Build a bond book
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[quote=rankstocks]
Whenever something happens that is so uncharacteristically illogical, it’s time to back the truck up and BUY! It amazes me that many investment professionals are frozen by the same fear as their clients.
[/quote]Indeed. But that is what creates opportunity for those who are willing to step up. I think it was Bernard Baruch who said "the time to buy is when the blood is running in the streets."
Two times in particular that I remember in my career: My (former)partner and I made a mint buying Denver Airport bonds when they were having problems with the advanced baggage handling system after the airport first opened. I also remember buying American Airlines shares at the open on September 17, 2001 as I sat at my desk fighting back tears. We bought them for all of our discretionary accounts, and made a very fast and significant profits.
We have been through trying times before, people, and survived…even thrived. Doo what your clients pay you to do…summon up your courage and seek opportunity, and share your ideas.
so that is why PM 2018 bonds paying roughly 5.6 were trading at 83 or so yesterday?
[quote=theironhorse]so that is why PM 2018 bonds paying roughly 5.6 were trading at 83 or so yesterday?[/quote]
Perhaps you should be a little more specific than the cryptic term “pm bonds”. Maybe I’m just dense, but I have no earthly idea what you’re saying.
PM, you know, Philip Morris International. Anyway, just a quick question/observation.
HR, I made a mint the Denver airports too. Remember critics saying they would never open that airport? Yeah let’s see, Denver just spent a billion plus to build it and now they’re gonna just plow it under! Yeah, that’ll work. Great buy -thanks for the memory!
As for PM bonds i don't follow them but all corps are in a price dislocation mode as well. High yield corps are what, 1100bp over treasuries? In past markets you buy high yield at T+600BP and then sell at +300beeps. A nice tidy move where you get paid while you wait. Right now selected high yield paper is a good buy. +1 Rankstocks- it does seem many advisors are as afraid as their clients. The entire market is on sale. The volitility is a bottoming sign not a momentum sign. Now is the time to buy.[quote=BondGuy]HR, I made a mint the Denver airports too. Remember critics saying they would never open that airport? Yeah let’s see, Denver just spent a billion plus to build it and now they’re gonna just plow it under! Yeah, that’ll work. Great buy -thanks for the memory!
As for PM bonds i don't follow them but all corps are in a price dislocation mode as well. High yield corps are what, 1100bp over treasuries? In past markets you buy high yield at T+600BP and then sell at +300beeps. A nice tidy move where you get paid while you wait. Right now selected high yield paper is a good buy. +1 Rankstocks- it does seem many advisors are as afraid as their clients. The entire market is on sale. The volitility is a bottoming sign not a momentum sign. Now is the time to buy. [/quote]Indeed...unless you can make a case that you(and others) believe as regards apocolyptic defaults, it looks like now is the time to act. While I tend to be an equity-oriented guy, the nice thing about fishing in the fixed income markets right now is that even if you're a little off on the timing you'll still get a handsome income stream whilst you wait for spreads to tighten and rationality to return.
Couple Bond Questions:
Can anyone tell me what it means when a muni bond says "special events call"? I'm assuming it means that the bond can be called under certain conditions but I'm not really sure. Also, when a bond has a sinking fund (2015 @ 100) for a bond with final maturity of 2025 how do I know when I'm getting my money back? Anything that I should be looking for when searching for a good bond now? In the past I've sold individual bonds at premiums. Basically they were good bonds but look like S--T on the client's statement due to amortization of the premuim (shows as unrealized loss). The client's can't understand bond pricing and I find it difficult to explain to Mr. Client that he's making money on a premium bond. Accordingly I've been looking for bonds priced at par or below. Last question: How big should an account be before you use individual bonds vs a bond fund? I've been primarily using funds and would like to do more individual bond business. I'm considering using fee based accounts so I can buy smaller positions but the feeling on this site is that it's ripping off the client. Comment: I heard about the AGE/WB new payout formula. It appears that breakeven vs the old grid is $260,000 (not including incentives). It appears fair to me. Just an FYI [quote=Herman Munster]How big should an account be before you use individual bonds vs a bond fund? I’ve been primarily using funds and would like to do more individual bond business. [/quote]
More important than simply how big an account should be is the question of knowing enough about whatever you would be recommending to make informed recommendations. Based on your brief comments on bonds, it certainly sounds like using funds might best serve your clients.
The fact that some here might "feel" it is a ripoff to charge fees, or even if most "felt" that way, is merely a matter of opinion. Some swear by fees, some swear at them. Yet there are many examples of successful FAs who fall into both categories, just as there are numerous examples of happy clients who insist on one approach or another.
Those who argue this issue as if it is a matter of ethics are tilting at windmills. Charging a fee does not make one suddenly ethical or unethical, nor does charging a commission. Only our actions determine that, and our actions are determined by our character (or lack thereof), not by how we are paid.
The bottom line is we all provide some sort of service for which we need to be compensated, or we will not be around long. The fact that some charge a fee while others a commission is overblown. Provide value and the rest will take care of itself.
The issue isn't whether some favor one business model or another. The issue is which business model best fits you and your philosophy. Evaluate the pros and cons of each, make a decision, and follow through.