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Christopher Lum Lee
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I'm a retail investor with a modest amount of investing experience. The purpose of my commentaries is to provide a discussion as to why I would make certain investments over others. Disclosure: I am not a broker or advisor. My commentaries or opinions are based on what I use to make investing... More
  • Book Review: Thau, "The Bond Book" 0 comments
    Nov 2, 2013 2:40 AM

    In this third edition of The Bond Book (McGraw Hill, 2011), Annette Thau, a former municipal bond analyst for the Chase Manhattan Bank, discusses the basics of various types of bonds, funds, ETFs, and asset allocation and portfolio management strategies. As the subtitle says, "Everything Investors Need to Know about Treasuries, Municipals, GNMAs, Corporates, Zeros, Bond Funds, Money Market Funds, and More".

    This most recent edition incorporates discussions of the effects of the 2008 credit crisis to put the landscape of bonds into context by discussing how the credit market now affects bond pricing and market and credit risks. Between 2008 and now, treasuries have fallen out of favor, and emerging markets are still speculative. Because of this, this book came out at a good time because of the new market trends. The Bond Book highlights the pros and cons of each type of bond and towards the end gives asset allocation and portfolio management strategies. As she states on page 419, "But still, the scars, or the shadow, of the financial panic of 2008 continue to overhang the bond market." This remains a constant theme throughout the book- as she makes several references to the financial crisis.

    Unlike many books you may read about bond investing, The Bond Book dedicates the first part- the first five chapters- to extensively go over the very basic information about bonds such as bond terminology, volatility rationale, how bond markets work, and calculating overall returns. After going over the basics, part two of the book dedicates individual chapters to individual bond categories- specifically, treasuries, municipal bonds, corporate bonds, mortgage-backed securities, and international bonds. Part three discusses investing through funds such as mutual funds, money market funds, taxable and tax-exempt bond funds, closed-end funds, and ETFs. And part four goes over asset allocation and portfolio management. I felt that this book could be better than any Bonds for Dummies book that could be written.

    My personal favorite areas of discussion included corporate bonds, emerging market bonds, closed-end funds, and ETFs because she points out a lot of subtle pros and cons that go beyond the NAV or returns that the amateur investor wouldn't factor in their investing thesis. I also enjoyed these sections more because while (1) I find corporate bonds more exciting than treasuries, (2) emerging market bonds are still a relatively new bond sector, (3) closed-end funds are a new bond sector, and (4) she discussed terms such as NAV, expense ratios, and how to measure the quality of a bond ETF.

    Looking at the landscape of the bond market today, bonds aren't as attractive as they once were for a variety of reasons. The first reason I can think of is that they have lower yields and there is a concern of interest rate risk due to the impending bond tapering. In any case, I remain adamant that bonds- regardless of weighting- belong in any investor's portfolio and this book goes over strategies to determine a good bond investment that I believe will benefit any investors.

    I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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