Bob asked when it makes sense to invest in convertibles. That is his kind way of saying that I didn't go into enough detail yesterday.
The short answer is that a good time to invest in convertibles is when interest rates are starting to fall and the outlook for stocks is good. This is often the case towards the end of a recession. As the interest rates fall, the price of your bond goes up. As stock prices go up the price of your bond goes up until it reaches the conversion price. In either case the downside risk is limited by the falling interest rates.
Almost all of the articles written on Convertible Bonds say they are complicated and that for the average investor a mutual fund that invests in convertibles would be the best bet. There are lots of free convertible bond calculators available on line for those that want to do the analysis themselves.
If you want to see performance on a convertible fund see Davis Appreciation and Income Y (DCSYX). It has below average risk and above average return.
Comment Preview