No. of Recommendations: 2
rk,

I haven't looked in a while but CEF's often are pretty tight for profit taking. In other words it is tough to catch the good ones at a good price.

Do you think that 'we' could outperform the pros. if we restricted ourselves to only 'true' AA and AAA bonds?

um, maybe. First this is a pretty tight range and here's the rub, some firms are worthy of AA but are not rated that way; so these can occasionally be bought for a decent price. The flip side can be true, there are companies that carry AA rating but don't currently deserve it; we can pay too much for these. And then there is the bouncing company; An AA company downgraded to A or less and then bounces back up, we can catch these for a decent price if we are careful.

Most importantly, and this is where we can make or lose money, not all equally rated companies are equal. Within any band of grades there are companies that belong and companies that are marginal. Figuring out who is who is vital.

I use a pretty fundamental approach for both stocks and bonds which often leads me to firms the big players are avoiding, at least today. I like shopping on the various disfavored lists. Honestly I chuckle half the time I see downgrades or bottom tier ratings for good companies. Schwab uses a A - F scale, good companies can often be found in C - F and since the market isn't pleased with them at the moment bargains can be found. This works for both stocks and bonds.

Take CAT for instance, their stock price hasn't been this low in a long long time. They are going to benefit from Auto's big three renegotiating with UAW and suppliers. They are usually considered best of breed in their industry. True, construction is going to be off for a bit, which is why they can be had for a decent price. In the near term the dividend will do. For a brief period some of their bonds went on sale, I don't know how they are priced now.

Clear as mud?

jack
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