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No. of Recommendations: 4
Now that bond prices (for the good stuff) have gone parabolic, I’m not shopping as hard as I did coming off the 2009 lows. But I’m still putting in screen time on a daily/weekly basis, running my scans, because that’s what a bond investor has to do. If you intend to invest in an asset-class (no matter whether it’s stocks, bonds, commodities, currencies, real estate, or whatever) , then you’ve gotta track what’s happening in that asset-class, and you’ve gotta know where prices are at, so that under-pricings can be bought and over-pricings can be shunned.

That’s just basic, classic, value investing as Ben Graham laid it out in his book, The Intelligent Investor. You buy what’s cheap, when it is cheap (which isn’t the same as when it is low-priced.) How do you know, for sure, which is which? Obviously, you don’t, and can’t, except in retrospect. So you weigh the evidence in the here and now, and then you size your position accordingly, which includes a zero-size (aka, backing away). Right now, for me at least, exercising caution through position-sizing that means dropping back to singles, instead of going five’s and ten’s.

Will I regret buying those singles down the road? If the market implodes later on, as I fully expect it will, then I will have been too early or wrong entirely. And even under a Goldilocks case of the market stumbling along sideways for the next 15-20 years (which is also a likely scenario, rather than crashing decisively in the next 1-3 years), I’m likely to suffer some damage from what I’m now buying. A sensible, defensible alternative would be to cease buying for now, to sit in cash, and to wait things out. But that’s not a choice that appeals to me temperamentally. I’d rather keep my seat at the table, my hand in the game, and bet small.

So I’ve been buying as things turn up that I think should be bought. Not a lot, since I pay attention to issuer and industry weighting. But I’ve been nibbling as prices drop for distressed issuers. My thinking is this. Not all of them are going to go under, and not all of the likely Chapter 11 workouts are going to be excessively punitive. So what matters is that across a basket of risks, profits exceed losses. That's the game. Be willing to lose a battle or two, so as to win the war. What is the war? The appreciation of purchasing-power, and its two known enemies are taxes and inflation, both of which are going to go up. Therefore, risk has to be accepted, and I'd rather do it one day at a time on my terms. So I shop daily, buying what I can justify and side-stepping what I can't.

Charlie
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