Safe Investing Thoughts

Yield Spread as a Proxy for Default Risk

I’ve been asked several times why I use Yield Spread as my measure of default risk rather than simply using bond credit ratings. My answer is simple, Yield Spread is a continuously changing market characterization of risk, taking into account many factors that change all the time. In comparison, an agency’s credit rating is based on a snap-shot in time and only is only as good as the data used to analyze the company or bond offering. These days agencies are overworked and hard-pressed to keep up with the changing financial environment. I’d rather use a measure that changes daily. Read more

Investing for Inflation or Deflation - December 3, 2009

Invest for Inflation or Deflation? Act like a Trader and it doesn’t matter - December 3, 2009

Is deflation or inflation coming? Investors need to know because the portfolio to chose is dependent. If inflation is coming, then equities should be OK, commodities, inflation adjusted long term bonds and short-term interst rate vehicles are the way to go.

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Longer Term Trading – Not Always Better Than Buy and Hold, But Safer – November 5, 2009

I am an advocate of both short-term and long-term trading in lieu of the traditional buy and hold asset allocation strategy. In asset allocation, a basket of securities is created with low correlations and then the basket is simply rebalanced every year or two to correct the changes in allocations. While this theory of investing, based on the efficient market hypothesis may have some theoretical basis (which is now questionable), regardless I am reluctant to accept it simply because of the anxiety created by bear markets.

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