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Old 07-25-2009, 10:30 AM   #21
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Sure, what do you want to know? I mention credit work because corporates in the BBB range definately have some credit risk and if you do not have the ability to determine whether the risk is modest or not, you could wind up with some very risky stuff. In that case, it is better to buy a fund.
Well, I'm curious how you evaluate risk and then how you decide what that risk is worth. I realize this is probably a complicated and somewhat individual analysis. Is it similar to evaluating a company before purchasing a stock (like looking at balance sheets, financial statements), or is there a whole new set of criteria for evaluating a corporate bond's risk?

Thanks.
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Old 07-25-2009, 01:24 PM   #22
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Well, I'm curious how you evaluate risk and then how you decide what that risk is worth. I realize this is probably a complicated and somewhat individual analysis. Is it similar to evaluating a company before purchasing a stock (like looking at balance sheets, financial statements), or is there a whole new set of criteria for evaluating a corporate bond's risk?

Thanks.
It is similar to evaluating an issuer's financials for an equity purchase, but with a different slant. When I am evaluating a non-financial credit, I want to see how stable cash flow generation has been in the past, how much cap ex is required to maintain and grow the business, and how much cash is left over to service debt and pay it off as it comes due. I also want to have a good picture of the maturity schedule of all bank debt, bonds, secured financing, leases, etc. to determine whether the company has a specific date at which point its balance sheet could blow up (inability to refinance). I look for contingent liabilities that could imperil creditworthiness (lawsuits, environmental liabilities, patent issues, union/pension issues, etc.). I look at management and at who the principal owners/stakeholders are to see how they are likely to treat bondholders. Finally, I read the terms of the bond closely to figure out how the bondholders could get hurt due to the structure of the bonds. Then you have to do all the normal stuff to understand the industry and the company's place in the industry.

For financials it varies tremendously by sector. Most of my exposure there is to reinsurers and property-casualty insurers, so I will use them as an illustration. Aside from determining that the company is not too levered, the main thing I concentrate on is making sure that the company generates profits from underwriting (and not just from collecting interest) and that their reserves for future losses are appropriately conservative. In addition, I want to see how volatile the company's results have been. So a company like IPCR (exclusively catastrophe reinsurance) is a lot more volatile than AXS (multiline and does both insurance and reinsurance) or CB (multiline insurer). You also have to look carefully at their investment portfolios, but the Bermuda reinsurers and most of the onshore property-casualty insurers went into the current mess with pretty conservative portfolios and generaly modest leverage, so there usually isn't much to get worked up over there.

How do I determine what I need to be paid to hold the bonds? For good quality BBB and A rated names, I want 3% or more over treasuries for the 5 to 9 year maturities I usually look at, at least to consider holding the bonds. I usually buy when the spreads are significantly wider (I piled into these bonds at north of 10% YTM). I sell when the bonds get to par or where I think the risk is geting underpriced. But be aware that it is more of a challenge to sell bonds, especially at the retail level.
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Old 07-25-2009, 01:54 PM   #23
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I probably should have posted the OP's question a few weeks ago. I had a chunk of change sitting in a taxable Vanguard MMF; it made less than 1% interest last year. I noted that the pssst Wellesley fund only lost 3% YTD (as of a few weeks ago) which is really good considering the blood bath the market took. I moved this money (that I'll need in 6+ years) to Wellesley.

I think I'll put all new money in a Vanguard short term bond fund. This new money will be used four and five years from now.
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Old 07-27-2009, 09:44 AM   #24
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It is similar to evaluating an issuer's financials for an equity purchase, but with a different slant.
Thanks so much for the detailed reply. I found this very interesting, but I have to admit a bit overwhelming for me as well. While I am reasonably knowledgeable of the stock market and individual stock analysis, I think I'd be getting in over my head if I tried to evaluate bond risk. Probably a good reason for me to stick with bond funds and/or the higher-rated (less risky) individual bonds.
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Old 07-28-2009, 10:22 PM   #25
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Sorry, but I followed the advice of Paul Merriman and Scott Burns..
07'> Treasuries-Short, Intermediate and LT's
08'> VSGBX & Treasuries ( Sell if & when hits +10% )
09'> Sell Treas and Go into VFSTX and FFRHX( Sell if/when hits +15% )

They said the same ( Treas) for the last Bear of 00-02' )

I wouldn't trust Muni's.. They are too shakey.. Principal might be Insured, but not the Interest... or might get a IOU..

and If I can make 7-15% ave 11% - 28% = still netting 7.9%

and oddly enough? For my LT Bonds? TGBAX and FNMIX have outperformed all my other Bonds by almost double apy the past 10 yrs now..and Gold ( USAGX) has gone off the Charts for the past 10 yrs..

PIMCO just opened a new Bond Fund for The Little guy with $1k Min. req'd> PUBDX and PGSDX.
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Old 07-29-2009, 02:27 PM   #26
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I noted that the pssst Wellesley fund only lost 3% YTD (as of a few weeks ago) which is really good considering the blood bath the market took. I moved this money (that I'll need in 6+ years) to Wellesley.
Off-topic: I'm going to suggest to Vanguard that they change the ticker for Wellesley to PSSST. I will credit Uncle Mick.
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Old 07-29-2009, 03:01 PM   #27
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Off-topic: I'm going to suggest to Vanguard that they change the ticker for Wellesley to PSSST.
I thought that was the ticker...
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Old 07-29-2009, 03:04 PM   #28
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SEC probably wouldn't allow it, no sense of humor.
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Old 07-29-2009, 04:21 PM   #29
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I hope this Helps.. Ideally when deiciding about setting up a Pre-Retirement Port, using the 5 yr Rule comes to my mind as I was told and Followed..

Meaning? starting 3-5 yrs prior to the time you Plan to Reitre is the time to start setting up what your Post Retirement Port should be for you.
Ideally? And Assuming you have enough $ saved up by this time and/or you Will have to acheive your Goals by Retirement time by
Having a Max of 35% In Stocks/Equities and 65% Min. in Bonds
Meaning? Your Aggressive /Gambling Days are over, that is unless? after you have fully funded this kind of Port and have Extra $ left over , then go ahead and use that Extra $ to own more Equities, Stocks or Whatever you wish, since it is not being depended upon to fund your retirement.

Now others Start even Earlier by having Saved More or Getting Windfalls, Inherititances, etc..and thus allows them the extra $ to go gamble with.. but they have their SafetyNet-Retirement Port 100% Funded and some , like myself went for a 125% as a margin of Error in my Plans and figures..

Of course, if after doing Financial Planning and crunching #'s and Guesstimates and finding at the rate your going, you won't have enough in time with such a "conservative Mix?" then Go with the VWINX's ( 40/60) or even a VWELX ( 60/40) type Ports, as you see fit and necessary

I also found if want a Simple 50/50 Port while working? Just own 50% in both VWELX and VWINX and basically? That's really about all one needs..and if have extra $ to play with? Use that to go after whatever else you'd like to take a shot at, be it Energy,Gold or Global Funds or Lotto Tickets In Penn.( they're paying off better , Lower Winnings, but more Winners..)

I chose to First max out my 50/50 and then put extra $ into a sep. Bond Port, but of more aggressive Bonds Like Global and EMD's vs Buying Equities..and Some Gold ( TEGBX,FNMIX and USAGX) and been over 11 yrs now and they're doing fine.. about 3 yrs prior to my retiring, I reduced my 50/50 to a 35/65 using Bal. Funds and Extra Trad. Bonds.. an again, mostly because i had more than enough ( about 25% more) than I figured I would need for my Retirement needs. Now I have about 100% more inmy Retirement Port and more extra $ to go gamble with. which = a happy camper..!

And I didn't Learn all this on my own.. by Helping others with what Little I did know and referring them to those that do know over the yrs, the More knowledgeable people just helped me out in return with their addvice..following the addage of "You always get back, what you Give Out.."
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