offer a real-rate of return even when discounted for a 5% inflation-rate. So, clearly, the fact of selling at a premium to par shouldn’t necessarily, in and of itself, be a buying deterrent. Do all of us hate paying a premium to par? Of course. But what we should really be hating to pay is a premium to value. That’s what is unwise. How is ‘value’ determined? Ah, grasshopper, now you’re beginning to ask a question worth answering and one that your investment plan (which you do have, right?) will tell you.
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