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Very nice post!

Jim,

It’s your post that was “nice”, because it provokes engagement. (Most of what I write does the opposite. It annoys people for stepping on the toes of their favorite --but unprovable— beliefs, the latest of which is this stocks vs. bonds thingy.)

How to do proper due diligence is no different with bonds than stocks. Two methods suggest themselves: a fundamental approach or a technical approach, and the stock guys lead the way in both. But a bond guy can borrow their methods and do quite well for himself. The “safe-investing” crowd resents such encroachments on what they perceive to be their turf. But what they do isn’t very safe when all risks are considered, instead of just their short-sighted, single one of default-risk. So their protest should be ignored.

You write: One thing I wanted to mention in passing---it's very fair and true to point out that the choice between equities and bonds is very much a choice between risk and reward. But, I wanted to point out that this is not a universal rule--within the equity world, unknown to most folks, the nitwits who conflate volatility with risk and who expect higher volatility correlated with higher reward have it backwards. Higher volatility stocks have lower average returns than lower volatility stocks, fairly steadily and by a wide margin decade after decade, and the EMH/CAPM religion folks keep believing otherwise. Amazing!

The EMH/MPT/CAPM folks show up in the bond world, too, where they fail to understand the implications of the fact that investment returns don’t distribute normally. Due to their epistemological arrogance (aka, their mistaken belief they can project investment returns and inflation rates with minute precisions), they under-estimate they risks they accept. But their likely old-age poverty is their problem, not mine.

Charlie
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