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No. of Recommendations: 4
By and large, I’m a buy-and-hold investor, both by temperament, and because that’s what generally makes the best sense with bonds where wide spreads and abusive commissions hugely punish selling. But, sometimes, the selling should be done, perhaps to capture windfall profits and, for sure, to clean up one’s inevitable mistakes (as they belatedly reveal themselves).

For nearly a month now, I’ve been trying to get rid of five of a long-dated, A1/BBB issue I had bought this Spring whose nominal YTM was a reasonable 6.8% (by one method, 5.9% by another) but whose inflation-adjusted YTM (as I was now calculating my YTMs) was causing me a projected loss of -1.0% per year. So the issue had to go. The mistake had to be fixed. But either the bond wasn’t bid, or I was being low-balled by the underlying desks. This morning, however, there was a two-side market for the bond, and the ASK had jumped to 68 from a previous 62. “Maybe, just maybe”, I thought, “I can get out”. So I put the bond out for bid again.

Predictably, I got low-balled at 59 (on ten passes and just one bid). But since the standing bid for several weeks now has been 57.5x45, that was an improvement, and it was close enough to my entry price of 60.200 that I decided to accept. Eventually, the trade confirmation came through. To my surprise, I had been executed at 59.5, letting me get out without a nominal-loss on the trade due to the 1.5 points in coupons received over my 0.45-year holding-period, which offset the -0.9 point loss on principal (when commish is subtracted in each direction). In other words, it was a scratch trade. I had made a mistake, and I was able to get it fixed without undue cost, thanks to E*Trade's assist. (And, yeah, I could have held on longer and hoped for an even higher price. But that wasn't an uncertainty I was willing to accept. A clean-enough exit had presented itself, and I grabbed it.)

Then I rotated the cash into an issuer I had never seen in the offering-lists but with one-sixth the maturity and nearly double the yield. Also, I picked up a couple singles of issues I didn’t already own, one whose minimum purchase-size has always been five (which was more than I wanted) and one that I had never seen in the offering-lists before and that, also, I wasn't willing to go five for. So, with three buys and one sell, it was a busy, productive morning, made a bit sweeter by E*Trade’s assist on price.

Your own experience of E*Trade might not be the same as mine, and I have no idea how they are for stocks, funds, ETFS, options, and whatever else they market. But, consistently, for the past three years across over 120 bond trades (buy-side, sell-side, and re-orgs), they have treated me right, and I wouldn’t hesitate to recommend them.

Charlie
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