Home > Articles > Business & Management > Finance & Investing

Introduction to Beating the Indexes: Investing in Convertible Bonds to Improve Performance and Reduce Risk

  • Print
  • + Share This
Bill Feingold introduces his book, which will show you not only how you can make good money in convertible bonds, but also also have a lot of fun with them.
This chapter is from the book

Introduction

If you’re accustomed to books that follow traditional categorizations, you’ll need to bend your expectations a little. I am taking a new approach with this book, one that I refer to as the “narrative textbook.”

If you like the markets, are reasonably comfortable with numbers, and enjoy solving problems, you not only can make good money in convertible bonds, but you can also have a lot of fun with them. I think they are the most fascinating of all investments because of their versatility. But, let’s face it—convertible bonds, as a subject matter, is probably not going to rival your basic Stephen King thriller. Most books about convertibles do a respectable job of delivering the material, but they do it in such a way as to lose the interest of all but the most devoted students. Let’s call it what it is—they are dry. For introducing new readers and new investors to a valuable investment option, then, they are essentially dead on arrival.

Although I think you will find convertibles intriguing, there are some basic concepts you need to learn. I’m trying to help the medicine go down with a spoonful of sugar. This book mixes the necessary details of understanding convertibles with a collection of stories from my career. I hope that you’ll find the narrative aspect of the book sufficiently engaging to inform you painlessly about what you need to know about convertibles. In fact, I suggest you think of the book as a story with plenty of teaching woven in, rather than the other way around. And if you approach the material with an open mind, I think you’ll be surprised how intriguing and enjoyable you’ll find it.

The book has two distinct but related parts. The first and shorter section, Part I, “Our Flawed Institutions,” addresses and expands upon the core of my first book, The Undoing of Cowardice. I lay out the argument that the professional investment world is largely designed for mediocrity and job preservation at the expense of the creative, forward-looking asset allocation it is supposed to provide. I think there are a lot of competent people out there who want to do a good job, but we are giving them all the wrong incentives. I explain why and how this actually creates more opportunities for you. I hope that as you come to understand the structure of markets, you will feel more confident about taking control of your investments, especially as an individual investor. If you do, you will find that the time invested in learning about convertible bonds—the second and larger part of the book—will repay you many times over.

Within Part II, “Convertibles, a Better Solution,” I begin by laying out the basic facts you need to understand convertibles. For investors focused largely on stocks—and this means most investors—you will find this part highly useful. You’ll come away with knowledge of traditional bonds and options that you knew you should have had, but probably never got around to. Then I’ll take you through the journey of my career so that you have immediate contexts for those facts. I hope that you’ll experience a bit of the thrills, pitfalls, and unintended humor that have all befallen me in my own convertible journey. After we finish the tour, we dig deeper into convertibles, learning how to compare them as investments with the stocks that underlie them. There’s a brief quiz midway through this section to make sure you’re learning to speak the language. By the end, although you might not quite be a convertible guru, you’ll have a pretty good comfort level with an investment a lot more people would use if they only knew about it.

I need you to keep a few things in mind. This book does not teach you how to pick stocks. I am not a stock picker. My skill, such as it is, involves starting with an idea about where a stock is heading, how long it might take to get there, and what might happen if the idea turns out to be wrong. For most people, the set of possible investments begins and ends with the stock itself. After you’ve finished this book, you’ll be way ahead of them. You’ll understand not only stocks, but also options, bonds, and, of course, convertibles. You’ll begin, as a matter of course, examining your own thought process and matching your investment to your opinion—because it’s not a one-size-fits-all world.

As such, this book is probably best for people—individual investors and professionals alike—who like to pick their own stocks but want help in finding the best way of structuring their investments. I know there are a lot of you out there.

After we’ve learned how convertibles work—including the actual nuts and bolts of the trading process—and how to identify attractive ones, we’ll look at the securities from the perspectives of different constituencies. Individual investors, financial advisors, institutions, corporate treasurers, and students will all find a subsection dedicated to their area of interest.

Before we finish, we’ll take a quick overview of the more advanced topics convertible professionals follow. Those of you eager to learn more about convertibles will find this last section a good starting point for further study.

Congratulations on taking your first steps toward making one of Wall Street’s best trades part of your portfolio!

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020