I wrote recently about DECIDING A COMPANY IS NOT WORTH INVESTMENT (TO ME).
This is a very important concept. It’s easy to get excited about a company. In my recent post, I looked at a railroad that I had been interested in before. It was merging with another railroad, which sweetens the pot. If it was interesting before, it must be a screaming buy now, right?
As I dug in, I found things like persistent demand erosion, and high debt. I decided to pass.
Bonds
Today, I was looking at Bonds. Individual corporate and municipal bonds are tricky. I’ve bought individual treasuries, but giving my money to a corporation or city and town for years and hoping they’ll make good on payments seems risky.
I love a nice bond fund. A knowledgeable fund manager, or better yet, a computer/index decides which bonds to buy and sell to help preserve capital and maximize yield. I have 22% of my portfolio in bond funds that pay me regilar income. Sweet.
I attended a 3 hour seminar on bonds yesterday and decided to do some shopping today. After researching the bonds and the companies, I lost interest in bonds and moved back to stocks. The key reason is that I’m looking at investment grade corporate bonds that are yielding about the same as my bond funds.
I’m willing to take some risk for a potential large reward, but these are bonds. The risk seems to still be there, but the potential reward is, well, fixed.
2 More Not to Buy
My bond research lead me to Honda Motor Company and Phillips 66.
Honda is a premier car company and they make a pretty nice lawnmower. The company has pretty solid analyst support with a 7.4 out of 10 aggregate rating.
But when I started reading, I saw capital expenditures are up, and expected to stay up. And some profitability issues in power products (apparently the great lawnmower is a drain on profits). And there is rising debt.
Next up Phillips 66. Higher debt than peers.
I worry about debt. Mine, The US, and the companies in which I choose to invest. I can probably find another company that’s not struggling with debt.
Bummer
Today’s excitement was over.
I woke up planning to buy my first corporate bond. Nope.
Then I came across 2 companies I had been interested in and thought they’d be a great investment for me. Nope.
I’m stuck with cash. How sad.
Wrap Up
Investors who choose to invest in individual companies or in corporate or municipal bonds, do so because we’re excited about the companies.
It’s important to temper that excitement.
One way I do that is to ask myself whether the new potential investment is a better choice than any of the 63 companies that I’m currently invested in.
Well that’s different. Honda is cool, but is it a better place for my investment dollars than Axon enterprises? Or even Netflix?
And the difficult part of investing is that we don’t know. There are no sure things. We need to hold 20 or more companies to ensure we’re diversified, but we also need to find the companies with the best potential.
It’s very important to screen companies carefully. This mornings activities took me about 45 minutes. I screened some bonds and 2 companies. You’re not writing a doctoral thesis.
It’s your money. Be careful.