Strategic Fixed Income Investing: An Insider's Perspective on Bond Markets, Analysis, and Portfolio Management

CHAPTER 15

There Are No Roadblocks, Just Detours

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.

—Warren Buffett

Early in any asset manager's career, the capital markets teach you two very important lessons. Always know what you own and develop thick skin. Realizing this early in your career could save many hours of second-guessing yourself and ultimately embarrassment.

KNOW WHAT YOU OWN

It is crucial to always know what you own. I don't mean the basics such as the name of the security or bond type and structure. Knowing details at that level is always a given. What I am referring to are the minutiae, every little detail. The characteristic that is the most obscure is the detail that questions will arise from.

It happens to all of us and usually early on in the career. A bond is purchased and the characteristics meet all the specifications required by the portfolio guidelines. This would normally encompass the basic characteristics such as the ratings, structure or type of the bond, sector, and where it fits in the capital structure. That is fine for starters, but incomplete. As the saying goes, the devil is in the details. What differentiates credits and the ability to seek out the winners is uncovering the layers that tell the entire story of the credit. Once the shell is cracked, analyze what lies beneath.

BANKING SECTOR

Let's apply this to the financial sector. It is no surprise that problems are prevalent within this sector. A good asset manager will take ...