Post New

In Ch 8, Wright deals with 'wrapper products', one of which is UITs of which 'target maturity funds' could be considered a cousin. "UIT's", she says, "benefit from professional selection, not from professional management." (P. 120, 2nd ed.) A second benefit is a stable income payout. A third benefit --and of huge importance-- is a known maturity, unlike bond funds, which aren't really bond funds but shares of a company that invests in bonds, hence, --really-- just a derivative that most investors fail to use effectively.

So, what are the downsides of target maturity funds? I don't know for mostly having ignored them in favor of owing the underlying directly. But it's become time to take a look.

[later]

Holy Moly! TMFs --of which there are around 30-- suck majorly. To take just one example, IBDT, go to its issuer's website and pull the prospectus. There is nothing to like about the fund, and the lawyers have shifted all risks --a couple dozen listed-- onto shareholders, as well all but said you're more likely than not to lose money from owing the fund. But here's the real kicker. Though the fund's mandate limits it to "invest-grade" debt, that limit includes Baa3/BBB- (as it must). But that stuff is trash you don't want to be owning. An honest, solid, double-BB? Yes, because the uncertainties have been removed, and the market has (probably) properly discounted its risks.

IBDT's distribution yield is 3.25%, and its 30-day SEC is a not unattractive 5.11%. But now consider this. Even a crummy, minimal-risk, 13-week T-bill offers 4.677% (as of last auction) which --when bumped up by the impact of one's marginal, state tax-rate, as one must-- could easily tag 5.13%. Opps. If that isn't trading elephants for rabbits, I don't know what is.

Here's the second kicker. If you run a bond scan asking to see all invest-grade debt with the same max maturity as IBDT and a min 5% YTW, you'll get 490 issues returned whose YTWs range from 5% to 11%. The higher-yielding stuff is the usual suspects. But not all of it can be rejected out of hand. One by one, every one of those issuers would need to be vetted, and if one's fundie screens are met, positions could be sized such that one could put together one's own version of IBDT without having to match its 420 holdings and with the likely assurance of beating its CY and YTM by a reasonable margin.

Those kinds of facts are exactly why I'm a bond guy and not a bonds *funds* guy. Yes, bond funds seem attractive because they seem to offer "diversification" though their large number of holdings. But, as we all know, when markets are under stress, correlations go to 1.0. Opps. Exactly when "diversification" is most need, it disappears. What can save your butt, though, is 'position-sizing', which is a post for another time.

Hi, Charlie,

Thanks for all your posts on bonds. Super great. Appreciate the generosity.
I know you know what you're talking about, but I'm a bit like a deer in headlights.

I guess I'll start with Wright's book and see what happens.

You provided so much info and wisdom in these posts but it's so beyond me. For instance, 'Meanwhile, be careful out there. The bears are getting hungry. ' I don't even know if that means, the market will drop further or ' I have no idea because I have no context.

I realize I'm going to need to get into the water before I can learn to swim, so that's what I'll do.

For instance, after noticing that I kept getting notices from Schwab that they 'swept' funds into the bank account, I thought I needed to look into how to handle those funds. Coincidentally, or not, the WSJ just posted an article on how some brokerages (like Schwab) swept those funds into low-paying vehicles, while funds like Fidelity and Vanguard automatically swept them into higher interest money market funds.

So, I wrote this and posted it to the 'Investing Beginners' board:

'This morning I had an interesting chat with GPT about which cash funds I could purchase through Schwab in my untaxed accounts. They suggested, SWTXX*, SWGXX, SWUXX, SWSBX and SWPXX.

The Schwab website lists the following funds:

Prime Money Funds (Taxed):
SWVXX, SNAXX

Government and Treasury Money Funds (Taxed):
SNVXX, SGUXX, SNOXX, SCOXX, SNSXX, SUTXX

Municipal Money Funds (non-taxable)
SWTXX*, SWOXX, SWKXX, SCAXX, SWYXX, SNYXX, SWWXX, SCTXX, (*SWTXX was the only one listed by GPT)

Variable Share Price Money Funds (Taxed): SVUXX

It looks complicated. Tax, not taxable? Expense ratios, 7-day yield, 30-day yields? (w or without waivers (?). Bonds? Treasuries?'

When I asked what the interest rates were, GPT drew the line and stopped chatting. I was hoping they'd do the typing for me so I wouldn't have to set up the chart myself. Oh well, public AI will have its fences and limitations.

Meanwhile, I've read your bond posts again'this time, the TMF one.

Now, I wonder if these Government and Treasury Money Funds, sold by Schwab, are funds of funds and should be avoided?

SNVXX, SGUXX, SNOXX, SCOXX, SNSXX, SUTXX

Is that even a question to ask?? I don't know anything.

I want to be a defensive investor, a know-nothing investor, but the more I think about things, the more I need to know and then I'm not taking a walk or making a pot, or sewing something. Trying to get enough knowledge is like reaching for the pencil that keeps rolling a little further out of reach every time you touch it.

I am thinking about stuff. And maybe I just move some cash around so I can put some taxable bits from my bank cash into short term Treasury Direct. And figure out which fund vehicle would be a reasonable expense/interest ratio for my tax-exempt accounts, with a short enough time-line (maturity?) to test it out. All new to me, but I'm getting in the pool.

Thanks for everything, esp. the philosophy.

Elizabeth

Elizabeth,

Schwab is a good shop to deal with, as are all of them (Fidelity, E*Trade, etc.). But each has its strengths and weaknesses. So which one(s) would best serve your needs depends on what those needs are. (Yeah, Catch-22.) If you're a small money brokerage account, then Schwab's Prime Money Market fund is probably the best of the bunch for you in terms of its 7-day yield. If you're a high-income earner in a high-tax state, then other choices would work better. It all depends on your own, individual situation.

Let me go out you a limb here and offer some advice. There are some truly excellent financial advisors out there, but you can't access them, because your account is too small, nor do they want to deal with you, because you don't know enough. But here's the good news. By the time you do learn enough that you don't have to ask them endless questions, you also don't need them, nor would you want to deal with them, because most are just going to lose your money -- all the while shrugging and saying, "No one could have foreseen that would happen"-- and then charge fees for their bad advice. But if you do want to try to find an adviser, only consider one who is trading for his or her own account and can make a living so. If they have to depend on client fees to make a living, you don't want to deal with them.

Second limb. By and large, men and women are genetically hard-wired to think about money differently. Therefore, where you can, try to learn about money management from women, not men. That's why I like Wright's book, and why I don't hesitate to recommend it. If you want to learn a bit about econ and finance, Danielle Dimartino Boothe is a good source. If it's trading you want to do, Linda Rashcke is one of the world's top traders and very, very generous about sharing. (Check YouTube for her videos).

Final point. Managing money ain't rocket science. But it's not a "read one book and you're good to go" matter, either. A good analogy is gardening. For sure, some people do seem to have "a green thumb". But if you walk or ride by their house and garden as the seasons change, you'll notice they seem to be spending a lot of time outside, clipping, planting, puttering. Investing is no different. It takes time, effort, passion, patience, discipline, and even courage. But the good news is that there is no one right way to do any of this stuff. There is only what seems to work you for.

Charlie

"I want to be a defensive investor, a know-nothing investor, but the more I think about things, the more I need to know and then I'm not taking a walk or making a pot, or sewing something. Trying to get enough knowledge is like reaching for the pencil that keeps rolling a little further out of reach every time you touch it."

Elizabeth,

Love that metaphor about reaching for a pencil, and my apologies that I didn't read your post more carefully.

If you're wanting to be walkin', sewin', and thowin' pots instead of grubbing for money, then you're what my generation would call --endearingly-- a 'granola mama', and --old Berkeley hippie that I still am-- I know where you're coming from. You're 'Silvia" from Pirsig's, 'Zen and the Art of Motorcycle Maintenance'. But that faucet dripping in her kitchen isn't going to fix itself, nor is the problem of managing your money and growing it at least enough to keep up with inflation.

So here's a bit of fortune-cookie wisdom taken from a sign hanging on my dentist's wall. "You don't have to floss all of your teeth. Just the ones you want to keep." Same-same with your dollars that every day are losing a bit of their purchasing-power, because that suits them who really do run the world.

So let me break the rule I laid out in my previous reply and recommend that you get hold of a copy of Ben Graham's "The Intelligent Investor". Your library should have a copy or be able to borrow it thru ILL, or just listen to the audiobook version (available on YouTube) while you sew or throw a pot. What you want to take away from the book is a sense of how investing can be just an extension of the sort of comparison shopping you're already familiar with. If you can buy bell peppers and broccoli, you can buy stocks, bonds, and mutual funds. (The process is the same, which is a post for another time. LOL)

Lastly, let me offer yet another bit of folk wisdom, this time from the Zen tradition. "The obstacle is the path."

Charlie

Wow, Charlie! Thank you.

Thanks for going out on a limb. I really don't intend to get an adviser, but I'm self-taught and there is a lot to know and learn. It's lifelong and it suits me. I'm grateful for the people here who i can bounce things off of.

I appreciate your gardening analogy. One of my favorite things to do. And i am a putterer and pruner. Same with my investments. Thankfully, I read a bit early on from Warren and Charlie, and watched many of their interviews and talks.

I haven't received Wright's book, yet. and will get the other books you suggest. Your note about investing styles is well-taken.

Thanks, again, so much.

I look forward to reading and trying some of these things out.

Charlie, you are endlessly kind. But a granola mama I am not! More of a punk rock kind of gal. DYI. Well, maybe a little bit of both because i'm a boomer. Never thought about it that way.

I learned to sew my own clothes when i was a kid, from necessity, and threw some pots, which i happen to be kind of good at because I attend to detail and it was a way to relieve me of my thoughts. But I haven't done either of these things in quite a while. Aspire to. I've also been a film maker. Those are ways for a person to express oneself when they don't quite fit in the clothes, the images and the thoughts of the day.

But I met Warren, through one of his kids, in 1995? Changed my life! Saw Charlie at a Wesco meeting in Pasadena, which was closer to home than Omaha. His candor was a spiritual awakening. And I've been following them ever since.

Starting from scratch, though, it has not been a straight path. My in-laws were in the investment business and uh, how should i say this, chauvinistic and condescending. Fortunately, i was able to ask Warren about how to learn about investing and he suggested, of course, The Intelligent Investor. It took me six months to read it. I asked him what parts i should pay attention to. Chapter 8. Well, i could go on and on. I didn't understand anything except that chapter. But it took until 2008/09 before i understood what that meant. My circle of competence was only useful when the bottom fell out.

Anyway, I started the Intelligent Investor, again, a few months ago, and, amazingly, all these years later, I understand it better.

You see, I came down with a bit of fomo during the 2020 and 2021 runup, and forgot much of my early learning during the dotcom bubble. Fortunately, the voices of Warren and Charlie persistently echoed and I am back to being a beginner and learning more about finance than i ever thought I would. Ever thought I could. Even bonds.

A poor kid from the wrong side of the tracks, will forever be my beginning. That will never change, but I endeavor to learn what I can and appreciate people who know more than I do and have character and honor. Learning about finance has also supported a couple other great interests of mine, rationality and integrity. However haltingly I may walk, I point myself in those general directions.

I will pick up the Intelligent Investor, again, since I put it aside in favor of all the Sherlock Holmes stories. Thanks for the nudge. I want to keep all my teeth.

And thank for those new suggestions for further reading. I look forward to it. :)

"Anyway, I started 'The Intelligent Investor', again, a few months ago, and, amazingly, all these years later, I understand it better.",

Elizabeth,

One of the reasons some books are called 'classics' is their 'depth' which allows increasingly fruitful re-readings. You'll find that to be the case with Wright's book as well. You'll have no trouble getting through it the first time and understanding her main points. But when you you re-read it a couple months later, you'll say in amazement, "Wow. That's a shrewd point that I missed the first time through, but now understand."

Yeah, snooty in-laws can be aggravating, especially them too dumb to realize that their present material advantages are more often due to sheer dumb luck rather than merit and hard work. (Nassim Taleb rips that crowd in his book, Fooled by Randomness.) Also, that crowd needs to be constantly 'one-upping' everyone else in the room, because their sense of self-worth is so fragile and it isn't based on anything substantial. Ignore 'em. Or, if you want to put them in their place, sit them down at a potter's wheel and tell 'em to turn a simple bowl. If they manage that --unlikely-- then tell them to turn a water jug with a spout and handle.

Regrettably, in much of "Modern Day America", money has become the only measure of worth, and things like honesty, decency, integrity, kindness, and empathy get discarded. So frame your financial goals carefully and modestly, so they are both achievable and consistent with your own values.

Charlie

Hi, Charlie. I didn't respond to this post. Sorry about that.
Time has gotten away from me.

I received, Getting Started in Bonds, but I haven't had a chance to look at it, yet. Though I did buy some treasuries. Relatively painless.

I hate to write about everything I'm thinking because I don't want to waste your time. I thank you for your compassion. I did point out my in-laws's failings, but they are much better than the people I started out with, so there's that. But my family did me a favor, too, like doing ignorant stuff so I could learn what not to do. I'm sure I have shortcomings, though, that I haven't even conceived of, yet. Life has a way of revealing those things!

Anyway. I look forward to learning what I can. One thing is that Vanguard appears to be a different animal than Schwab, or probably any other "brokerage," from what I can tell. It has lower fees, though. Another one of those items I "get" to learn more about. I can't help it, but right now, it all tastes like medicine!

:)

Beginner,

Don't hesitate to write what you're thinking. As I like to say. "If I can explain it to someone else, I can explain it to me." That's the value of posting in forums. The act of writing forces one to clarify thoughts.

As for choosing Vanguard vs Schwab, I'd say this. Just as each investor has his or her own often differing means, needs, goals, interests and opportunities, so does every broker have their differing strengths and weaknesses. So, if you prefer Vanguard to Schwab, go with Vanguard.

Charlie

Thanks for the great feedback, Charlie.

I'm afraid I'm embarrassed by my process and need for remedial lessons in investing. And then how slowly I learn them.
I'm afraid of making mistakes. Terrified in general. I had a lot of criticism growing up, so I venture very slowly, sometimes. Just to put my personality in perspective. Posting helps clarify my thoughts, I only hope it helps others in some way instead of cluttering up the board.

Yes, this wide world is nothing but a fountain of beautiful diversity. Getting the variables of reality to work for you in a harmonious way. I'll try Vanguard so I can see how it works. It's good enough for Buffett for some things. I'm working on the idea of doing what i can to make whatever small improvements I can. 1% here and there adds up. Maybe in my learning, as well.
:)
Thanks, again!

I'm afraid I'm embarrassed by my process and need for remedial lessons in investing. And then how slowly I learn them.
I'm afraid of making mistakes. Terrified in general. I had a lot of criticism growing up, so I venture very slowly, sometimes. Just to put my personality in perspective. Posting helps clarify my thoughts, I only hope it helps others in some way instead of cluttering up the board.

Don't be embarrassed or afraid. You will benefit from the act of posting itself, as the very act of putting something in words for others to understand helps you understand things better yourself.

And others will benefit from your exchanges.

I recall a time early in my career, when I as a recent college grad with just an undergraduate, was thrown into an advanced position at work that needed a warm body. The company I worked for had a strong preference for not hiring advanced degrees, and their method of training tended towards throwing you in the deep end and having you sink or swim. Was getting sent to conferences, where I had to present research material I had inherited from my predecessor to mostly PhDs, in an area that I was pretty new to and the company I worked for was trying to break into. This was the asphalt industry where young women were rare and for the most part patronized. I also attended the other presentations, and somehow managed to raise the courage to ask a question that I feared was basic, certain I would cement the opinion of those men with advanced degrees and decades of experience towards viewing me as a piece of fluff rather than someone with a great knowledge base and a product they should consider adding to their asphalt.

So I asked the question. Was amazing to me just how many of those PhDs came up to me afterwards and thanked me for asking the question. They had not understood the point either, but had been afraid to tarnish their reputation in front of their peers....

The only foolish question are those not asked.

IP

IP,

I appreciate your story. I have experienced those situations, too, and it's gratifying when one handles them well.

Thanks for your encouragement.

Makes me want to read more so whatever questions I have will be as germane as possible.

:)

Elizabeth

Yes, this wide world is nothing but a fountain of beautiful diversity. Getting the variables of reality to work for you in a harmonious way.

If the rest of humanity had the poetic vision, openness and boundless curiosity as you exude, particular so at your fine age, then I think not only the present major world problems wouldn't have come even about but, we would be very likely drifting towards Elysium rather than Hades.

- Manlobbi

You know, I used to be a punk. Pretty angry. But then I saw the forest for the trees and the red sun pulsing with energy framed by my windshield. I realized this was all a miracle that I was lucky to be part of. So, I've been trying to learn the difference between reality and illusion ever since. Art and finance only work when they approach the real, which can be quite different than how they appear.

Thanks, Manlobbi, for making this board possible. :)

Elizabeth, Im' going to offer a reply to your queries that may differ somewhat from other responses you've gotten. It sounds like you already have an account at Schwab. If so, I propose that any marginal benefit you might get from switching to another service or opening an account elsewhere is not worth the hassle. I'd say the same thing about delving deeply into bond investing.

At Schwab (where I have accounts), the basic money market account is SWVXX. The yield you get on it varies, depending upon the prevailing interest-rate environment, but it is always competitive. You can move money into or out of it with one day's notice and with no penalty. You can read the prospectus on what it invests in; but it is quite safe. The comparable fund that invests exclusively in short-term Treasuries is SNVXX. I have money in each of them.

The advantage of CDs and/or Treasuries over those funds is that you can lock in a rate for a period of time--as short as 3 months to as long as 30 years. And you can build a "ladder" of these if you wish--say, expiring monthly or quarterly or whatever. Buying these through Schwab is very simple. You may want to look exclusively at recently/newly issued CDs or bonds, so that you don't have to pay the seller any accrued interest. And you'll probably want to avoid ones marked "callable," just to keep things simple.

There are also various bond ETFs one can buy, but if you plan to hold your CDs or Treasuries until they mature, any advantage of the ETFs is doubtful.

I'd keep things simple. And if you have questions, I find that the bond desk at Schwab is happy to answer them in simple terms.

Hi MisterFungi,
I like your name. Reminds me of the miracle of nature.
Thank you. I appreciate your thoughts.
As I mentioned in another post, I was traveling, last week. Now researching and test driving cars, so my ability to focus on this subject is not so great. Then there was the Berkshire AM.
Look forward to rereading this, soon, though.
Thanks,
Elizabeth

This is nonsense.

BlackRock, i.e. ishares.com publishes YTM - yield to maturity(which is YTW - yield to worst - for non-callable bonds) for all bond funds. The IBTx (treasury bonds) funds are currently yielding 4-5% YTM. IBDx (corporate) even higher.

As a rule, broad bond funds or ETFs like AGG, SPAB, SCHZ or BND don't mature as such. But these do.

CharlieBinds needs to do their homework and not look at TTM yield or 30-day yield.

Hi, MisterFungi,

Finally have some time to look closer at what you and Charlie, et al, are saying on this board.
I have been buying 4-week treasuries every tuesday to build a ladder or something, that revolves my cash a bit better than I have. These are teensy baby steps, I know, but I want to understand the mechanism and this is about what I can handle.
I will go to Schwab, or call them, and find out what a WFC/PRL is because I have $1,151 in it and just got my first dividend of 18.75.
I'm down .17% from when I bought it 3 months ago, but if i get four of these dividends per year, at today's price, that's 6.52%. So what is the downside of buying more of that?

My concern is, the market is going up a lot and while I put a bit into Brk every month, I'd like to put more in and make up for what I took out during covid. I kind of freaked out and took half my money out of the market. Well, I'm 72 and got scared.
So, I don't want to put a lot in at the top of the market. Mungofitch made a rec a while back about the WFC/PRL and I thought I'd buy a piece and see what it was. So, that's where my question comes from. Would Schwab bond desk explain that to me???

Thanks.

Meanwhile I'm reading the Intelligent Investor, again, and getting more out of it than I did 20 years ago, when I knew even less than I do now.
I'm trying to keep it simple but I need to understand what "simple" is!

I read a blog by Benjamin Graham's granddaughter the other day, recommended by BreckHutHigh on the Berkshire Board, Beyond Ben Graham. #4 With a Little Help from Ben was especially touching and distilled for me the source of his art in security analysis:

"A boyhood of financial hardship made a lifelong impact on the adult man. Benjamin Graham grew up to be a man who chose the subway over taxis, 'alleging to myself that [the subway] as quicker' but knowing well that I wanted to save the dollar or so involved.' He also admitted his habit'as a millionaire'of ordering the least expensive entrée on a menu. More profoundly, he never forgot how it felt to lose everything. He knew first-hand the struggle of trying to get by on too little. These experiences kindled his creativity on Wall Street. He invented security analysis and value investing for people like himself and his mother, who wanted their investments to make gains with minimal risk. His essential principle of margin of safety, detailed in The Intelligent Investor, sprang from a boy's ardent wish to be safe, not sorry, after witnessing his mother's lost investment in U.S. Steel.
The margin of safety principle guides investors to choose only stocks that they can buy at a price significantly below their intrinsic value. To determine margin of safety, an investor calculates the difference between a stock's market price and its intrinsic value, as determined by Benjamin Graham's formula. The larger the margin of safety, the greater the cushion that protects the investor from loss. Countless children, and their parents, shop for bargains, but only this exceptional 'small boy''who bought a baseball and used tennis balls at prices well below their value'grew up to devise a timeless investment principle based on this practice. I'm struck with how elegantly margin of safety distills the lessons of fiscal caution Ben Graham learned in his youth."

Even though security analysis is about money, it stemmed from a deep need to be safe. I understand that far better than the quest for "money."

I did call Schwab and spoke to a Exavier. Nice. I guess it's a matter of learning what I can and deciding to do it or not. As you say, the obstacle is the path.

Meanwhile, I bought some Oxy/ws warrants, which is something new to me, as well.


It's kind of fun. Only money, and I can keep it manageable while I learn a few things.

Thanks.

Mungofitch made a rec a while back about the WFC/PRL and I thought I'd buy a piece and see what it was. So, that's where my question comes from. Would Schwab bond desk explain that to me?

WFC/PRL isn't a bond. It's a preferred stock. So I don't think the bond desk will say much about it other than what I just said. Quantumonline.com is a good place to get info about preferreds.

But I have to say that putting your money into things you don't really know anything about (other than that some guy on the internet, even a very smart guy, recommended it) can blow up in your face. I admire your effort to learn. But the way you are doing it carries avoidable, unrewarded risk.

There are downsides to preferreds, just as there are to all investments. So when you say "what can be the harm?" it suggests you are unaware of them. I'm not saying that preferreds never make sense. I'm saying that you may want to find out what the risks are before plunking your money down. (Many preferreds trade thinly, so the costs of getting in and out can be appreciable. Their prices generally fluctuate inversely with changes in prevailing interest rates and also as the call date (if it's callable, which most are) approaches.)

Meanwhile, I bought some Oxy/ws warrants, which is something new to me, as well.

Ayyy. Maybe let Warren (and his successors) handle those kinds of decisions for you?

Thank you, MisterFungi. I so appreciate your attention and thoughts.

"I have to say that putting your money into things you don't really know anything about (other than that some guy on the internet, even a very smart guy, recommended it) can blow up in your face. I admire your effort to learn. But the way you are doing it carries avoidable, unrewarded risk."

I knew what that looked like as soon as I posted it. I also knew that this was an exploratory thing when I bought it. I also knew that I needed to buy one thing so I would pay attention to it and learn about it. It's possible there are better ways to learn, but this is my method, right now. I need to triangulate the actual with the intellectual or something I read. I don't know enough to understand the written example without actually seeing what it does in the real world, and then I can understand the words that go with it. Like eating a cinnamon bun, you can't explain it to someone, it needs to be tasted.

If you can tell me a better way to have done it without incurring any avoidable risk, I'd be so grateful. And sorry that this was a preferred stock was not a bond and being on the wrong board...

A long time ago, I bought Berkshire Hathaway for $32,000. I only understood a bit about probabilities, and nothing about investing, except what I started to read on boards after meeting Warren. To learn more, I needed to buy a share. It had doubled in the time i met him. I knew I wouldn't lose 100% of my money; so since I had no formal education in finance, whatever I might lose I would charge toward an education in finance. It was an investment in myself. I would learn.

Maybe not be the best way to do things, but it is a way that opened a door for me, which is better than if I'd done absolutely nothing and losing for not even trying. I am mindful of Buffett's rules #1 and #2.

Thank you, again, for your concern. It pains me to know I make anyone uncomfortable or cause them to worry. I appreciate it, but please be easy. I may not be great at this, but I am mindful of balancing the risks I'm taking--very small ones with the goal of learning about these instruments. I'll stick to the Beginner board from now on! Thanks, again and again.

That was exactly my thought, after I did it.

:)

Like eating a cinnamon bun, you can't explain it to someone, it needs to be tasted.

I love cinnamon buns, especially the homemade ones, fresh from the oven.

If you can tell me a better way to have done it without incurring any avoidable risk, I'd be so grateful. And sorry that this was a preferred stock was not a bond and being on the wrong board...

If you need to own the stock to understand its behavior, then so be it. No one else has anything material to say about it other than you. One thing you might try, though, is to "paper trade" the stock. Make a spreadsheet that lists your purchase price, the periodic dividend payments as shown on, say Yahoo! Finance (https://finance.yahoo.com/ ), the market prices (I usually track these weekly, but daily might suit your needs better), and keep the spreadsheet current for as long as you need in order to gain the understanding you're looking for. As time goes on, and you learn stuff, you can always adjust the spreadsheet, or make another one, to add in those new characteristics you want to track and learn about.

And feel free to ask questions. Most of us here are willing to answer straightforwardly, and the only truly foolish question is the one not asked.

And no worries about talking about Preferreds on a bond board. Preferreds are enough like bonds that it doesn't matter here.

Eric Hines

a reply but added some tangential off-topic observations about math and society.

Yes, again, thank you, Eric, for the suggestion. I was just thinking that I should try "paper trades," now, to learn the processes better on paper.

I guess I needed to get my feet wet a little to know I could keep myself safe whilst I learned. I can actually try the paper trades, now, because, I understand the process a little better; I can recognize what those numbers are telling me. It was only after I bought a warrant for OXY, that I realized I paid a substantially higher price than Warren did. Without the prospect of losing actual money, I didn't think or to check that out, previously, or what I needed to look for. I'm still discovering the many dimensions involved in these instruments.

Also, I wouldn't have understood the numbers on the page at quantum until I actually dipped my toe in and had an actual preferred stock. They would have remained two-dimensional to me and the terms opaque. It forced me to learn.

I know it sounds backwards.

Regarding math: I recently spoke to a friend who is also a writer, whose brother is a very successful one, and when I told him about interest and treasuries, he shivered. I understand. A lot of people that I know are not numerate and don't realize they need to be -- can be, even though they went to prestigious universities. "Numeracy" is not a word or concept that is taught as a specific requirement. It's almost an elective. At least, it seemed that way to me. While I went to good local public schools in La Canada, CA, my family was uneducated, relatively, which would have contributed to my misunderstanding the importance of numeracy. But my husband went to Stanford and his father was the head of a major fund company... And neither he nor his siblings are numerate or financially savvy. Well one of them kind of is.

I feel like I've gone through a looking glass.
Thanks for being a guide.

I'm still discovering the many dimensions involved in these instruments.

Personally, even though I understand the mechanics of warrants, and options, I stay away from them. I've never been able to work for me. My investing (I don't do trading) is deliberately limited to common and preferred stocks.

Regarding numeracy, one of the shortcomings of modern education--K-12 and beyond--is the too ubiquitous use of calculators and spreadsheets from the start. That skips over teaching why those numbers work that way; arithmetic becomes a black box, which means far to often that the person doesn't even have a clear idea of what numbers to enter in order to get a useful answer.

Back to investing: lots of folks chase after the last decimal of yield--and in looking for perfection, they actually lose money or miss out altogether. I worked for two senior officers in my time in the USAF. One's mantra was "Never pass up a chance to collect data;" the other's was "Don't let better be the enemy of good enough." And mine, a variation on the two: "Freeze the design, and go to production. These other ideas can go into the next Change Order." But don't neglect to continue the work of improving what you have.

My suggestion: learn to do exponents and learn how to do estimations and rounding. I was with a friend in a store helping her find some carpeting or area rugs for her home. My daughter happened to work there, and she was waiting on us. As we converted price per sq ft (sq yd?) to the total cost of the area my friend wanted covered, my daughter used her pocket calculator, and I used powers of 10 and some estimation/rounding, and I got answers as fast as my daughter did on her calculator, and always my answers were within a $.25 of her exact answer. Aside from that cheap parlor trick, that kind of facility can be useful in nearly any endeavor--including investing, with this caveat: don't let the speed of the estimated calculations push you into moving too fast with your money. Think about what you're doing, which you already are, and have a plan first. Don't jump on today's Can't Miss deal that'll disappear "soon." Think about its ramifications, shortfalls, likelihood of the promised returns. Then pass it up. There'll always be another Can't Miss deal the next day.

Eric Hines

It was only after I bought a warrant for OXY, that I realized I paid a substantially higher price than Warren did.

The OXY warrant you bought is not the same one that Berkshire got for its preferred shares to enable acquisition of Anadarko. Those preferred shares are a private placement which are not traded on the exchange.

The OXY warrants you purchased are the warrants issued by OXY to all equity shareholders, instead of cash dividends in 2000. They are convertible to equity for a payment of $22 up thru 2027. They trade on the exchanges in lock step with OXY equity, just about $22 less.

Interestingly, Buffett sold off all the OXY dividend warrants as soon as he received them. He started buying OXY equity in a big way only in 2022.

Thanks for clearing that up, rnam. That confused me a bit.
So, if the stock goes up to $60 or $65, I can buy one share @ $22 for each warrant I own? I wonder, did Warren say he had these public warrants, as well, then? Or, barring that, wouldn't he buy the warrants, or is he thinking someone will buy the company, hence his equity stake?

I respect investing'not trading, and keeping it simple. I started with only Berkshire Hathaway, by pure luck, which might be my best strategy, but I am curious about these things and they are becoming more comprehensible to me. I may, like you, come to understand them well enough and eventually dismiss them, in favor of the simpler way.

When i first took a pottery class, i centered a hunk of clay and made a beautiful vase. I thought, wow, this is easy, so I smashed it down to start another. It took me weeks and months to figure out the things I had done instinctually. Even longer to do it on command. I'm kind of circling back to buying only when there is blood in the streets. I did it originally because I only had that once concept, Mr. Market, who made it so compelling, at the time. Turning it into a strategy involves the practice of discipline and context, which is really hard. So, I'm passing the time trying to understand different things.

I'm not sure if I am naive or if I do, in fact, have a strategy. It's too soon to tell.

But, in a way, I am going into production. :)

All good pieces of wisdom you passed along here. More to consider.

Thanks
Elizabeth Foley

Beginner,

OXY has a FAQ on the warrants, which should answer your question about how they work.

https://www.oxy.com/siteassets/documents/investors...

I don't remember what Buffett said about the publicly traded warrants. He did disclose that he sold them as soon as he received them, as he was required to by regulations.

Buffett probably prefers owning the equity to get the dividends. Warrant holders don't get any dividend or have voting rights. That's why there is hardly any premium for the warrant, only about $0.20 or so. Plus he would not be able to buy 25% of the company just buying warrants.

If someone acquires the company, both equity holders and warrant holders will benefit. Remember warrants can be converted any time till June 2027 by instructing your broker and paying $22 per share. So warrant prices will go up lock step with the equity price and you could sell your warrants on the market at any time.

Thanks rnam,
I did read the FAQ, but thanks for explaining it to me better.
Putting it all in the hopper.

I'm not sure if...I do, in fact, have a strategy. It's too soon to tell.

If you haven't written it down in concrete, explicitly measurable terms, you don't have a strategy; you're operating on intuition/instinct/gut feelings/habit. And that can be colored by the emotion of the market, whether subtly or greatly.

It's like having a written down business plan, only you're the business. The plan guides you and keeps you on your path regardless of the emotion of the moment. Business plans, and strategies, should be changeable as times change, but they should be hard to change so as to be sure times really have changed, rather than just seeming like it in the present turmoil.

Investing history is rife with this time the market is different when no, it isn't; it's just in a temporary uproar.

Eric Hines

...I am mindful of balancing the risks I'm taking--very small ones with the goal of learning about these instruments.

That's all that matters. All the best to you.

Hi Charlie,

It's been about a year since you posted this. I'm curious how it turned out - and whether your views have changed.

Regards,
Jeff

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