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Or just do your own credit analysis. Analysing a simple corporate bond isn't much harder than analysing the stock of said company. Sure, it's pretty hard to figure out what the real value of it is (compared to the market value), but it's a lot easier to evaluate if the company is at a considerable or neglible risk of bankruptcy, which is after all what matters to credit investors as you have no part in the upside.

And if you can't decide what the risk of bankruptcy is because the company has some complex or convoluted business model, don't buy the bond. There are lots of other fishes in the sea.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Apr 27th, 2010 at 05:44:49 AM EST
[ Parent ]
Yes, but that doesn't always help answer the question of whether Bond A, which looks pretty safe by your own detailed analysis, is better or worse than Bond B.  For that, it's valuable to have a comparative standard for the riskiness of assets, which is, really, the only things rating agencies are paid to do.      
by santiago on Tue Apr 27th, 2010 at 02:52:30 PM EST
[ Parent ]
Yes, but that doesn't always help answer the question of whether Bond A, which looks pretty safe by your own detailed analysis, is better or worse than Bond B.

Why do you want to know that? If Bond A is an acceptable investment, then take it. A bird in the hand, and all that...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 27th, 2010 at 03:02:04 PM EST
[ Parent ]
Because Bond B might be offering a better rate of return. So if it is as safe as Bond A, then that's some evidence that it might be a better place to park your money.
by santiago on Tue Apr 27th, 2010 at 03:09:16 PM EST
[ Parent ]
Possibly. But is it sufficiently better to justify the time and effort to perform due diligence on it?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 27th, 2010 at 03:14:33 PM EST
[ Parent ]
No, probably not, which is why individuals don't usually invest in bonds -- institutions do.  For individuals, cash is probably about as safe as bonds, but for billionaire institutions, including governments and non-profit foundations who have been burned in the credit crisis, holding cash is usually much more expensive compared to holding low-risk bonds.
by santiago on Tue Apr 27th, 2010 at 03:21:34 PM EST
[ Parent ]

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