Bonds Aren’t So Bad.

While I definitely prefer stocks over bonds, I do believe the long-term investor should have some exposure to fixed income securities. The same analysis I use for picking stocks (5 (minimum) year trend analysis using several KPIs unique to the particular debt issuer’s sector) I use for selecting bonds.

In addition to the likelihood of lower returns from traditional fixed income investing (lower risk = lower returns), a key point to note when investing in bonds is that two brokers could offer the same exact bond at vastly different prices. The reason for this situation is that unlike stocks which trade on organized exchanges i.e NYSE, LSE etc., bonds are traded over-the-counter based on brokers’ inventory of the particular bond. It is in the investor’s best interest to get quotes from more than one broker to increase the likelihood of getting the best price (i.e. lowest offer when buying, highest bid when selling).

In addition to strong financials and a solid business model, I prefer bonds that trade below PAR and are non-callable prior to maturity. And similar to my take on equity investing, I tend to avoid technology and other rapidly-changing industries.

What particular sectors / issuers are you looking at?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s