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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35365  
Subject: The Novice Date: 10/9/2002 3:11 PM
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Hi all,especially Charlie:

Well I went to my library to see if I could look at Moody's and S&P (to start learning how to read the tables)and they don't have it. Many of the libraries close to me are closed for remodelling, so my next step in my education was to go to various web sites - and here are some questions.

I went to Fitch Corp site and looked up Corporate Bonds. They have a large list (not all because I couldn't find GE or Pfizer when I put in their name).

I found Home Depot. They gave their short term and long term grade(AA, stable long term, short term F1) and showed a Cuisip and ISIN number and date of issue, I also found Walmart and many others.

They had two notations on some of the companies Senior Debt and Senior Unsecured (what does that mean).

I then went to a site called BONDTALK. com, and got Yield Charts for Treasuries, Municipal and Corporate Bonds. giving Maturity, Yield, Yesterday, last week, last month, price, yield change, Price Change.

I went to their corporate page found nothing for Walmart, but two entries for Home Depot (as well as other bonds). They showed two for HD, Grade Aa3/AA. They have 100, coupon 5.375, matures 06, yield 2.62
LY (what does that mean) 2.62, price 109.049.

I went to Bondinformation on Yahoo and found HD, coupon 5.375, matures 4/1/06 dated 4/12/01, Fr.coupon 10/1/01 settlement 10/15/02, quantity av. 100, order 100, price 109.25 y/m 2.629, current yield 4.92.
Net money: 109024.82, accrued interest 209.03, total 109233.85

I know that it's a premium if it's over 100, and the interest is what's paid to the owner that is selling the bond.

I went to Bondsonline. They have a new issues page i.e. Boeing, maturity 10/15/08 coupon 4.6. yield 4.6. non calleable, minimum $1000

I also found the Walmart Bond: coupon 6.87, matures 8/10/09, yield 3.833
ly 3.833, price 118.09

InvestinginBonds; NASd BOND INFO. gave

Walmart (I put in the cuisp number I had found) most recent trade 10/8/02
recent price 116.645, high price 118.125, low price 115.25


As I said earlier I am looking to switch my portfolio by the end of the year to a new brokerage (probably on line) and am interested in some bonds, so I was trying to come up with something I could ask a broker how much it would cost me to buy/sell the bond, so I could see were it was best for me to set up an account. I am so confused and at this time am reading, looking up sites in an attempt to be able to ask questions when I speak to a broker. Help. You can see I am so scattered, but I'm trying.
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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: 4806 of 35365
Subject: Re: The Novice Date: 10/9/2002 3:39 PM
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Here's a bond I bought several of yesterday. My rule is don't pay a premium, which doesn't give me a lot of choices in the current market.
The bond is issued by Bell Atlantic of Pennsylvania, matures Dec 1, 2028. The coupon is 6% and I paid about 92 cents on the dollar, for a yield to maturity of about 6.65.
In buying a bond, I'd always ask yield to maturity, in which months does the bond pay interest (December and June, in this case), the rating, whether it is senior debt. The broker will tell you about call protection (in buying at a discount I don't much care--if the company wants to pay me 100c on the dollar early, be my guest).
Probably the broker won't tell you about commissions. He will tell you how much accrued interest there is.
You can buy the bond on an exchange, and direct your broker to buy it there. If this is done you will be told the commission. Or, with a larger broker, you may buy the bond from the company's inventory, in which case the price you are quoted is a flat rate and no additional commission is charged. If you select a bond from the newspaper that is traded on an exchange, the broker may well not have it in inventory, but can buy it for you on the exchange. If a given bond is available either from inventory or on the exchange, you will probably do slightly better buying on the exchange and paying the commission because the markup will be less. If you are buying just 1 or 2 bonds, face value $1000 each, you'll do better buying from inventory.

For bonds like the above, I find a full service broker is actually cheaper than a discounter. I have a broker at Merrill Lynch I've worked with for a long time and she knows the parameters of what I'm looking for. It saves me much time and trouble to just call up and ask what is available now. It has been tough finding ANYTHING decent lately so I was pleased to get the telephone bonds yesterday.
Best wishes, Chris

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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4807 of 35365
Subject: Re: The Novice Date: 10/9/2002 4:36 PM
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A few things to think about:

You haven't mentioned what the size of your portfolio is. If you are looking to invest less than perhaps $20,000, you will likely be paying significant amounts in broker markups and commissions. With portfolios of this size, it probably makes more sense to invest in a low-cost bond mutual fund, bank CDs, savings bonds, or perhaps even government bonds through Treasury Direct, in order to avoid these costs.

Even with a $20,000 portfolio, dabbling in corporate bonds will be fairly risky. The only effective defence against default risk is to hold a diversified portfolio, and it will be impossible to diversify sufficiently with such a small sum. Personally, I would not consider an amount below $50,000 sufficient to mitigate the risks with coporates. If you are looking to invest less than this amount, I believe it would be better to stick with a low-cost bond fund, or strictly government-backed issues, instead.

In your bond hunting, you seem to be focused on the name of the issuer, which is probably of lesser concern than the maturity of the bond. It does you no good to choose a bond issued by your favorite company, if said bond matures in 50 years and you need the money in 5. Usually you can search bond listings online by maturity date, rather than issuer name.

Trying to find out which brokers are the cheapest can simply be a matter of calling them up and saying, "I would like to buy a bond. The CUSIP is XXXXX. How much will it cost me?" If your bond is widely held, it is likely the broker will have some in their inventory, and can give you a quote directly. Then you would only have to choose the broker with the lowest price.

Not all bonds are held by every broker, though. You can instead ask something like, "I am looking for bonds with S&P rating at least AA, and maturing in December 20xx. What is the best yield to maturity you can give me?" This gives the broker some flexibility in finding bonds similar to those you are seeking, in case they do not have the particular bond you are looking for. One would then choose the highest yield to maturity offered among the brokers. You have to be careful, though, that you do not get quoted for bonds with special provisions, such as calls, that may affect the yield.

Most online bond systems will let you easily formulate queries such as this, so you can probably do all the bond shopping you need without interacting with a human being. However, if you prefer, you should be able to just call the broker up and ask.

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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4810 of 35365
Subject: Re: The Novice Date: 10/9/2002 6:05 PM
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Open,

Both Chris and Foo offer you meaty replies. Read them and then reread them until you can get yourself inside their heads and can look at bonds the way they do. But keep in mind that there is no one right way to do any of this stuff. Like everything in the invesment world, "...It all depends", and each of us ends up merely achieveing the best compromise we can.

I'd underscore just two points. Chris mentioned seniority. That is every bit as important as a bond's rating, and perhaps even more so, for reasons well laid out in Barnhill's book. Also, realize that all bonds carry two sorts of ratings. The conventional ones of AAA, AA, etc. provided by the rating houses, and the rating provided by the market place itself, which is the price of the bond. When a bond rated investment grade is priced with a higher yield than its peers, then it isn't investment grade, or at least it no longer belongs in the same category as its peers and is a sure sign the rating houses haven't yet caught up to the facts. Trust the market's judgment.

Foo suggested that not every bond is held by every broker. It gets even worse than that. If you try to price a basket of bonds through several brokers, what I've found is that there is rarely a consistent pattern. Some will have the best deal on one bond. Some the best deal on another. Some have better commissions, but charge for redemptions. Etc.

Conclusion? In choosing a broker, bond pricing is only one factor and maybe not the most important one. Look at both the full service brokers and the discounters and then look at the whole picture and how it fits your unique needs.

Lastly, be aware of the phenomenon called "Paralysis by Analysis." ["The man who has two watches never knows what time it really is."]Yes, explore. Yes, try to learn all you can, but be aware that complete and perfect information, either doesn't exit, or is nearly worthless (as is well laid out in Justin Mamis' book: The Nature of Risk: the Stock Market and the Meanig of Life, not because it speaks to bonds directly, but because it deals so well with the topic of making investment decisions with imperfect information which is always the situation investors face: a clear historical record, a very murky future. So, you do the best job you can and move forward without regrets. Mistakes are going to happen. It's part of the learning process. It's part of life.

Charlie

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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4812 of 35365
Subject: Re: The Novice Date: 10/9/2002 7:03 PM
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Open,

Your local library isn't likely to have very many of the basic bond books, much less the titles I keep mentioning, BUT they can borrow anything published through ILL (Inter Library Loan). The cost for the service is free, or minimal, and these days most public libraries have an online catalog, so you can doing your searching and placing of holds from home.

There is a wealth of bond info on the web, but here is something familiar and comfortable about books as gateways to new knowledge that electronics will never be able to replace.

What the web is good for the facts that change quickly and frequently. What books offer is the overview that provides the context to interpret the specifics.

Charlie

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Author: opentolearn Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4813 of 35365
Subject: Re: The Novice Date: 10/9/2002 7:47 PM
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I want to thank all of you so much( foobar,Crosenfield,Charlie - and anyone else I may have forgotten.

I have printed out all your posts so I can digest them. I have to read this information several times, but there were great points therein. I appreciate Charlie's "Paralysis by Analysis" and I'm planning to act. One account is an IRA and the other a trust, I only want two more brokerage accounts at the most. I presently have Chas. Schwab for stocks, but was told either American Express or E Bay is better, or Merrill Lynch if I choose to go with a full brokerage company. I just want to get a little clearer before I start opening the account, as to what questions I have to ask (again your posts helped here)

I have bought treasuries direct. If I decided on Municipals, or Mortgage do I have to buy those from a broker. Also, my understanding is that bonds for IRA accounts can't be bought directly from the treasury - is that right.

Thanks again

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Author: imcharliehm Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4814 of 35365
Subject: Re: The Novice Date: 10/9/2002 10:53 PM
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Open,

Schwab is not the small-investor friendly broker they were even several years ago, due to declining revenues, due to declining trades volumes, and they gone fee-berzerk in an effort to drive away small accounts -- which they see as unprofitable-- in their new emphasis on catering to high-net-worth individuals. A month or so ago, in the same week, both Business Week and Barrons ran articles on Schwab, detailing the changes, and I know from an individual who works at Schwab corporate headquarters that the company is "betraying its original vision and mission and going to hell in a hand basket." [PM me if you want the source.] Consider moving any assets held there elsewhere. Even if you trade very infrequently, Interactive Brokers is hard to beat: 1 cent/share commissions, margin rates are Libor + 50 bps.

[Be forewarned, IB is an execution platform, not a investor supermarket. But if all you want is to get your trades done, they are excellent. I trade with them and have canceled the accounts I formerly had at Waterhouse, Schwab, Datek, Bidwell, and Scottrade, the last three of whom are actually decent brokers, just more expensive than I want to afford, now that I'm doing 100 plus trades/month, and I continue to use E*Trade exclusively for bonds.]

No, you can't transfer bonds bought through Treasury Direct into an IRA account, because only cash can be transfered in. {Anyone? correct me on this if I'm wrong.] Also I would question the wisdom of holding Treasuries in an IRA, because one of the huge attractions of Treasuries is their exemption from state taxes (in a lot of states.) What IRA's are really wonderful for is zero coupon bonds, because their tax-sheltered staus exempts one from annually computing and paying for the inferred interest. There aren't many corporate zeros available, and they tend to be long-dated, but they are worth grabbing when you can find some.

Munis I know nothing about, others will have to answer that question for you, and Chris is the resident CMO/mortgage-bond expert.

Charlie

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