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Strategies & Market Trends : Value Investing
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To: Madharry who wrote (9765)1/28/2000 5:16:00 PM
From: Allen Furlan  Read Replies (1) of 78748
 
Armin, re asset allocations. I am putting some money into convertible bonds with superior yields to maturity. Last purchase was Alterra Health (ali.a) at 61 with 5.25 coupon and maturing Dec 2002. Yield to maturity is over 25% if company does not go belly up. The debt to equity is about 4/1 making this very risky. However I believe the company will stay solvent and that the return is worth the risk. Convertible bonds quite often reach very high levels relative to face value because of the convertibility factor and the arbitrage players buy the bonds and sell the stock. When the stock collapses, a la ali and may reits and health care companies, the bonds get dumped so that the short stock positions can be closed.
This is one reason that convertibles can trade lower prices than comparable junk bonds. If others on the thread are familiar with other reasons for "cheap" convertibles I would be interested in learning more. In any case there are many opportunities to earn a good return while waiting for this market to shake out.
Another way to hedge your bets is to play the arbitrage games. I wish that some of the other excellent posters on this thread would visit Mikes arbitrage thread. We could use some more expert opinions. Right now I think ctz might offer the best opportunity.
P.S. Madgf is now my biggest holding but unfortunately I have been selling leaps along the way(5,10 and 15 strike) I am nervous now that madge may collapse if the momentum bubble finally breaks.
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