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You ask thoughtful questions. Let me make a quick reply right now, and tomorrow I’ll make others using a different tactics, because answers aren’t easy or obvious.

YTD, I’ve initiated 42 new bond positions, 33 of which were the debt of publicly-traded companies. If I had bought the common the same day, what would have been my results?

Methodology: I froze the holding period as of last Thurdsay’s close. The price data from Yahoo was unadjusted for dividends. I made assumption that divs and coupons would be equal and discarded them. I substituted BRK-B for Geico, and Dow for Union Carbide. And I’m sure my data contain errors.

Question: “How good would I have done as a stock-picker on the basis of just cap gains?”

Rather than present an item-by-item spreadsheet, let me just summarize the results. At an average price of 67.461, I bought $42k face of mainly invest-grade bonds, with an average CY of 8.9%, and average YTM of 12.9%, and an average, current, cap gain of 13.9%.

With the same money I could have bought $28,334 of stock that would have an average, current, cap gain of 9.6%. That’s not shabby. But it sucks compared to my bond picking.

The downside of the bond cap gains is that they would be hard to capture. At best, I might get 90-95% of them. The upside to the stock gains is that I could hit the bid and be out of the positions as fast as I could write the orders. At worst, the gains would be 98-99% realizable.

Now comes the hard part. I need to go back and figure out what the div rate for each stock is and project a price growth rate over a suitable holding period. My suspicion, based on past tests of this sort, is that on a total-gains basis, stocks will outperform the bonds by 3x-4x and be about 3x-4x as volatile (which is a simplistic way to define/measure risk, but it’s a common and workable method.)

Bottom line? In part, I know what I’m doing as a bond picker, and in part, any idiot throwing darts could have made good-enough money in stocks or bonds from January until now. So benchmarking one versus another in this time frame is mostly meaningless. Where the rubber will meet the road is in the coming months. If markets roll over, as they are signaling they’re going to do, I’ll get dinged, but the stockholders will get whacked hard. So that’s the appeal to me of bonds. They are less fragile than stocks, and the money is decent enough.

Yes, inflation is a problem whose overcoming, it is argued, is more easily done with equities than bonds. But I’ve also seen counter-arguments that I’ll have to track down. Also, tomorrow, I dig through the bond offering lists and do some more back-testing. My feeling is that on a risk-to-risk basis, stocks cannot –-on average-- out-perform bonds. The arbs would be all over that one before it could even happen. At the retail level, however, the story is very different. Yes, stocks will “out-perform” bonds because greater volatility is tolerated, and because synthetic contracts aren’t created from the bonds and rolled, so as to provide a fair basis of comparison.

You’re asking thoughtful question I need to deal with for my own investing. Thanks, Charlie
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