Top critical review
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Didn't age well
on November 21, 2016
This book is quite old (originally written back in 2005) and things have changed a bit in the decade since...but I had a hope that there was some "timeless" advice in here. Maybe not 100% of it would be timeless but....enough. I came away being severely disappointed, which was not expected since I am normally a fan of Swedroe's writings. Here's why I think you should look elsewhere when picking a book on bonds.
The vast majority of the book is essentially a catalog of various kinds of bond and bond-like (for instance, certificates of deposit) financial instruments. I sometimes struggled to understand whether this comprehensiveness was warranted. I felt like the descriptions were too long to be a good summary and too short to be useful in making real decisions about investing. For instance, say you're considering buying a municipal Variable Rate Demand Obligation (VRDO). The minimum to buy one is $100,000. There's about 2 pages describing them. Would you invest $100,000 on something relatively complicated after reading just 2 pages? What about a Tax Anticipation Note? After reading this book do you understand how one fits into a well diversified portfolio?
The authors spend a fair amount of time talking about buying individual bonds. At one point they mention that this only makes sense if you're buying at least $500,000 of bonds; which means we're probably talking about people who have a total portfolio of over $1,000,000. I know that those people need to read books too but....how much of the audience for this book really falls into that category?
When it comes to "strategy" I felt like most of the book was fluff and the strategy is: "pick an ETF or mutual fund that is primarily/entirely short or intermediate term federal or municipal government bonds".
I didn't find many of the analyses very convincing. I was disappointed at the general lack of rigorous references and analysis. For instance, when talking about international bonds we are told "owning bonds denominated in foreign currencies can provide a diversification benefit [...] at the price of accepting currency risk". Okay. How much of a diversification benefit? How much currency risk? Later on when talking about mortgage backed securities they write, "rising interest rates, caused by rising inflation, would likely have a negative impact on both stocks and MBS." How likely? How much of an impact?
At times, the authors remind us that the market does a good job of pricing risk. In other cases, they tell us that it doesn't but they don't provide any explanation for why. For instance, why does the market fail to price high-yield bonds properly?
A small nitpick: there were a few areas where I felt like the inclusion of a simple graph or chart would have help illustrate things. The almost complete lack of that is a surprising oversight. Instead of spending paragraphs explaining yield curves and what an "inverted yield curve" means...why not have two charts? There were a few other points in the book where I felt like the explanations would have been tremendously helped by the inclusion of a chart or two.
Finally, it is interesting to see how things have progressed over the past decade. As of late 2016, the authors recommend that investors largely/primarily invest in (brokered) certificates of deposit over Treasuries, judging that the increased yield makes up for the (small) additional risks. I'd argue that there is nothing in this book that would have led you to believe they'd ever be making that recommendation. The thin chapter on CDs gives them a lukewarm recommendation and gives you no idea how to make tradeoffs between them and other securities.
If you can't get to there from here -- that is to their current recommendations from a book that is "only" 10-years old -- you can't help but wonder at the title's claim of being "the only guide you'll ever need".