In Bonds: The Unbeaten Path to Secure Investment Growth, we take the complex world of financial investing and simplify it for you. The ancient Greek poet Archilochus said, "The fox knows many things, but the hedgehog knows one big thing." Jim Collins, author of the best-selling Good to Great, believes that hedgehogs, such as Freud, Darwin, Einstein, and Adam Smith, made a powerful impact because "they took a complex world and simplified it."

Like the hedgehog, we know one big thing that seems to remain undiscovered by the financial establishment: bonds are a better investment than stocks for individual investors. Viewed through objective eyes, stocks historically didn't outperform bonds when an individual investor's taxes, transaction fees, and bad timing are taken into consideration. Moreover, when stocks and bonds are viewed on a risk-adjusted basis (meaning how much of your principal is at risk), the case is clear that for individual investors, bonds were historically a better investment than stocks.

If stocks haven't outperformed bonds in the past, what is the basis for the argument that they are likely to outperform bonds in the future? Should you bet your financial future on the hope that stocks will rack up superior returns and that you will be able to realize those returns? We take the contrarian view and believe it's past time to trash the myth of stocks' superior investment returns. We propose instead an all-bond portfolio as a sure-footed strategy that will ensure real results.

Many investors want consistent success, but they pursue investments with the potential for spectacular and uncertain results. These investors believe they're capable of achieving such success, until they don't. And then they're greatly disappointed. Investing in stocks was all the rage in the late 1990s. However, when stocks tanked from 2000 to 2002, investors got reacquainted with the old Wall Street adage: trees do not grow to the sky. As stocks became scary, investors rediscovered the world of bonds and their benefits. Yet the reality is that bonds have always provided a secure place in the world of investments because of their enduring role in solving financial problems.

A wealth of data is available about investing, but most of what comes to the general public are story lines, dramatic events, and other fuel for enticement. What investors need to study instead is the investment process. Long-term investment success results from the strength of the investment strategy, rather than the individual wins and losses. Investing, like baseball, is a war of attrition, and what is being worn away—by fees, transaction costs, taxes, and poor timing—is your investment capital.^[1]

A bond investor who is willing to take a measured approach to investing, scoring consistent and predictable returns without big losses, has the best possibility of winning. In the war against attrition, the bond investor hits no spectacular home runs. Instead, day in and day out he consistently gets on base, securing a predictable return while protecting his investment capital.

Warren Buffet is a great baseball fan and says investing is like being up at bat in baseball—only easier. When a player is up at bat in baseball, he has to swing, whereas the investor can stand at the plate indefinitely, until he gets the pitch he wants. But finding a good investment, like a good pitch, is difficult.

One reason we prefer purchasing individual bonds rather than bond funds is that you can decide when you want to swing. When you purchase most closed-end funds or open-end mutual funds, the fund managers must stay fully invested in a particular market sector as defined by the fund prospectus. That means a fund manager must swing whether the pitch is in the strike zone or not.

Unless you have the instincts of a Buffet or the skills of a quant searching under every rock to find an opportunity, there is considerable wisdom in settling on bonds with the aim of getting on base and scoring consistent runs. The fans may not cheer as much, but you will have the satisfaction of knowing you're financially secure. Bad pitches in the form of market hype will keep coming, but armed with the information we provide in this book, you'll have the discipline not to swing at a bad pitch.

Chapter Note

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