Why buy convertibles?
* Convertibles combine the income compounding of fixed income securities with the capital gain potential of common stocks. * They occupy a balance sheet position senior to the common stock of a company, giving them a greater degree of safety, which is important when investing in companies perceived to have problems. * The income stream attaches some mathematical certainty to the value of the bond – once a decision has been made as to the perception of what the instrument should yield, plain math takes over. In the case of common stocks the price is almost entirely based on perception of its worth. * Timing – good analysis can give a rational idea of what is going to happen to a company, just not when. The convertible’s contractual cash income constitutes a decent return that rewards investors for a necessary degree of patience. It takes time for most of our purchases to work. Q: What is a convertible and how does it work? A: To fund their operations, corporations primarily sell three f
