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Author: howardgt One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35392  
Subject: Re: What is Your "C" List (C - Caa1) ? Date: 4/15/2011 11:51 AM
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YTM,

I was a mouse click away from buying a ton of short term Unisys notes a year and a half ago or so for under 20 cents on the dollar. I ended up not going through with it;

Yeah, all us investors have our old memories of the “fish that got away”. What I do now is, if I’m interested in a low priced bond, I just buy a small starter position and then take my time to research and follow the company. I gradually add if things seem to be going well. Bond commissions are not significant if one holds to maturity (which is my intention). I try to ensure that I’m highly diversified, so even if the bond takes off before I can accumulate a full position, I’m quite happy to have one more additional diversifier in the portfolio.

There is nothing better than double digits yields and giving yourself a nice big cushion to ride out your positions.

Yeah again… that is why I only buy the high yielding stuff (junk). I’m even more interested in CY, because the coupon payments reduce my cost if the bond defaults down the road. When you get 10 to 20% CY payouts, and you buy at a good discount, it doesn’t take too long before the cost of the bond is low enough to protect against significant losses in the case of default.

One other tidbit worth noting for my own preferences, is there is a distinct synergy or balance between credit quality vs. time frame til redemption.

This is another reason I prefer junk. The issues tend to have lower duration and consequently lower interest-rate risk in favor of credit risk. Interest-rate risk is NOT something I want now!


But all that said, I think the bull market in junk bonds is over… The days of capital gains are mostly gone... Now I just try and buy my positions for their good yields and hope to get my money back at maturity. It sure beats earning 1% in a MM account.

Howard
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