Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Bonnie Bear who wrote (488)	7/9/1998 10:20:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

I don't follow bonds, straight or convertible. I would want to know if these CEF's are senior securities, or if they they are subordinate. If the latter, they basically offer no more protection than the common in the event of a reorganization. Needless to say, convertibles have the most upside potential if there is a strong upward price movement in the stock into which they are convertible. Also, is there call protection? If not, it's often a case of heads the issuer wins -- tails the bondholder loses.

To: Bonnie Bear who wrote (488)	7/10/1998 3:37:00 AM
From: Berney	Respond to of 1722

Bonnie, Re: "Convertible Bonds" Let me jump in on your question. The nature of "bonds", by definition, suggests that they are in the fixed income category of one's asset allocation formulae. I've studied and analyzed the various categories of investments to see how the mutual funds perform against the various indices. In the fixed income area, I utilize the LB aggregate for the composite index. Over 1, 3, 5, 10, and 15-year periods, the convertible bonds are the second best performing category in fixed income investments. I believe that this is one of the few areas that a good mutual fund manager can add value to an investor's portfolio decisions. Of the mutual funds in this area (the last time I updated the decision table), 97% beat the Index. Hard to get better performance from an investment category. But then, I'm always guided by the fact that the Past is indicative of the future. Of course, all the mutual funds reflect that "past performance is no guaranty of future results". "Prey" tell then, what is? My philosophy is that: The jungle awards the cunning a bounty of the foolish unaware (think about it). History tells us that if you really want to realize sub-par investment performance on your fixed income investments, invest in anything with government associated with the category. BTW, your REIT's will also beat 97% of the fixed income group as will utilities. But if you try to treat them as the equities that seem to be, your approach (based on historical performance against the S&P) will be close to a zero probability. BWDIK and all other disclaimers. FWIW, Just my contribution. Also look at high yield funds (AKA junk bonds). But, alas, don't forget that these are fixed income, not equity investments. Porc, correct me if I'm wrong, but BG stated in the IG that one should allocate their investments to the fixed income and equity markets based on a 25/75 ratio. That is, never have more than 75% or less than 25% in the allocation formulae based on one's individual perspective of whether the Wizard is really behind the curtain and can get us back to Kansas. As I have analyzed portfolios and portfolio performance over the last few years, it has been this basic decision as to whether the portfolio has had any chance to out-perform Mr. Market. As much as the investment "tests" stress the suitability requirement, I've long ago given up on expecting folks to have any understanding of whether an investment is suitable to their needs. They just want it to go up! Go YHOO! To essentially answer Axel's question, you need to achieve real economic growth (which I define to mean after taxes and after inflation). Isn't this the essential question: If we are willing to sacrifice a dollar in purchasing power today, we need to achieve more than a dollar tomorrow. Okay, let's assume a 5% fixed income return. The tax issue is real easy to solve. Based on my experience, most middle to upper-middle class investors are in a 35% combined federal/state tax bracket. So, our fixed income investment satisfies our basic criteria if we assume that "our" inflation rate is less than 3.3%. This is the essential issue involved in the Depression Children (as I call them). Many of them have no housing cost (except real estate taxes). They have no clothing costs, as what fit yesterday still fits today. In addition, they recognize that their metabolism has slowed down and they don't eat as much. How could the baby-boomers with their $2K a month mortgages even comprehend? FWIW, when I push the question, which I do not as much any more, I find that the investors really rebel. The Depression Children are happy with their CD's and the Baby-Boomers have no clue. When I look at and analyze the issue, I get an inflation rate of about 7%. But, I'm ignorant enough not to believe the CPI numbers and look at the ratio of gov't receipts to expenditures. As I'm constantly preaching, just look up the definition of inflation in your dictionary. Again, BWDIK. Berney