Saturday, April 18, 2009


To say I am a bond person.
I'm not trying to say i believe in only one type of investment and despise all other types of investment as decorated ponzi schemes.
a bond person has a different attitude toward money and a different theory about how to invest money.
a bond person focuses on relationships. The relationship with the investment advisor. The investment advisor's relationship with his bond desk. The bond desk's relationship with the Financial Institution. I look at the investment advisor's relationship with other clients and other advisors.
I study all these relationships because their nature will determine the choices that are made available to me when i am considering where to invest my money.
If all of these previously mentioned relationships are constructive, open and clear, than i can be confident i will invest my money in something considered 'investment grade' at an attractive yield and will have the highest priority in the corporate structure (only below pensioners) when it comes to having my distribution paid in full and receiving all of my money back on the maturity date.

That last point, receiving all of my money back on the maturity date. That is such a wonderful feeling. Knowing that I let an investment-grade company borrow my money, they paid me better interest than any bank GIC, and they paid every single penny back by the date they said they would. I truly believe investors have lost sight of this empowering aspect of fixed-income investing.

Rather than looking forward to the repayment of capital, it is seen as a burden. Having to choose a new investment vehicle that was capable of earning as generous a return might be impossible.
This has been the attitude sold to the small investor. The sense of urgency, the additional pressure of 'missing' some opportunity. and the famous 'buy and hold' strategy that liberates you from ever having your capital being returned to you (unless you hold for long enough that your distributions eventually exceed your total original investment sum).

my point is, everyone has a context which makes certain investment products appealing and others unappealing. There is nothing intrinsically right or wrong, good or bad about stocks, mutual funds, hedge funds. They serve a valid purpose for those who are interested. This doesn't change the fact that virtually all Canadians who look to save and invest their money participate in the fixed-income market. But i admit it's also fair to say just as many use the equity market for largely the same reasons.

Ultimately, this leads me to an observation: Small investors expend a great deal of energy trying to determine the appropriate price of a stock and are willing to use great energy to discover and devise principals, formulas, methods and strategies that attempt to consistently provide advantageous 'stock picks' that yield annual returns well about market averages.
History has unfortunately shown that when markets everywhere drop, no one is safe.

My experience shows me, that with a concentrated effort on understanding the Canadian bond market, and building a positive, informed relationship with your advisor- making sure they work with a large, reputable financial institution; You can avoid dealing with large investments in mutual funds, index funds or equities, and still earn a stable and in no way 'locked in' average cash return of approximately 5%. A laddered portfolio provides the opportunity of having appoximately 5% of your invested principal coming due roughly every 6 months. This allows you several regular opportunities to find bonds that are still considered investment grade but offer attractive yields of 7-9%. A good advisor, who understands your interest in corporate bonds will help you find these bonds when they're available. But you have to ask about the turnover in inventory. The bond desk is like a supermarket and if you want something specific the best way to get it is to ask.

this is not to say i hate buying common shares. I simply view all its actions, up or down, to be part of the highly volatile nature of the stock market.

I have expressed that i feel the stock market is run by big boys (sovereign wealth funds, mutual funds, pension funds, hedge funds, insurance companies) that control billions of dollars in trades on a day by day basis.

WEll, the exact same is true of the fixed income market. the vast majority of trades are run by the big boys of government institutions, pensions funds, insurance companies, etc. the crucial difference is that your investments in the fixed income market at least have a promise to repay 100% of your capital by a specific date.

If you put a lot of your money in picking stocks and mutual funds, your money is eventually always in someone else's hands. Worse still, no advisor ever advises to sell. If it's down, it's not a loss because it's only a loss if you realize it. So don't ever sell it. If it's up, great let the magic of compounding work for you. So don't ever sell it.

The little guy trades either stocks or bonds in the wake of the big guys. If this is reality, i'd rather take the option that offers a guarantee to pay back my principal.

this is just my views on stocks vs. bonds. i'm open to what other people think.

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