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Equity Returns Without Equity Risk?


Convertible returns keep buy-and-hold alive and well.

Will the next generation of investors, reviewing the events of the past decade, shy away from stocks, thus hurting valuations?

It's certainly possible. While memories are usually amazingly short -- at least in my experience, we have to allow for some lasting effects from this crisis.

With triple-digit Dow moves becoming the norm, it may seem odd to talk about dead money. Money is scared, money is greedy - but it certainly doesn't seem dead.

On the other hand, the death of buy-and-hold investing is being declared in a number of quarters, particularly given the events of the recent and even the not-so-recent past. But a world in which we're all trying to out-trade one another hardly bodes well for full valuations.

Indeed, the idea that we all need to be traders, while understandable, screams zero-sum game. Furthermore, it reminds us that the equity markets have, at least in the short- and mediu-term, certain frightening Ponzi-like qualities. If we're all trying to out-trade one another, we are absolutely depending on new money coming in to take us out.

The fact that we're buying stakes in businesses -- in the economy -- ultimately validates equities. But this year has been a painful reminder that the comfortingly far-flung horizons we see on charts recommending equities for the long term are of little moment as we watch prices fall - and find ourselves imagining unimaginable scenarios.

Therein lies one of the main attractions of buying bonds now: You can get the kind of double-digit returns we used to associate with equities, but you don't need to count on another buyer to pay a higher price. As long as there are other buyers of equity at some price -- as long as the company is still valid and solvent -- your strategy will work.
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Position in HOLX

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