My Name is Bond, Good Bond

My Name is Bond, Good Bond

April 27, 2023

As I wrote about – and warned – at length when interest rates were sub-1% in the US (and in many European countries, actually negative), bonds were in a massive bubble for several years – akin to the internet bubble for stocks in the late 1990s and early 2000s.  As with all bubbles, it is hard to spot when the bursting will occur – until after the fact. It is always tempting to think that ‘this time is different’ (as many investors stated as the rationalization for stocks selling at 50 – 80 times sales just a couple years ago were not overvalued), but the movie inevitably ends the same way; unwitting investors holding major losses on assets they were sure were of good value.  Many bond holders around the world learned the hard lesson that even supposedly ‘safe’ investments like bonds can decline precipitously if the purchase price is excessive relative to the underlying value of the asset.


Just as many overvalued stocks from previous bubbles ultimately dropped in price making them more attractive investments, so too have many bonds become compelling as part of a well-diversified portfolio.  As I wrote about for Fortune (See Fortune Article), bonds are once again a viable asset class for those who are in need of income and have a shorter investment time horizon than what is appropriate for stocks.  That said, there are still many thousands of bond investment options, so it is very important to do your research before making fixed income investments.  If you are rusty when it comes to your bond investing, or just need an extra set of eyes on your portfolio to ensure you are allocating the right amount of capital to fixed income (and to the right bonds for your circumstances), then make sure to work with a professional who has deep experience and expertise with asset allocation beyond just equites.

A Case of Owning the Best

At Coastwise we continually emphasize the importance of owning the highest quality stocks - the ‘best of breeds’ in a given industry.  There will invariably be challenges that emerge – be it political, macro-economic, company specific, or otherwise (can you say “pandemic”?).  Look at the case of Starbucks (SBUX).  This company was at the heart of storm in 2020/2021, literally unable to sell its products due to the shutting of most of its stores.  It is estimated that nearly 3,000 ‘mom and pop’ coffee shops closed during the pandemic – permanently.  They simply did not have the financial wherewithal to continue to operate under such challenging conditions.  Meanwhile, SBUX was able to continue to pay its employees, and never missed a beat on its quarterly dividend.  It actually increased its dividend in the fall of 2020, in the midst of the crisis.  While its stock did decline during that period, it recovered rapidly, and continued to increase its dividend at a nearly double-digit pace.  Today customers line up for their pre-flight java at airports around the world, and SBUX has great prospects for future growth and profitability.  The same cannot be said for smaller, less financially durable competitors who were not able to stay open long enough to benefit from the recovery, in some cases SBUX even taking over the lease from its smaller competitor who had to flee town.


The case of SBUX as a ‘strong get stronger’ situation is not unique.  Regularly, upstarts emerge to try to knock off the #1 in a given industry.  Jones Soda (JSDA) was a hot stock during the 2000s, rocketing nearly 30X in just a few years.  But as with most third-tier companies, JSDA’s time in the sun came and went quickly, the stock now trading for pennies, and down over 60% since the company went public over 20 years ago. Compare this with Coca Cola (KO) that has not just been paying a dividend for decades but increasing it annually as well.  Indeed, KO has paid out more in dividends alone than JSDA’s peak stock price since the two became competitors – not to mention KO’s stock price ever increasing over time.


As I note in my soon to be released investing book The Compound Code: An Expert Guide To Trading Stocks & Options (, when in doubt (and you should never have any doubts), opt for the top company in any given industry.  When the proverbial storms arise – as they always do – you will be glad you own the highest quality stock with the best chances of not only surviving challenges but thriving over time.