This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Twenty-five Rules of Investing:  1  |  2  |  3  |  4  |  5  |  6  |  7  |  8  |  9  |  10  |  11  |  12  |  13  |  14  |  15  |  16  |  17  |  18  |  19  |  20  |  21  |  22  |  23  |  24  |  25 

 

 

Don't Forget About Bonds

 

 

Rule 15

"Where are the bonds?" That's how I used to begin every phone conversation when I was on the road, away from my desk, back when I ran my hedge fund.

Yet people forget the bond market all the time. They forgot it in 2000, even though it told them the economy was softening. They forgot it in 2001, when it was clear that the cash rates were too competitive to stocks and would cause a massive selloff. That's why I say:

 

Don't forget bonds.

 

I was trained to focus on bonds because bonds are the competition to stocks, the competition I most fear. When short-term rates go sky-high, you have to expect companies that had been bought for good yields, stocks like Bank of America (BAC - news) or BP (BP - news), will sell off.

When long-term rates fall to 4%, you have to believe that the economy may be too soft to own deep cyclicals or that stocks that have high yields, like utilities — I like to watch Duke Energy (DUK - news) — will be on the move.

You need to watch more than the stocks. If this were basketball, I would be saying that if you just watch the man with the ball, let's call him Citigroup (C - news), and you don't watch what the others are doing on defense — the bonds — there's no way you are getting to the basket. The men without the ball — the bond market — can determine the action.

Many people who got in this game in the last decade still don't even know what bonds are. They are troubled when you say bonds went up today. They think that means interest rates are going up rather than what it really means, which is that interest rates are going down. If you don't understand how bonds work, I think you will not be able to make nearly as much money as if you do.

By the way, a lot of younger managers think they only need to think about bonds if they own Washington Mutual (WM - news), American International Group (AIG - news) or Fannie Mae (FNM - news).

They don't think bonds matter with a portfolio of Research In Motion (RIMM - news), eBay (EBAY - news) or Qualcomm (QCOM - news).

Wrong! When interest rates move significantly higher, no one's going to pay a lot for the future earnings growth stocks provide.

So keep your eye on the ball, and on the men without it.

 

 

 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters