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No. of Recommendations: 5
I walked a friend through buying his first T-Bill today, and I was somewhat nonplused at his underwhelmedness, given that this was the culmination of a year's worth of effort.

First, I had to get him interested in doing online investing in the first place, instead of ignoring the whole thing as he had been doing all his life. That was several months of gentle but persistent badgering and nagging. Then I spent umpteen hours rebuilding his in-the-closet, hand-me-down piece of junk of a computer and getting it running stable and secure. Next, came setting him up with a cheap but reliable ISP and walking him through the process of getting on and off line, doing e-mail, basic searches, handling folders and files. Then came doing things like comparatives at BankRate to let him see what was available compared to his local bank, showing him what brokrage accounts lloked like, etc., and then the setting up his own online banking and opening a TreasuryDirect account.

But, today, he did his first buy. The plan is to build a 4-week ladder as an emergency fund. Then, as more cash becomes available, to double or triple the rungs. Then, as confidence grows, to start lengthening maturities, or, possibly, to start looking for some serious money. But that's not a step I'll push. If he does no more than become an efficient Saver, able to surf the short end of the yield curve, that will be accomplishment enough.

Like a lot of beginners, he doesn't quite trust what I'm telling him about how to make money with money and, especially, that risk can't be avoided, that it can only be managed. So he's been asking friends what he should do, and, like a beginner, not quite understanding what he's hearing from them as they offer opinions. Fortunately, he hasn't yet been given bad advice or heard anything that contradicts what I'm telling him. (Unfortunately, he's not a reader. I tried that route with him, and it didn't fly. So the program is: “See one. Do one. Teach one”.)

If I can keep him out of trouble until he's comfortable with the process of evaluating basic financial opportunities and acting on them in a timely fashion, then he'll be more than able to find his own path from there quite nicely. But, Wow! It's been a long journey, with a long ways still to go.

Charlie

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If I can keep him out of trouble until he's comfortable with the process of evaluating basic financial opportunities and acting on them in a timely fashion, then he'll be more than able to find his own path from there quite nicely. But, Wow! It's been a long journey, with a long ways still to go.

Charlie


Good for you!

I've got a lot of friends I'd like to have get financially savvy. I worry about them.

Vickifool
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Golly, you are patient!

Now, if I could only get you to walk me, step-by-step, through your analysis process for bonds...

Wendy
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Now, if I could only get you to walk me, step-by-step, through your analysis process for bonds...

Wendy,

How I do bond investing is both unique to me (as investing has to be unique to each person) and a changing process (due to changed understandings of the process and the need to adapt to a constantly changing market). To the extent that I can, I lay out how I do what I do. The bits and pieces are scattered in posts (and in e-mails to friends) that go back many years. But all of it can be summarized as follows:

"Price your risks, and size your positions, properly." (All else is merely commentary.)

But if you do want (or need) a more algorithmic approach (or a less game-theoretic one than I use), then borrow the techniques that a good fundamentalist stock analyst uses and apply them to bonds, of whom the best exemplar is Marty Whitman. Get a hold of his book, "The Aggressive Conservative Investor", and work your way through that if you want to be see framework within which good bond analysis can be done. As for seeing some of that analysis in action, read his quarterly reports or those published by other deep-value investors as the Oakmark group. They'll be taking about the underlying company from the viewpoint of stock investing. But a bond investor shares their concerns and needs their facility with sleuthing financial statements. (I.e., the story behind the numbers, not merely the numbers themselves.) So, paradoxically, there can be no algorithm, no “step-by-step” process that isn't, ultimately, based on “informed judgement”, or “hunches” if you will, that come from experience. Yeah, some really impressive work has been done with mechanizing credit analysis. But the expertise and needed resources are likely to be beyond all but the most driven of investors. Bond investing, for the “average investor”, is going to be a very low-tech, labor-intensive, “one-off” process who chief tools are a good reading lamp, a sharp pencil, and a skeptical disposition.

But, above all, keep this is mind. You work very hard at this investing stuff and are likely already adequately successful. When is “good-enough”, good enough and time to get on to other, more important things? Life is too short to spend it grubbing for money. Excellence for its own sake? That I understand and applaud. But “better” for the sake of getting “more”? Nah, that's a dead end.

How much is “Enough”? Answer that question for yourself, and lots of other things might fall into place, and what you've already accomplished might look pretty good.

Charlie
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I've got a lot of friends I'd like to have get financially savvy. I worry about them.

Vicki,

All of us worry about such friends. But at bottom, our worry is really for ourselves, which isn't a bad thing. They are part of our world, and we are a part of theirs. So, to the extent that they are financially self-sufficient is the extent to which we won't be bailing them out with resources we need for ourselves. The government thinks it can endlessly borrow from the future. But real people have to pay their bills in the here-and-now with present-day money. So, to the extent that I can help a few friends and family gain an edge in the money game and help them gain the understanding of how to get themselves to the plus side of balancing ends and means is the extent to which I'm merely protecting my own self-interests.

Also, every bond investor I can grow is one more person in the audience that Wall Street has to pay attention to with something other than their generic program of “stocks for everyone, all of the time.” Stock investors have clout because there are so many of them. The day that us bond investors are as numerous is the day we, too, will enjoy the lower fees, easier access to data, etc., that stock investors already enjoy. So, again, I'm only looking out for my own interests.

Lastly, as Loki would confirm, if you want to learn something, then try to teach it. The diversity of learning styles and learning paces confronting you can be a hugely frustrating thing to deal with. But the enforced recognition that there is no one right way to do any of this stuff – and the enforced acknowledgement of our common humanity-- offers a priceless payoff in terms of gaining flexibility and adaptability. Trying to teach someone what you know underscores just how little you know and underscores how wonderfully engaging and engrossing the investing/trading game can be once the awkwardness of the unfamiliar is overcome. Not all people will come to share one's own enthusiasms. But the seeds planted, the sparks ignited, might grow. All of us in our investing paths had help along the way. To share one's experience by teaching others is to thank the people who taught us.

Charlie
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Lastly, as Loki would confirm, if you want to learn something, then try to teach it.

I'll go a step further. Teach it to a 10 year-old. Probably most 8 year-olds. Anyone can explain their area of expertise to fellow experts. 10 year-olds have the intellectual skills to learn what really matters about any topic, but most experts don't understand their own expertise at a fundamental enough level to explain it to the uninitiated.
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Permit me to say that you're a real mensch. Pleased to meet you.

--Fungi
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Permit me to say that you're a real mensch. Pleased to meet you.

Fungi,

Praise from a tri-geek? It's me who is honored to meet you. (I'm not one, but my son does the sport. You guys are awesome.)

Charlie
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