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No. of Recommendations: 2

You wrote, I discovered that the conventional assumptions underlying how inflation-adjusted bond-yields should be calculated over-estimate returns. So I wrote my own formulas. With this tool set, I can do equivalences between any bond type, point to most efficient buy, and then switch over to vetting it fundamentally. If it passes those further tests, I execute. Otherwise, I back away and look at the next candidate.

I have a spreadsheet of preferreds I do something similar to. I started accounting for tax effects about a year ago in that sheet. That lets me sort by after-tax YTM or pre-tax YTM depending on what account I'm buying in. (I also show Current Yield, after-tax Current Yield, YTW and after-tax YTW.)

I don't bother to project inflation though. I do understand what you're saying about inflation, but I figure I need to search for the best yields I can find without concern for inflation since it's not a variable I can control outside of some hedging I might be able to do in anticipation of rising (or falling) rates.

You seem to be saying that even assuming a constant rate of inflation, longer-dated maturities are more severely impacted by that inflation than shorter-dated maturities with the same YTM. (BTW, I would always prefer a shorter-dated security, if it has the same YTM, but once I'm looking at more than 10 years, I don't need a very big bump in yield to push me to 20 years.) Intuitively your conclusion would only seem true if you're loosing money (in real dollars) on the deal regardless of the maturity.

So even if you think you have some genius proprietary mathematical magic that shows the result you're espousing, I'm not buying it unless I can see and analyze the math...

- Joel
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