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RTs,
Listmembers who are not interested in that matter please refrain from posting silly
replies, thank you.
However, everyone should be interested in the subject, given the recent performance of
the DJUA.
I've just read J. O'Shaughnessy's interview on TAoS&C and noticed he suggests to invest
in "the most safe stocks with the highes yield", later saying that it's almost all
utilities. He says furthe that those stocks tend to behave like bonds.
Well, bonds price changes are usually influenced by two intrinsic variables: that is
time to maturity and yield. The longer the bond life the greater the fluctuation, and
the higher the yield the lower the fluctuation.
Given that, utilities could be compared to bonds with very long residual life and,
anyway, bonds having all the same maturity. So residual life should be considered equal
for all given stocks, and therefore meaningless in our reasonment.
Remains the yield. And here's the riddle. Why choosing high yield stocks, since it would
mean selecting those with lower potential move? I agree it would be a low volatility
portfolio, an extremely defensive choice. But in a falling interest rate environment
wouldn't it be better to select the lowest yielding, focusing on higher appreciation
expectation?
My reasonment would give a portfolio with higher volatility, but anyway it would always
be less volatile than most stocks portfolios given its tendency to behave bonds-alike.
Any comments?
Alberto Torchio
Torino, Italy
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