Investment Models and Strategy Introduction: Part 2

Strategies Are Made to Change

Investment Models are about working toward a given life style. Life styles change depending on the conditions that surround you. Investment strategies are about funding the life style that you want to live by. Your investment strategy should be influenced by the economic conditions that surround you. That is why they are a "Work in Progress."

Your aggressive investment broker will tell you that you should trade stocks to get that large percentage of growth. I read a book that said that you can get over 500% growth out of stocks in a year. No one ever seems to make it. Conservative investment brokers tell you that you should have a "Buy and Hold" Strategy. You buy the right stocks a little at a time then when they are as high as you think they will go, you sell them getting a large profit. But no one tells you when you reached that high. Then we have the income stock broker. They have you buy stocks that give large dividends such as 3% to 5%. As the companies grows, so will the price of the stock and its dividend. This does work as long as the stock grows. In this market, good luck!

They are not wrong. But they are only right when the conditions in the economy, the business, the industry, market conditions, and investor psychology dictate that the strategy is correct for you. That is a lot of variables. But it is better than going to the race track and betting on "Stuball" in the fifth race. At least you will not loose all your money.

With bonds, your investment strategy is simple. You pick bonds that will pay you. With Junk bonds or non-investment grade bonds, you pick companies that you believe will pay you and stay in business. With discounted junk bonds, you pick the company that you believe will pay. You pick the company that you believe will stay in business. Plus you will pick a company that will pay principle on the maturity date. These returns can be very large.

As far as strategy, in good economic times, you may buy bonds that may mature 10 to 20 years out, giving you 8% to 25% per year. In bad economic times, you should limit your investment to bonds that mature in one year or less, keeping your eye on their ability to pay you, the investor.
I recently had to change my bond investment strategy, once I realized how bad this depression is going to be. I went from bonds that mature in 4 to 7 years to bonds that mature in 3 to 9 months. That meant that I had to take some losses but nothing like the losses that the stock and mutual fund investors are taking. Some of these people lost most of their portfolio. I lost a few dollars in comparison.

You can watch the financial news channel and financial internet sites to find out who can pay, who the government is helping to pay, and who can’t pay. From that news you can figure out what bonds to buy and at what maturity. When the bonds mature, you buy more with more money and so on and so forth. Just continue to turn the money over. Here is an example of part of one of my portfolios;

Nova Chemicals Corp. 7.4% 04/01/09 bought at $800; now $982.50, will return $224.32 for an 87 days per bond investment. A simple 28.04% return. The company is being bailed out by the Canadian Government.

Ford Motor 8.5% 09/21/02 bought at $750, now $737.80, will return $304.70 for a 6 month per bond investment. A simple 40.63% return. They are in line to get a US Government bailout.

Dole Food 8.625% 05/01/09, bought at $920 now $985 will return $115 for about a 90 days per bond investment. A simple 12.5% return. The company will pay off bondholders early. The company is financially independent but the bonds were under pressure by the financial bear market.

City Group 3.375% 04/01/09, bought at $850, now $988.82 will return $161.10 for a 120 days per bond investment. A simple 18.95% return. The company is being bailed out by the Federal Government.

Now who and where did you think all that government bailout money was going to? It is going to people like me!