No. of Recommendations: 3
Hawk,

You're doing all the right things. You'll be a winner. It's just a shame this isn't 15-20 years ago when bond investing was easy and the money fat.

The downside of IB is their data subscription fees. Be careful you only sign up what what you really need. OTOH, one of the good things about IB is there's plenty of third-party apps written to their API. E.g. Bracket Trader and ZeroLine Trader, both of which do have free versions that have a "sim" mode. That means you can paper-trade the futures contracts on the 10-year and the long bond, as well as equity indexes like ES, NQ, and YM.

Again, a refresher. There is no "bond market", nor do most brokers carry much in-house inventory. There are just networks of underlying desk whom they re-quote from and execute trades on behalf of. Thus, if Schwab, Fido (whomever) is quoting a specific lot of bonds, at a specific price and minimum-purchase amount, IB likely will be, too. However, sometimes, by shopping around it's possible to get a smaller min at IB than elsewhere and, sometimes, the opposite is the case.

What I would suggest, though, is never, ever buy less than two bonds. A single is almost never marketable if you want to sell or to accept a tender. Exceptions? Sure. Odd-lots are often deeply discounted. If the issuer is a high-quality credit you wouldn't mind holding to maturity, then pick it up, and park it. But if it is anything you might need to get out of down the road, buy at least two.

Lastly, all investing books talk about the need and virtue of "diversification" as a means of reducing 'risk', which is total bullsh*t. When markets are under stress, correlations go to 1.0. Therefore, from the getgo, only buy what offers a favorable reward/risk ratio and size your positions properly with respect to your account size, which requires a word of explanation.

Conventional wisdom is that $50k is needed if one wants to buy their own individual bonds and achieve "proper diversification". Again, nonsense, because there's no requirement that the position-sizing can't be done diachronically (which is a topic and post for another time).

Basically, bond investing is just value investing, about which Graham makes this point. If you over-pay for a top-tier credit, you've bought junk. If you buy "junk" for pennies on the dollar and the issue has a reasonable chance of paying off, you've made a high-quality investment. So shop carefully, and bargain shrewdly.

Arindam
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