Income Investor Perspectives

For bond investors, there are not as many books to select from as there are for equity investors. The good news, though, is that there are a handful of books that have stood the test of time and are still worth reading. Inside the Yield Book, by Homer and Liebowitz. This classic is divided into two sections: the back half is a presentation and analysis of bond math; the first half is a written discussion of bond yields, prices and investments.

Managing a Family Fixed Income Portfolio, by Aaron Gurwitz. Do you know what the difference is between an individual investor and an institutional investor? The institutional investor has a perpetual timeframe–not so with you and me and other individual investors. This book brings academic rigor to the decision-making processes that are appropriate for an individual or a family.

The Handbook of Fixed Income Securities, edited by Frank Fabozzi. Look around any trading floor, and you will see multiple copies of this encyclopedia of fixed income.

Encyclopedia of Municipal Bonds, by Joe Mysak has recently been published, and is a worthwhile addition to the bookshelves of municipal bond market participants. It will be less relevant to most individual investors unless they have a real interest in the history of the market. But to everyone else in the municipal bond market, it is a good combination of definitions plus some of the stories to go along with them. Every trading desk and research group should keep a copy next to their Fabozzi Handbook of Fixed Income Securities. One quote in articular stands out to me, “The chief reason people get MuniLand wrong is that they think of the municipal market in equity terms.” (Introduction, page xv.)  I concur with that thought wholeheartedly–please be sure to read Bonds are Not Stocks if you haven’t already.

Adventures in MuniLand by Michael Comes, David Kotok and John Mousseau of Cumberland Advisors. Good books about the muni market are few and far between. This recent book (Fall 2015) provides an authoritative in-depth discussion on a number of important topics that are crucial for investors active in the municipal bond market. This is a must-read for self-directed muni investors, as well as for advisors, brokers or fiduciaries active in the muni business.

The ETF Handbook, by David J. Abner. There is a wave of ETF innovation that is coming to the bond market. This book provides an in-depth discussion of the ETF wrapper that will help bond market veterans get up to speed.

The CFA Institute Research Foundation published A Comprehensive Guide to Exchange Traded Funds (ETFs). Written by Joanne Hill, Dave Nadig and Matt Hougan. This is an excellent professional-level discussion of the nuts and bolts of ETFs and how to use them in a portfolio and some of the ways that individual investors. The book is very well done and informative, but If for no other reason, read it for the discussion of Trading (Chapter 6) and Fixed Income ETFs (Chapter 9) which add needed clarity to investors and advisors who may not have moved much beyond some of the most popular equity ETFs. (It can be hard to find the book in the listing of publications, so just search for “Guide to ETFs” and it should come up. You can download the PDF, but I recommend the book–it’s 180 pages, and if you are like me, you will want to turn down pages and mark it up.) This book was added to my list on August 4, 2015.

For general wisdom on investing, The Intelligent Investor by Ben Graham and The Millionaire Next Door by Stanley and Danko.

DollarLogic by Andy Martin. My longtime friend Andy Martin has published an excellent guide to helping investors conquer risk. Risk, of course, is a crucial driver of investment performance, but can also place hard earned principal at risk. Even more importantly is the practical concern of how to maintain an appropriate risk exposure for a potentially multi-decade long retirement, when there will no longer be earned income coming into the portfolio yet assets will be needed to generate income as well as growth.

Exploring this topic in terms that are based on current research and insight, while presenting the ideas in ways that will make sense to non-professional investors is exactly what DollarLogic is about. For professional investors or advisors, the sophisticated basis for the ideas presented will also be helpful. I do not want to provide a summary to let you off the hook of spending a few hours of your own time with the book, but I will offer here are a few ideas that are underlined in my copy:

• Doing less-risky things can put you more at risk. (Page 30.)
• Investing is not a math problem. Investing is a risk-management problem. (Page 54.)
• It is often better to reduce risk than it is to increase return. (Page 87.)
• To enjoy above-average long-term returns you need to focus on having smaller losses, instead of bigger gains. (Page 98.)
• Expectations do not determine your objectives. Instead, your objectives drive your expectations. (Page 145.)
• Unfortunately, the only true barrier to successful investing that remains is the investor. (Page 153.)
• Can diversification help us reduce those negative returns without significantly reducing the positive returns? (Page 191.)
• Most stories about investors ruined in the market are stories about lack of diversification. (Page 195.)
• To be successful even when you are wrong, diversify. (Paraphrased from page 211.)

DollarLogic was published in the Fall of 2015. Most bond investors will likely find helpful and relevant insights.

As you can see from the background picture on this site, I have a lot more books on my book shelf (and even more stored away). Let me know if you are looking for something specific (like due diligence, investment policy, etc.) and I may have suggestions.

UPDATED January 1, 2016.