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Author: imdajunkman Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: The Bond FAQ Brouhaha Date: 11/25/2006 1:43 PM
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But I don't know how to tell you how I got here,” said Alice to the White Rabbit. Well, why don't you begin at the beginning?

Perhaps I am misreading the bond faq, and perhaps I am asking more of it than should be done. Thus, the following comments might be based on multiple misunderstandings. If so, my apologies to all in advance.

The bond faq implies that cash-management --e.g., buying CD's, TIPS, etc. -- is equivalent to "investing". But the two are very distinct processes. Furthermore, nothing is said in the faq about how to write a basic, five-factor investment plan (i.e., Selection, Direction, Timing, Weighting, and Protection). The net effect is that those who confuse cash-management with investing also tend to focus almost exclusively on Selection. And by slighting the other four factors --if they are even aware of them-- they become the dumb money at the table.

It's no one's job to protect would-be investors against themselves. But having once been one of those dumb and preyed upon investors myself, as we all once had to have been, I'd like to shelter beginners from such grief by providing them with the best starting points possible, hence my criticisms of bond faq, which can be done piecemeal or by a frontal assault. I think the faq is unfixable, because its implicit paradigm is demonstrably wrong-headed, which is not to say that there is only a single viable replacement. There are a multiplicity of viable investment paradigms, which is the crux of the teaching problem: Where to begin?

It is my belief that beginners need to be taught much more than a specific investment paradigm. Instead, they need the broader skill how to evaluate paradigms generally, which creates a Catch-22 situation. A meta-level approach won't make sense to them until they have gain sufficient experience within specific paradigms to begin to be able to make the comparisons by which they can bootstrap themselves to wherever they want to go with their own specific paradigm, which they --of necessity-- have to create for themselves, because each person is unique in their personality and financial situation. Thus, the would-be instructor has to have already traveled the territory of not just the paradigm he himself successfully uses, but the territory of all territories such that he can go freely in the investment world where ever his ideas and energies might take him.

Whoever the lead writer of the present bond faq might be, what I see lacking is two things:

(1) The person doing the writing is not an active investor who is able to support himself on his investing alone.
(2) The person doing the writing does not have a mastery of the published investment literature, nor has he engaged even a fraction of it in any meaningful way.

But as I said at the beginning, I could be wrong about this. If so, my apologies. If not, then decide what you as writers and you as readers want to do about it. But I'm outta here for a while until the brouhaha blows over, because I know who I am as an investor and who I am as an investment theorist. I've done my time in the trenches, and I've done my time in the libraries. So my choice is simple: I have a moral obligation to help others in the same way that others have helped me. But I have no obligation to help the preversely uneducatable. So, as I said, I'm outta here for a while. The brouhaha will blow over. They always do. Meanwhile, markets will extract their own revenge on those who don't understand them, and markets will reward those who do. Each will receive what he deserves in proportion to his understanding of how to manage risk, which is yet another basic topic the bond faq fails to address.

It's not fixable, and it isn't worth reading.

Charlie
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Author: TMFGalagan Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18901 of 35392
Subject: Re: The Bond FAQ Brouhaha Date: 11/25/2006 2:00 PM
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It is my belief that beginners need to be taught much more than a specific investment paradigm. Instead, they need the broader skill how to evaluate paradigms generally, which creates a Catch-22 situation.

I agree with this, but I don't think this is necessarily the first board people go to expecting to see a discussion and development of overall investment paradigms. Rather, I think people develop a plan elsewhere, determine that bonds need to play a role in their plan, and then come to the Bond board looking for specific information about bonds. Certainly the questions that newcomers have seem geared toward that methodology.

On the other hand, the FAQ shouldn't take a definitive stand on a paradigm itself. For instance, if the FAQ said that the only purpose for bonds is to dampen volatility of pure stock portfolios in accordance with modern portfolio theory, then I'd understand your objection if that were the only view stated.

I value your investing anecdotes, even if I haven't figured out how to apply them to my own investing. I guess my feeling is that until I fully understand a novel investing idea like yours, I'm likely just to lose my shirt trying to emulate your strategies.

dan

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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: 18904 of 35392
Subject: Re: The Bond FAQ Brouhaha Date: 11/25/2006 3:10 PM
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FAQ means "frequently asked questions". I don't remember many if any questions asking for details on how to pick a bond. There are lots of questions about which is better, a bond or a bond fund, and about what TIPS are, that sort of thing.
A FAQ is not supposed to be a crash course. It is supposed to save us time when the umptieth person comes here asking whether they should get this bond mutual fund or that one. We can point to the FAQ and not have to go through THAT again.
I think you fellows have lost sight of what you are doing. A course syllabus is not what a FAQ is, nor what it should be.
When the price of a particular bond is rising on rising volume despite rising interest rates, a bond trader paying attention notices this, asks why. If it is an impending annouuncement of improvement in quality, the trend may have further to go, and Charlie may see this and get interested. But that doesn't belong in a FAQ, IMHO. Or GMAC starts calling bonds. We ask why and may want to get on the bandwagon, but that is a game for experienced traders.
I'm happy telline newbies just what I do: buy a bond and hold it until it matures or gets called away. "A bond is something you own, not something you buy and sell." Few retail customers make a living buying and selling bonds. If somebody is interested enough to want to play Charlie's game, that person doesn't need a FAQ, and s/he can be referred to books on the subject. We get folks coming who can't figure out how much their broker is making on the bond trade. That's OK, neither can we much of the time. If your vantage point is buy and hold, it is much easier to figure out what YOU make: yield to maturity and/or to call. What would you get if you turned right around and tried to sell the bond? Significantly less. Maybe a couple of points. It that were always the focus, nobody would buy a bond. People think they are cheated because the broker is making a buck.
Another technique: pick a stock you really like. Then buy the bonds. You stand ahead of stockholders in any liquidation and you are probably getting a lot more coupon than stockholders are getting dividend. If you are buying top quality bonds, your selection is more on the basis of what fits your ladder and what the yield will be.
That doesn't go in a FAQ either.
Best wishes, Chris

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