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Nov 1, 2005 3:14 am

It's not like you have to dump grandma's entire savings in GM bonds either...D-I-V-E-R-S-I-F-I-C-A-T-I-O-N!!!

...and to think someone actually thinks the COMMON STOCK of GM is worth $27.40 per share!!!  What a bunch of crazy speculators!!!

I'm using short-term GM paper (two years or less) for up to 10% of my clients' bond portfolios...all investing involves some degree of risk...explain it and let the client decide...

Nov 1, 2005 7:55 pm

[quote=Indyone]

It's not like you have to dump grandma's entire savings in GM bonds either...D-I-V-E-R-S-I-F-I-C-A-T-I-O-N!!!

...and to think someone actually thinks the COMMON STOCK of GM is worth $27.40 per share!!!  What a bunch of crazy speculators!!!

I'm using short-term GM paper (two years or less) for up to 10% of my clients' bond portfolios...all investing involves some degree of risk...explain it and let the client decide...

[/quote]

Moody downgraded GM again. Liquidity assured through end of 07, GMAC on the block and not part of downgrade, all the usual suspects as to reasoning for downgrade.

GM at B1, has the final shoe dropped? I'm still buying short GMAC paper to add value.

Nov 2, 2005 1:06 am

A viable GM still around in 2 years? I don't know. They've suffered multiple downgrades within the last few months. I'd say things are deteriorating fairly rapidly for GM.

Diversification? There are plenty of junk bonds paying a high rate of interest from companies that are small, but whose financial future is on the upswing. Contrast those with GM's situation.

Investing in anything that starts with "GM" is like picking from a carcass that's still twitching.

Nov 2, 2005 3:10 pm

[quote=doberman]

A viable GM still around in 2 years? I don't know. They've suffered multiple downgrades within the last few months. I'd say things are deteriorating fairly rapidly for GM.

Diversification? There are plenty of junk bonds paying a high rate of interest from companies that are small, but whose financial future is on the upswing. Contrast those with GM's situation.[/quote]

Really, how about some names?

Offering AAA rated investments,CDs and cookie cutter asset management doesn't add value. Which explains why there is so much pressure on fees. Doberman, I'm not addressing this to you directly, but the inability to think out of the box to bring value to clients is going to cause fees to get squeezed to zero. Which is what much of the advise being offered these days is worth. Experienced advisors who use that experience to add value can step beyond the "me too" mold governing most firms these days. Brokers doing research, like the old days, to fully understand a situation is a lost art. However, those who use that research to make a carefully crafted recommendations can not only justify their fee, but add real value to client portfolios.

GMAC is an example of this. The majority opinion to stay away from GM is what creates the opportunity for those of who are comforable with our decision to own the bonds and offer them to clients who understand what they're buying. The bonds mature or are sold at a profit, which we've already done in many cases, and value is added. Meanwhile down at cookie cutter investments the clients are scratching their heads trying to figure out why they're paying a fee for flat performance year to date to an advisor who answers that on a risk adjusted basis they're ahead of their peer group and bench mark index. HUH?

I

Nov 3, 2005 1:25 am

Investing in GM is not what I would call "adding" value to a client's portfolio. And just because the "majority" say to avoid GM, you're going to buy it because you see that (in itself), as an opportunity? Sometimes, the majority is right.

I think you'll find that most of the affluent are more concerned with preserving their wealth, than growing it. By "preserving", I mean saving it from the ravages of taxes, inflation, and excessive investment fees. I choose to preserve my clients' wealth by looking for opportunities in quality investments and/or investing with money managers who do the same.

Brokers who shoot for high investment returns, regardless of the risk borne by their clients' portfolios, will experience 1999 all over again.

Nov 3, 2005 2:53 pm

[quote=doberman]

Investing in GM is not what I would call "adding" value to a client's portfolio. And just because the "majority" say to avoid GM, you're going to buy it because you see that (in itself), as an opportunity? Sometimes, the majority is right.

That isn't what I said, and you know that. The majority lumping all of GM together, long term, short term GM ,GMAC, is the mistake that the majority is making. And with that mistake the baby gets thrown out with the bath water. The talking heads are trying to make a case for bankruptcy, while many wall street analysts are projecting profitability for GM as early as next year. Personally, I think earnings visability isn't clear enough to make that call. The street is spilt on sell-buy/hold recommendations for GM's stock. Our own analysis shows no liquidity problems at GMAC for as long as our yard stick extends. Now, with all the negative press churned up by the 24 hour news cycle combined with well meaning advisors like you who are telling their client not to touch it with a ten foot pole the price of these bonds has been driven into the ground. Two year GMAC paper yields more than 30 year investment grade paper. That's over done. Which is also a typical market trait. For like minded clients who understand this scenario this is an opportunity to add value.

I think you'll find that most of the affluent are more concerned with preserving their wealth, than growing it. By "preserving", I mean saving it from the ravages of taxes, inflation, and excessive investment fees. I choose to preserve my clients' wealth by looking for opportunities in quality investments and/or investing with money managers who do the same.

You're absolutely right but yawn: Broker interviewee 143, what have you got? If you don't show them something different, you're just another heffer in the herd. "Me too" is the battle cry of the mediocre. Again, not directed at you.

Brokers who shoot for high investment returns, regardless of the risk borne by their clients' portfolios, will experience 1999 all over again.

Agree and disagree. Isn't opportunity finding discrepancies in the market and exploiting them? Isn't the misappropriation of risk one of those discrepancies? Kinda like when Delta airlines has a bad quarter and Southwest Airlines stock gets whacked because of it. Fixed income is one of the best areas of the market to find these opportunities. Whether it's loading up on MBS in a 1994 bond market meltdown, taking advantage of the rating lag from Moody's and S&P, or buying bonds in a stubbed toe situation, understanding what the market doesn't is what adds value. Sure there is risk involved. We could be wrong. It just doesn't stop us from making the investment.

There is a mutual fund that I use from time to time that is managed using this philosophy. It's the Rochester National Municipal Fund. It's also managed to maximize income so it's suffered somewhat in the last month or so, but check it out. You'll find that those of us who do this are not dice throwing fools looking to bet our clients well being on the pass line.

Shooting for high investment returns WITHOUT regard for risk will doom the hapless to repeat history.