Friday, February 17, 2012

Thoughts on article ‘Corporate Bond Funds Draw Record Amount of Investor Cash’

Here is the link of article -

I was looking at my short term bond allocation. I prefer to keep more money in treasury compare to corporate bond because it my understanding that treasury is more stable and liquid than corporate bonds. It is also my understanding that I will lose less than I would have otherwise (by keeping money in corporate bonds). And this will best sever my purpose to keep money in some place from where I can take money out whenever I want it and I won’t need to worry about losing a lot of real money ( if we don’t consider inflation). When I was looking at the performance of these two funds, return on corporate bond is going up and up. On the other hand, return on treasury is going down and down. Somehow I was trying to convince myself into changing my allocation. I was thinking about having more corporate bonds and keeping less money in treasury. After all return on corporate bond is higher than return of treasury and who wouldn’t like to get more return.

While thinking all these, I forgot my rules for a while. One of them says don’t chase returns and I was thinking about doing the same. One of my rules, says don’t buy into something that everyone is getting into because that’s how bubbles are created. More and more money is being invested into something that is going up. We keep pouring money into hottest thing in the market and somehow make it bubble.  We don’t realize that it is getting more and more expensive because everyone is chasing and my rule is to buy when it is cheap in my opinion.

Of course, when things are going up, people are going to talk about all positive things. Isn’t that how it works? During bubbles everything looks good and someone who is not putting his money into hottest thing is stupid because everyone is making money by getting in to hottest things.

Good thing that I read this article. It’s so hard not to get excited and get into when things are good. I need to work keeping my emotions out of it.

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