Professional Documents
Culture Documents
Warren Buffett
The news is filled daily with stories of ongoing layoffs, bankruptcies of historic institutions including General
Motors and lingering effects of scandals such as the historic pyramid scheme run by Bernie Madoff. All of this
has left investors asking themselves the same question: what should I do now with my investments?
It seems that there is nowhere to turn these days, but for fixed income oriented investors and for traditional
stock market investors looking for an alternative to equities, Vision Financial Markets (“Vision”) feels that
there is a timely and historic opportunity present in short-term investment grade corporate bonds. Vision is
in agreement with the quote from Warren Buffett provided on the previous page of this report. Furthermore,
with interest rates still at historically low levels we feel that investment grade corporate bonds deserve serious
consideration for inclusion in the portfolios of many investors.
Consider an Alternative
Vision believes that this is an excellent time for investors looking for better yields to consider attractive
alternative investments. One way to take advantage of the distressed levels in some of the well known names
in the marketplace is not in the underlying common stocks, but rather in the corporate bonds which these
companies issue.
Vision has a large inventory of short-term investment grade corporate bonds with attractive current yields
relative to many other products. Our full inventory currently consists of a portfolio with almost 70 different
issues with most bonds yielding above 3% (and some as high as 9%). Most of our bonds mature in less than
three years and we believe they offer an excellent opportunity for both current yield and preservation of
capital.
[Please find attached to the end of this report a recent list of Vision’s corporate bond inventory.]
Investment grade bonds enjoy ratings of AAA to BBB from the major rating agencies. This rating pertains
to the belief in the underlying company’s ability to make its scheduled interest payments and to repay the
principal amount of the bonds in full. Also, keep in mind that corporate debt ranks higher than preferred stock
or common stock should a company go into bankruptcy or have difficulty servicing its debt (e.g. interest on
corporate bonds must be paid before common or preferred stock holders can receive any declared dividends).
Each corporate bond has a coupon, which represents the stated interest rate which will be paid on the
respective bond. Coupon rates can be fixed, meaning that they do not change over the life of the bond, or they
can be floating. Floating rate bonds have interest payments that can change over time based on changes in
an underlying interest rate such as the London Interbank Offered Rate (“LIBOR”). Floating rate bonds usually
pay interest quarterly as opposed to semi-annually. Both fixed rate and floating rate bonds are typically issued
with a face value of $1,000 per bond (e.g. 10 bonds equals a face value of $10,000). Bond prices are quoted as a
percentage of par so that a price of $95 on a bond represents $950 per bond.
In addition, there is an inverse relationship between interest rates and yields on a bond. As interest rates
rise, bond prices typically fall and as yields fall, bond prices typically rise. Vision recommends that investors
purchase our investment grade corporate bonds with the intention of holding them until they mature so that
these fluctuations only have a “paper” impact. Vision also typically quotes the yield to maturity on a bond
which represents the return each investor will receive if they hold the bond until it matures.
Another important aspect of corporate debt is that it is senior in status to other obligations of the issuing
entity. If a company should unfortunately declare bankruptcy, the first in line to collect money when assets are
liquidated are vendors for such things as rent, business expenses, etc. (e.g. the corporations invoices must be
paid). Afterwards, comes the debt obligations of the corporation including bonds which have been issued. Only
after all the debt issued is paid back do any of the common stock shareholders receive anything, which adds to
the risk of having a full common stock portfolio.
Warren Buffett, Chairman and CEO of Berkshire Hathaway and one of the top money managers of our time,
wrote the following in his letter to shareholders for the 2009 annual meeting: “A few years ago it would have
seemed unthinkable that yields like today’s could have been obtained on good grade municipal or corporate
bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than
a pittance on long terms.”
Howard Rothman, President of Vision, has shared these sentiments about corporate bonds for some time now
Vision is certainly not alone in our recommendation to buy investment grade corporate bonds. In a June 1st
Wall Street Journal article, there was wide support for the purchase of corporate bonds to not only enhance,
but to build your portfolio. The article theorized that “as the financial system edges away from its brush with
near death, companies will become financially stronger. In that situation, corporate bonds will rise in value,
which can boost returns for corporate bond funds.” These sentiments share our opinion along with their
statement that says: “Some highly rated corporate bonds are sporting strong yields and even some riskier
corporate bonds may be a good bet as the financial environment improves.”
In our belief, unless you have a very large sum of assets with a brokerage firm, these bonds would not be
readily accessible. In addition, it would be hard to get the firm selling them to break the offering up into smaller
amounts like Vision will do for each investor. There is also the likelihood that the bonds would have a higher
mark-up. On the flip side, many smaller firms do not have these bonds available or perhaps do so, but only
in very limited availability. Vision, contrary to both scenarios above (larger firms with high minimums and
mark-ups and smaller firms with limited to no inventory), not only has the inventory, but will allow investors to
purchase these bonds with investments as small as only $2,000.
Vision maintains relationships with various fixed income dealers and has been able to purchase a large amount
of investment grade bonds which we felt were priced very attractively. To date, Vision has purchased over
$200 million of these bonds and has many different issuers available for your consideration. We could keep
these bonds for our own account to receive these attractive yields for ourselves, but our business philosophy
is to use these bonds to the benefit of our existing and future clients, thus providing a valuable service to
investors and building new or strengthening existing relationships.
Seeing is Believing…
Vision lists our current inventory on our Web site which we update weekly. Please visit our site at
www.tradewithvision.com/bonds to see the investment grade corporate bonds we have available. Each specific
bond will be listed including such issuers as General Electric, Goldman Sachs, AT&T, United Healthcare, and
Coca Cola Enterprises. Also listed are the pertinent details about each bond including the coupon rate, current
yield, maturity date, ratings, etc. For your convenience, our latest list of available bonds is included at the end
of this report. Please be sure to note the date of the available inventory which is listed on each page which
included the specific bonds.
While on Vision’s Web site, please also look at our other capabilities and attractive pricing for trading stocks
and options. We even provide access to thousands of mutual funds from over 80 different fund families.
Please keep in mind that yields and prices may vary so that an investor may receive more or less than invested
if the bonds are not held until maturity. Furthermore, these investments are not insured by the FDIC or any
other entity. Bonds are subject to various risks including interest rate risk, issuer risk and reinvestment risk
same of which are detailed below.
Corporate bonds may be subject to the following risks which investors should carefully consider prior to
making any investment:
Credit Risk - The financial risk that the issuer will not be able to repay the principal upon maturity as promised;
Call Risk - Bonds may be redeemed before the stated maturity date (depending on the call provisions of the specific
bond issue);
Market Risk - If the bond must be sold before the maturity date, the bond may be worth more or less than the face
value and more or less than an investor paid for the bond depending on interest rate movements;
Inflation Risk - The value of the bonds or the income derived from the bonds may be eroded if inflation shrinks the
value of the underlying currency;
Liquidity Risk - Some bonds may be very hard to sell if there is a thin trading market or if the bonds are relatively
unknown; and
Reinvestment Risk – If interest rates fall, there is risk that the interest and/or principal upon maturity of a specific
bond may need to be reinvested at lower rates than the original investment
Vision is also a member of the Securities Investor Protection Corporation (SIPC). SIPC provides up to
$500,000 of coverage, with a limit of $100,000 for claims for cash. This protection does not safeguard against
a decline or loss in market value of the securities in your account.
www.tradewithvision.com