Article Summary
In the featured article “Unshackling Bonds,” the author Howard S. Marks, justifies his point of view that how important the bible of stock market – Security Analysis is.
The author begun his studies in the time that the theory of finance and investment was new and not many people knew that. At that time, the students of finance were told that the Security Analysis: a guidebook to the impossible task of beating an inefficient market was no use. The author leaned a lot from this book and found some investment standards. They are: a) a fiduciary who lost money for his beneficiaries in a nonqualifying investment could be forced to make good the losses, b) individual losing investments need not give rise to penalties if the fiduciary’s decisions and results were acceptable in toto, c) the addition of a “risky asset” to a portfolio could reduce the portfolio’s overall riskiness by increasing its diversification, d) good-enough performance prospects can compensate for the riskiness of a risky investment, rendering it attractive and prudent ( Marks, 125).
In the Investment versus Speculation, the author finds some statements to effect that some bond is or is not appropriate for investment. Today, investing is not just purchasing stocks and bonds, also the jewelry or real estate. For years ago, investing was not the same meaning as today. Investing meant the purchase of financial assets that by their intrinsic nature satisfied the requirements of conservatism, prudence and safety. The author was able to see further about these statement after learning of Security Analysis.
In the Investment Realism, the author realize from Security Analysis that in the reality, bond is to pay that matters, credit standards must evolve, mortgages are not better than unsecured debentures, juniors of safer bonds maybe better buys and superior yield can be more attractive.
In the Our Methodology for Bond Investing, the author summarized 7 approaches of bond investing. The first approach is that recognize the asymmetry that underlies all nondistressed bond investing. The primary conception of the bond as commitment with limited return leads us to another important viewpoint toward bond investment. The second approach is focusing on high yield bond portfolios. Each bond should meet the minimum requirement to make sure it is eligible for further consideration. The third approach is that credit risk stems primarily from the quantum of leverage and the firm’s basic instability, the interaction of which in tough times can erode the margin by which interest coverage exceeds debt service requirements. The forth approach is to analysis of individual issues. Security Analysis also reflects many same concerns such as management, interest coverage and so on. The fifth approach is that professional investor should inconsistent take responsibility of “buy-and-hold” investing and the creditworthiness in the portfolio must be revisited no less than quarterly. The sixth approach is