{"id":22886,"date":"2008-12-22T11:14:00","date_gmt":"2008-12-22T11:14:00","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=424"},"modified":"2008-12-22T11:14:00","modified_gmt":"2008-12-22T11:14:00","slug":"consignas-y-mas-consignas","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/consignas-y-mas-consignas\/","title":{"rendered":"Slogans and more slogans."},"content":{"rendered":"
Last weekend I read an article in *Expansi\u00f3n*<\/a> which made me feel both sad and angry. Sad because the same fundamental mistakes keep being made time and time again; and angry because a prestigious publication like *Expansi\u00f3n* allows investment advice that is so far from objective \u2013 to put it politely. I\u2019d recommend you have a look at it, comments included, so that I can then share a few thoughts with you.<\/p>\n

Miquel Roig and Daniel Bad\u00eda<\/span>, whom I have not had the pleasure of meeting beyond their articles in that publication, tell us about the benefits of investing in corporate bonds. Just like that. And do so through investment funds to ensure proper diversification, leaving it in the hands of experts (sic<\/span>): \u00abWith a minimal investment, they allow for significant diversification and entrust management to investment professionals in these markets.\u00bb<\/span> Another appointment eminent<\/span>: \u00abIn our view, prices as low as they are at present represent an ideal opportunity for fund managers to invest in corporate debt, whether or not it is investment grade<\/span>\u00ab, and who says so?\u201d Adam Cordery<\/a>, that is, a manager (seller) <\/span>Schroders\u2019 fixed-income funds. Both sides seem to be saying that the issuer\u2019s creditworthiness and ability to repay are of little consequence if the purchase price is low enough.<\/p>\n

<\/p>\n

To illustrate this, the article uses an absurd example: the investment involved in the Chicago Bulls signing Michael Jordan for 35 million a year, and how bad that signing would have been if the price had been 100 times higher (sic). \"\"<\/a>They extrapolate this to today\u2019s depressed corporate bond prices, and the conclusion is that now is the time to buy. But buying low-rated or sub-prime corporate debt at a bargain price is actually like the Chicago Bulls signing professional players with serious injuries \u2013 which will prevent an unknown number of them from succeeding \u2013 for half of what Michael Jordan earns. And to think that, because they cost half as much, they\u2019ll still be competitive and, on top of that, they\u2019ll make a fortune by selling them off as top-class players in their prime. What\u2019s more, the Perfect Storm we\u2019re heading into is going to exacerbate those injuries beyond measure. Dangerous, isn\u2019t it?<\/p>\n

To begin with, it is completely ignored the circumstances surrounding that investment<\/a>, and they simply limit themselves to classifying it as good or bad based on the purchase price. But as we have said many times, the risk-return ratio is just one of the variables we must take into account before classifying an investment as good or bad, suitable or unsuitable for our specific circumstances. In the aforementioned article in *Expansi\u00f3n*, not even something as basic as the proportion of the investment relative to our total assets is taken into account. It simply spews out the slogan<\/span> in large letters: \u00abExperts recommend gradually building up a portfolio of corporate debt.<\/span> Demonstrating their analytical skills and prudence, they recommend doing so gradually: \u00abIt is advisable to spread your purchases over several weeks or months (2,000 each week or 5,000 each month, and so on). Mickael Benhaim, Global Head of Bonds at Pictet Funds\u201d <\/span>(another salesperson)<\/span>, states that the time has now come to start building up a corporate debt portfolio, particularly in high-yield bonds, although he advises entering the market gradually.<\/span>\u00ab<\/p>\n

Here are a few more gems:<\/p>\n

\u00abThe key to this type of investment is to have a portfolio that is sufficiently diversified so that any default by one of the issuers can be offset by the interest and the return of the capital invested in the remaining companies<\/span>.\u00bb I\u2019m afraid I must correct you, but the return on capital invested in the surviving companies will not cover defaults or credit events arising from investments that go wrong; it will only cover the interest. However, between the normal repayment of the issue and a default, there may (and will) be various credit events that turn such issues into a financial nightmare, even if they do not default.<\/p>\n

\"\"<\/a>\u00abThe economy will contract, demand will fall, and corporate debt defaults will rise from the current 2% to beyond 15%. The good news? Current prices already factor in the worst-case scenario.<\/span>.\u00bb Gentlemen, we cannot base the success of an investment strategy on the assumption that future defaults or credit events will not exceed 15%. Not in a liquidity trap scenario such as the current one. But the fact is that the recommended investment horizon isn\u2019t even mentioned, and corporate debt with a maturity of more than a couple of years could face difficulties that are entirely impossible to predict. \u00abThe worst-case scenario<\/span>\u00bbFor most analysts, this has been systematically contradicted by the harsh reality that has been proving them wrong day after day. Why should we now trust their \u00abworst-case scenario\u00bb calculations?\"<\/p>\n

Neither investment circumstances, nor asset allocations, nor portfolio compositions, nor investment timing\u2026 absolutely nothing. The Unbearable Lightness of the Fund Manager<\/a> or the seller in their purest form.<\/p>\n

I have no intention of offending the authors of the article in *Expansi\u00f3n*; I do not even know them. However, I have been unable to find in their text \u2013 or in the references to fund managers and salespeople included therein \u2013 a single rational analysis of risk, return and the circumstances that would safeguard the interests of potential investors. Just<\/span> Slogans<\/span> and more slogans<\/span>.<\/div>","protected":false},"excerpt":{"rendered":"

El pasado fin de semana le\u00ed un art\u00edculo en Expansi\u00f3n que me di\u00f3 pena y rabia. Pena porque se siguen cometiendo los mismos errores de base una y otra vez; y rabia porque una publicaci\u00f3n de prestigo como Expansi\u00f3n permita consignas de inversi\u00f3n tan poco objetivas, por decirlo de forma elegante. Os recomiendo que le […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[],"class_list":["post-22886","post","type-post","status-publish","format-standard","hentry","category-sin-categorizar"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/22886","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=22886"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/22886\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=22886"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=22886"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=22886"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}