No. of Recommendations: 1
We should not say all portfolios/investors must buy "both premium and discount" That may under certain circumstances negate a proper balance between risk and reward some investors seek!

Kelly,

I was very careful, this time, to preface my post with the caveat that "there as many ways of doing bond-investing as there are bond-investors." But you shouldn't infer from my disclaimer that all methods have equal efficacy. What are the benefits (and consequences) of never buying at a premium? What are the benefits (and consequences) of rejecting that constraint? That's a theoretical question and nearly unanswerable. So let me make this challenge to you who seems to advocate avoiding premiums. Post your bond positions, for all the world to see, and I'll do the same, and let others determine for themselves who has achieved:

(1) The better absolute returns.
(2) The better risk-adjusted returns.

My bet is this. Anyone who has done the equivalent of tie one hand behind his (her) their back as he/she scours the offering-lists will lose the fight. Why? Because it is nearly impossible to make money --as opposed to merely parking money at knowable and predictable rates of loss, once taxes are paid and inflation is subtracted-- -- by investing in bonds, and anyone who places artificial constants on themselves has forfeited a significant, investing edge.

Post your positions, and I'll do the same, not to prove who is the better investor but which is the better method.

Again, least there be any misunderstanding. I HATE to pay premiums, but even more so, I HATE not to making the best investment I can. If that means paying a premium to par to buy a bond, I do so, because I understand how those premiums come to be created and how they can be managed when they can't be avoided.

"Method", Kelly. "Method." Defend the method with actual examples of buying bonds.

Charlie
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