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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Looking at my portfolio Date: 8/21/2002 4:10 PM
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Schwab and the big brokerages maintain bond inventories. When you buy from inventory, the price quoted is net of commissions. If you had accounts also at Prudential, Merrill Lynch and Bear Stearns, each would hold a different inventory. There might be some duplication, particularly with more actively traded issues.
For bonds traded on an exchange, you can order your broker to buy the bond for you on the exchange (even though they have it in inventory) and probably, after paying the commission, you will get a slightly lower price. The difference is markup.
For bonds not traded on an exchange, as for example if you would like to buy a certain municipal bond, you do not know what the markup and commission are unless your broker is willing to tell you--probably he/she won't. You buy on the basis of whether the yield to maturity and the call provisions quoted are acceptable to you. You do not buy a bond with the intention of selling it next week unless you REALLY think there is going to be a dramatic price change, news coming out, something of that sort. A bond is something you own, not something you trade. The retail customer should figure on holding to maturity--or until it is called away.

The other part of your question is about preferred stocks. In this era of low bond yields I've swung in that direction. The better REITs have preferreds that I think will indeed pay their dividends for several years to come and then call in the preferreds at the price stipulated in the prospectus--usually $25. Most preferreds are issued giving the company the right to call them in in 5 years, so if you are paying a premium you need to be careful of when the preferred was issued and when it can be called. If you are buying at less than the call price this isn't a big issue.
Best wishes, Chris
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