Naked Guide to Bonds: What You Need to Know--Stripped Down to the Bare Essentials

Overview

Professional investors have long understood the importance of bondsin a successful portfolio strategy. Now you can too.

That’s because Wall Street bond expert Michael Brandestakes a unique approach to this complex subject–he makes itsimple. In Naked Guide to Bonds: What You Need toKnow–Stripped Down to the Bare Essentials, technical jargonand complicated subject matter are translated into astraightforward, easy-to-read style with plenty of examples.What’s more, rather than ...

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Overview

Professional investors have long understood the importance of bondsin a successful portfolio strategy. Now you can too.

That’s because Wall Street bond expert Michael Brandestakes a unique approach to this complex subject–he makes itsimple. In Naked Guide to Bonds: What You Need toKnow–Stripped Down to the Bare Essentials, technical jargonand complicated subject matter are translated into astraightforward, easy-to-read style with plenty of examples.What’s more, rather than writing an all-inclusive book on thebond market, Brandes uses his expertise to eliminate theinformation that is not relevant to individual investors. Theresult is a practical and succinct guide that empowers you to makeinformed investment decisions.

Naked Guide to Bonds is written so that each chapter builds uponthe information that precedes it–that way you’ll never bethrown for a loop. It begins with basic questions such as: Whoissues bonds, and why? And how are bonds bought and sold? Thenyou’ll learn about the structure of these securities and thecharacteristics that distinguish them from stocks.

Once you’re armed with the fundamentals, you’lldiscover how inflation, interest rates, and changes in the economyimpact bond prices. Naked Guide to Bonds also provides insightsinto different types of bonds, including those issued by the U.S.government and its agencies, municipalities, corporations, andinternational issuers. Most importantly, you’ll understand howto identify the bonds that are appropriate for you.

In the final sections, you’ll determine how to:

  • Assess your risk profile and set goals
  • Construct a portfolio that meets your objectives
  • Implement a customized strategy
  • Evaluate individual bonds and mutual funds
  • Monitor and maintain your portfolio
  • Avoid the most common mistakes

Filled with helpful charts and informative "Bare Essential"summary points at the beginning of each chapter, Naked Guide toBonds provides an effective way to become a smart and successfulbond investor. Take a look for yourself and see how enjoyable andrewarding learning about bonds can be.

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Product Details

  • ISBN-13: 9780471462217
  • Publisher: Wiley
  • Publication date: 9/28/2003
  • Edition number: 1
  • Pages: 256
  • Product dimensions: 6.32 (w) x 9.28 (h) x 0.89 (d)

Meet the Author

MICHAEL V. BRANDES is Director and Fixed-Income Strategist in the Investment Strategy Group at Smith Barney, a division of Citigroup. He is founding author of Bond Market Monthly, the firm’s flagship research publication for individual fixed-income investors. He also writes Citigroup’s widely popular A Stock Buyer’s Guide to Bond Investing and various research articles about fixed-income strategy. Michael earned a BA in English literature from the University at Albany (NY) and an MBA from Columbia University Business School in New York.

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Read an Excerpt

Naked Guide to Bonds

What You Need to Know-Stripped Down to the Bare Essentials
By Michael V. Brandes

John Wiley & Sons

ISBN: 0-471-46221-7


Chapter One

WHY BONDS?

The Bare Essentials

* A balanced portfolio of stocks and bonds can help most investors accomplish long-term investment goals more effectively than a pure equity strategy.

* Bonds provide solutions for two of the three most basic investment requirements: income and capital preservation.

* A bond is a security that pays a specified rate of interest for a limited amount of time and returns principal on a defined date.

Despite the diversity and breadth of today's media, the stock market inevitably dominates business news. You'd think there was nothing else to talk about. To be sure, the bond market occasionally takes center stage-usually when the Federal Reserve is about to make an announcement or when inflation concerns suddenly begin to percolate-but for the most part that's the exception, not the rule.

Of course, the motivations of news editors are easy to decipher. Much like homicides and natural disasters, the stock market simply generates better headlines than the sleepy bond market. I guess it's because all the elements of suspense are there, with quick fortunes made (and lost) more often in stocks than in bonds. Frankly, I'd be hard pressed to disagree-stocks are more newsworthy than bonds. So I'm not going to waste your timearguing to the contrary. But consider this: after the dramatic stock market decline that began in 2000, bonds outperformed equities for three years in a row. Now that's newsworthy.

I would also contend that a balanced portfolio of stocks and bonds can help most of you accomplish long-term investment goals more effectively than a pure equity strategy. This is not an original idea. With rare exception, stocks and bonds represent the two largest components of the three main asset classes recommended by most investment firms (the other would be cash). Consequently, the question is not whether you should own stocks or bonds, but how much of your investment portfolio should be allocated to each asset class.

You see, bonds provide solutions for two of the three most basic investment requirements: Income and capital preservation. The other objective, growth, is more appropriately achieved through stock investing. That's why stocks and bonds complement each other so well. Together, your bases are covered.

But we're getting a little ahead of ourselves here. Now that you understand some of the most compelling reasons why bonds are important, let's take a step back and briefly discuss what they are. Ironically, the best way to do this is to forget about bonds for a moment and instead think about what happens when you purchase a home. A loan officer informs you that the bank would be happy to lend you money as long as you promise to repay it in 15 or 30 years. Suppose you settle on a 30-year term. That's fine, but there's one more important caveat-it'll cost you, say, 6.75 percent annual interest for the privilege. It seems fair, so you sign the loan agreement.

It's the same scenario when you purchase a bond, except you're the bank, so you're making the loan. And as the bank, you expect borrowers to repay loans by a specific date and at an agreed-upon rate of interest. That's how bonds work. In other words, as a bondholder, your purchase is effectively a loan that will be repaid after a certain length of time and, during the life of the loan, you'll be paid a fixed rate of interest. That's why bonds are also known as fixed-income securities.

(Continues...)



Excerpted from Naked Guide to Bonds by Michael V. Brandes Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Preface.

Acknowledgments.

PART 1: WHAT YOU WANT TO KNOW.

Chapter 1. Why Bonds?

Chapter 2. Who Issues Bonds? And Why?

Chapter 3. How Are Bonds Bought and Sold?

Chapter 4. Why Buy Bonds Rather Than Stocks?

PART 2: ESSENTIAL PARTS.

Chapter 5. Price.

Chapter 6. Maturity.

Chapter 7. Coupon.

Chapter 8. Yield.

Chapter 9. Credity Quality.

PART 3: SIMPLIFYING KEY CONCEPTS.

Chapter 10. Why Bad News is Good News.

Chapter 11. Bond Prices and Interest Rates.

Chapter 12. Measuring Volatility.

Chapter 13. Armchair Economist.

Chapter 14. Evaluating Liquidity.

PART 4: MAINSTAYS OF THE MARKET.

Chapter 15. Treasury Securities.

Chapter 16. Agency Securities.

Chapter 17. Mortgage-Backed Securities.

Chapter 18. Corporate Bonds.

Chapter 19. Municipal Bonds.

Chapter 20. International Bonds.

PART 5: PERIPHERAL PLAYERS.

Chapter 21. Preferred Securities.

Chapter 22. Convertible Securities.

Chapter 23. U.S. Savings Bonds.

Chapter 24. Certificates of Deposit.

Chapter 25. Funds and Unit Investment Trusts.

Chapter 26. Money Market Funds.

PART 6: PUTTING IT ALL TOGETHER.

Chapter 27. Have an Informed Opinion.

Chapter 28. Establish a Framework.

Chapter 29. Diversification.

Chapter 30. Interpreting the Yield Curve.

Chapter 31. Managing Volatility.

PART 7: GETTING DOWN TO BUSINESS.

Chapter 32. Bond Strategies.

Chapter 33. Fund Strategies.

Chapter 34. Bonds, Funds, or Both?

Chapter 35. Preparing for changing Rates.

Chapter 36. Swaps and Total Return.

Chapter 37. What Not to Do.

Chapter 38. Practical Matters.

Wrapping Up.

Glossary.

Index.

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  • Anonymous

    Posted July 29, 2011

    It's OK

    Its OK

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  • Anonymous

    Posted June 29, 2004

    Insightful!

    In this very good beginner's guide to the bond market, author Michael V. Brandes addresses all of the fundamental questions clearly and concisely. Bond math can be daunting, but while the author includes a few equations for illustrative purposes, he clearly addresses his book to the general run of individual investors. The book, which has moments of surprising good humor, says right off the bat that bond investing can be dull in comparison to stock investing, not because the stakes are lower, but because the elements of personality and surprise are considerably more muted in the debt market than in the equity markets. We highly recommend this book, even though it is pedantic at times ¿ a risk you take when you venture into the complex realm of bond investing.

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