Acting Quickly in Troubled Times

All investment decisions have to be made after a sober and diligent consideration of all relevent information. We study, we ponder, we stare at the ceiling. Eventually, it all comes down to a judgment call and we decide -- buy or not buy.

We think the bond market offers the best investment opportunities right now, when considering both the return and the risk. The fracturing of the credit markets has caused large numbers of investors to flat-out dump perfectly good bonds onto a market wholly unable to digest them all. Those that can pick the wheat from the chaff will profit from this forced selling.

Last Thursday, I received an email from a bond broker that we like (and that I used to work for) with a few bonds out on offer. I scanned the list and immediately replied that I'd take a block of one particular bond.

Let's see -- how long did I spend researching that bond? It didn't have an underlying credit rating, and the AMBAC insurance is nearly worthless. I spent about 5 seconds considering the bond. Did I do my homework?

You bet. I had worked with this particular school district in my past life as a municipal bond investment banker. I knew the deal; I knew the community. The bond is secured by over 9,000 single-family homes. The assessed valuation of the property is nearly 80 times the amount of the debt. I know that the tax collector in that county has a policy of advancing delinquent tax payments from bond districts of this type. Standard & Poors and Moody's might have their points of view, but mine was simple: This is a money-good bond. As secure as any muni bond we can get, including those issued by the state of California.

Alas -- I wasn't the only one who jumped quickly. This bond maturing in 6 years, yielding 6.25% tax free, traded before I could even get back to the broker.

We will see more opportunities like this, and we will jump quickly on the ones I can understand at a glance. The muni bond market is as cheap, relative to other alternatives, as I have ever seen it in my career. But, we have to seize opportunities when they arise.