Strategic Fixed Income Investing: An Insider's Perspective on Bond Markets, Analysis, and Portfolio Management

CHAPTER 11

The Ladder and Why You Need One

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.

—Warren Buffett

Fixed income markets tend to carry the reputation of being very complex. This is accurate in some cases; however, it doesn't have to be. Truth be told, investing in fixed income markets is as complex as you want it to be. This is true in every sense imaginable. Investors have the tendency to get caught up in the details and complexities of the bond market. This mind-set is driven by all the different investment types and vehicles. If you let yourself fall into the trap, you will see that it is very easy to be pulled further into the complexities and find yourself inundated with Greek letters. This is, of course, only if you let yourself. It is easier than you think to get pulled in, and why not? All you have to do is turn on a business channel or pick up the financial paper and you are sure to read an article on mortgage securities, currencies, or structured debt. The times have definitely changed. There are many strategies that may hold complex characteristics. These complex strategies may be very rewarding, but as with anything, the greater the potential for reward, the greater the chance is for risk.

A successful fixed income strategy doesn't have to be complex; just well-constructed. Leave your risk taking to other asset classes where risk is well rewarded. Taking risk in an equity fund or hedge fund is likely to be much more ...