I am going to reprint here the beginning of the article The Education of a Corporate Bond Manager, Part VI. I am doing this because it describes how our investment department dealt with 9-11. Here it is:
After 9/11, and before the merger was complete on 9/30/2001, our investment team got together and came to an unusual conclusion - 9/11 would have little independent impact on the credit markets, so be willing to take credit risk where it is not well-understood by the market. We bought bonds in hotels, airplane EETCs (A-tranches), anything having to do with confidence in the system at that time. I consciously downgraded our portfolio two full notches from September to November.
I went to a Chief Investment Officers' conference for insurance investors in October 2001. What I remember most is that we were the only company being so aggressive. In a closed-door meeting, the representative from Conseco told me I was irresponsible. To hear that from a company near bankruptcy rang the bell. I was convinced we were on the right track.
By mid-November, we had almost completed our purchases of yieldy assets, when I received a phone call from the chief actuary of our client expressing concern over the credit risks we were taking; the rating agencies were threatening a downgrade.
Well, what do you know?! The company that did not understand the meaning of the word risk finally gets it, and happily, at the right time. We were done with our trade.
We looked like doofuses for three months before the market began to turn, and I began a humongous "up in credit" trade as we began to make a lot of money. By the time I was done in early June, I had upgraded the whole portfolio three full notches. A great trade? You bet, and more. What's worse, it was what
