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Defensive portfolio my derrière
March 23, 2020
6:42 am
Norman1
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AltaRed said
The OP has a legitimate beef with corporate bonds. Been a lot of discussion on Financial Wisdom Forum the last week or two about bond ETFs and more specifically corporate bonds. The corporate bond market literally froze over the past two weeks with virtually nothing in the Bid column. IOW, there were no buyers to even establish liquidity or FMV. …

I don't think so. It just shows lack of knowledge of how the markets works.

Just who does one think is on the buy side when one wants to sell or the selling side when one wants to buy? Some mysterious always-present entity that is always ready to buy or sell? No. The other size of the trade is just another person.

Did it never occur to anyone that maybe when everyone wants to sell, there isn't anyone interested in buying?

I also think it really precarious to have a one-month time horizon when dealing with 10+ year bonds.

I think one really needs to give their head a good shake if one thinks that one can have long term vision by "accumulating short term vision." One has long-term vision by thinking long term and ignoring short term noise. In the world of business, those who think short term actually have no vision.

March 23, 2020
9:01 am
AltaRed
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Well, of course one cannot have a short term view holding bond ETFs shorter than the duration of the fund. A short term bond ETF with a 2 7 year duration should be held st least 2.7 years. But beyond that, the volatility of a bond ETF and size of disconnect with NAV in troubled times will depend on quality and maturity of the underlying assets.

The market maker is supposed to have ETF units on both the Bid and Ask sides to keep spreads narrow and close to NAV but that cannot happen if the underlying bonds cannot be
bought or sold, or priced by the market maker.

Bottom line is corporate bonds can act more like equities in troubling times and it is hard to make a case for them being fixed income. Investors generally don't understand the complexity of these vehicles and really need to stay away.

Even the likes of VAB or VSB have somewhere in the range of 10% BBB corporate bonds in them and that 10% goes to hell in troubled markets. If one wants a bond ETF that is more stable, pick one with only government bonds in it.

March 23, 2020
9:11 am
picassocat
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Norman1 said

I also think it really precarious to have a one-month time horizon when dealing with 10+ year bonds.

I think one really needs to give their head a good shake if one thinks that one can have long term vision by "accumulating short term vision." One has long-term vision by thinking long term and ignoring short term noise. In the world of business, those who think short term actually have no vision.  

Long term (the future) is an accumulation of the present. In fact, the future does not exist until you are there. Two people buy in at 200$, call them A & B
Person A sells at 150$ before the stock reaches 50$, buys it back at the new price (50) and it goes back up to 200 profit = 100$
Person B does not sell and has made nothing (except a dividend, if any) when the price reaches 200 again. Both still own the same stock but your short term vision guy has made money.
It doesn’t matter if it’s a 10 year bond (ETF), a 20 year bond or a two minute bond, the short term vision guy will make much more money if you can time it right and 10 years from now, both may still hold the same stock, but one is richer.

March 23, 2020
9:44 pm
Joe
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Norman1 said

AltaRed said
The OP has a legitimate beef with corporate bonds. Been a lot of discussion on Financial Wisdom Forum the last week or two about bond ETFs and more specifically corporate bonds. The corporate bond market literally froze over the past two weeks with virtually nothing in the Bid column. IOW, there were no buyers to even establish liquidity or FMV. …

I don't think so. It just shows lack of knowledge of how the markets works.

Just who does one think is on the buy side when one wants to sell or the selling side when one wants to buy? Some mysterious always-present entity that is always ready to buy or sell? No. The other size of the trade is just another person.

Did it never occur to anyone that maybe when everyone wants to sell, there isn't anyone interested in buying?

I also think it really precarious to have a one-month time horizon when dealing with 10+ year bonds.

I think one really needs to give their head a good shake if one thinks that one can have long term vision by "accumulating short term vision." One has long-term vision by thinking long term and ignoring short term noise. In the world of business, those who think short term actually have no vision.  

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Tangerine....Canada's best bank. LBC.............Canada's 2nd best bank.
Hubert.....worst bank in Canada.

March 24, 2020
9:46 am
Bill
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I agree, Norman1's post articulates the well-established principle re long-term investing in an ever-growing global economy (is that going to contunue in the future?), it's the only way to go for those who want to follow "the rules" of investing success. FWIW, during my investing years I followed those principles with most of my portfolio but also had a shorter-term, "gambling" portfolio where I invested based on my own personal concepts of what I'd like to buy regardless of what conventional wisdom said. I was quite happy with the results of that latter portfolio. So just an idea, if you have confidence in your own abilities. It's my observation that the best returns, and highest losses, go to those who venture out from the herd.

March 24, 2020
12:30 pm
picassocat
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Bill said
It's my observation that the best returns, and highest losses, go to those who venture out from the herd.  

That phrase is wisdom.

I have many well-to-do friends, some invest thru a bank/financial analyst, some autonomously thru a brokerage firm and they all lost greatly in the last month. The catchy phase I hear from financial analysts is «if you sell now, you will be crystallising your losses». That is almost equivalent to saying: «you have a deep cut in your leg and bleeding profusely, wait till you stop bleeding and you will be fine». I prefer to patch-up the wound and recuperate with gusto.

Therefore, my friends are now stuck with great losses and no liquidity to buy sale priced stocks. I myself ejected from the stock market at the start of the crisis, I still register a profit and have ample liquidity to buy-in at rock bottom prices. I’m not a day trader, I prefer to invest and «let it ride», but these are trouble times and I took what I believe to be the appropriate measures. Like Doris Day would say: «Que sera sera»

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