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

Be wary of such superfluous claims that one strategy is going “beat” a benchmark especially when those benchmarks are major indices’s. That being said, maybe it was a bizarre minyanville publisher that choose the title rather than the author. How this is a serious publishing company I know not, as their their extremely amateurish low resolution animal cartoons seem misfit to represent investing.

Feingold lays out his argument in the first quarter of the book as to why the status quo of investing isn’t going to work out very well… and he makes a very receptive and compelling case. This made for a very strong entry point into convertible bond segment and he has a lot of valuable, honest insightful information. However, I don’t think it’s as accessible to the general public as perhaps he would want. Interest rate changes, depreciation, volatility and a general heightened level of complexity are all prevalent in convertible bonds and unless you know the convertible bond market like the back of your hand it probably doesn’t behoove mom and pop investors to jump into this asset class.

If you are reading this review, you probably have a modicum of understanding about the stock market as do I. Beating the Indexes explains how to use convertible bonds to even out your risks in the stock market. But the book is more like Sheldon (from “The Big Bang Theory) explaining quantum physics than Penny (also from Big Bang) describing how to wait tables. In other words, it’s a bit obtuse. Feingold has a tendency to fall into geek speak and then assume you understand what he is writing about, and you know what they say about assuming. He also gets all parental, “by now you “should’ understand,” and I’m all going, “Yeah, right.” He writes from the perspective of someone who has intimate knowledge of trading bonds and often leaves his audience behind unless the book is for other traders, then it probably works.
The book isn’t without merit, however. It does explain some of the intricacies of stock and bond trading. Feingold also posits what I’ve long suspected and that is that the game on Wall Street is rigged. Hedge funds and institutional investors exercise a lot of control over the markets and the individual investor can only hope to ride the tail winds.
The next time Feingold writes a book about the market, he should have a teacher proofread it so he can improve on his pedagogical techniques. After I read the one chapter with a quiz, I felt like I was beginning to understand convertibles, but then he moved on and I was left in the dust. Now I know how Penny (the blonde from Big Bang) feels.

Convertible bonds are great investments in the bond sector. Most individual investors and way too many “investment advisors” do not understand this asset class. It’s arguably a great time for convertible bonds, given the beating we have taken in the stock market over the last 10 plus years. It’s one of those few times you can make an investment that can allow you to have your cake and eat it too. You get the best of bonds and the best of the upside exposure you want from stocks. It’s very rare that you will lose principal with these, but you may go through short-term pricing issues.

What I did not know about was mandatory convertibles. That opened my eyes because you can actually lose out on those.
I did learn a lot more than what I knew, and I understood the author.

Feingold also points out the dangers of indexing (how you wind up following the heard), the dangers of closet indexing (you’re paying for great advice but ultimately get investment managers that are focusing on mediocrity).

Feingold points out how you can focus on what is really important – better long term returns. He’s right.

I should have given him 5 stars, but some may find this a little too technical. I’m in the finance business and I am ashamed that I don’t know more about convertible bonds.

The first part of the book is a bit scatter shot. It has the primary focus of outlining the problems with indexing – not so much investing in an index fund as the practice whereby fund managers attempt to match their performance to and index. To that end there are definitely some interesting points made and discussion topics mentioned. It’s just a bit of a mixed bag overall, with the author wondering down a few varied paths along the way.

For example, there’s a chapter which walks the reader through the author’s experience in the convertible bond market. It’s meant, in some ways, to present the key ideas in a case study fashion. I’m not entirely sure it’s successful, though. I think that will largely depend on the reader.

There is a really good chapter which reviews all the key nomenclature, concepts, metrics, etc. involved in bond market investing in general and convertibles in specific. That is smack in the middle of the book and from there on the text becomes much more direct and focused.

Chapter 8 is titled “Enough Already…How Do Convertibles Actually Work?”. This is pretty much exactly how the reader may be feeling at that stage having waded through the first several chapters. Thankfully, the author does get on with it and goes into different types of convertible trading/investing approaches and what to look for in them. This is that part of the book I think most readers would be buying the book to get.

So I guess the bottom line is that this is a book with some quite good parts, but with a lot of stuff which is likely of minimal value.

I’ve been investing for about a decade – mostly in index funds and small amounts in stocks I have a hunch about. I don’t know all that much about investing and need a glossary when reading advanced articles, but I figure I have plenty of time on my side. That said, becoming more educated would really be worth my time, especially if I wish to grow.

This book is sort of like meeting a professional investor at a party who goes on a long rant with stories and theories and this and that. He’s really hyped up and in a talkative mood. You’re pretty interested in what he has to say, but know you can’t really speak his lingo, and since you’ve been drinking a little, you can’t really gain as much out of talking to him as you’d like. BUT in THIS case, it’s all written down so you can read it at your leisure, twice if you have to, and he does explain everything a bit more than if he was talking to his professional buddies. Since he goes on about stories that have happened to him and his own theories, it really is like getting a chunk of a professional’s own experience. And he talks about a lot more than just convertible bonds. I’ve learned a lot of general information as well. And it’s actually a fairly easy read (where you have to stop and double check math every once in a while) considering the dry subject matter.

This book has been worth my time and effort for sure. If I could read multiple books just like this, each written by a different professional in the business, I could really be a much better investor, or at least well versed enough to BS my way through my next conversation at a party with a pro investor.