Bill Feingold - Beating the Indexes: Investing in Convertible Bonds to Improve Performance and Reduce Risk

Investing in Convertible Bonds to Improve Performance and Reduce Risk

Bill Feingold

Vice President, Publisher: Tim Moore
Associate Publisher and Director of Marketing: Amy Neidlinger
Executive Editor: Jeanne Glasser
Editorial Assistant: Pamela Boland
Operations Manager: Jodi Kemper
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Cover Designer: Alan Clements
Managing Editor: Kristy Hart
Senior Project Editor: Lori Lyons
Copy Editor: Karen Annett
Proofreader: Debbie Williams
Indexer: Lisa Stumpf
Senior Compositor: Gloria Schurick
Manufacturing Buyer: Dan Uhrig

2012 by Bill Feingold
Pearson Education, Inc.
Publishing as FT Press
Upper Saddle River, New Jersey 07458

This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services or advice by publishing this book. Each individual situation is unique. Thus, if legal or financial advice or other expert assistance is required in a specific situation, the services of a competent professional should be sought to ensure that the situation has been evaluated carefully and appropriately. The author and the publisher disclaim any liability, loss, or risk resulting directly or indirectly, from the use or application of any of the contents of this book.

Opinions expressed are those of the author and do not necessarily reflect those of BTIG LLC, its parent, affiliates, partners, members, officers, or employees.

FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special sales. For more information, please contact U.S. Corporate and Government Sales, 1-800-382-3419, .

Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners.

All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher.

Printed in the United States of America
First Printing May 2012

ISBN-10: 0-13-288594-8
ISBN-13: 978-0-13-288594-2

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Library of Congress Cataloging-in-Publication Data
Feingold, Bill.
Beating the indexes : investing in convertible bonds to improve performance and reduce risk / Bill
Feingold.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-13-288594-2 (hardback : alk. paper) -- ISBN 0-13-288594-8
1. Convertible bonds. I. Title.
HG4651.F35 2013
332.6323--dc23
2012004707

For the three men I admire most:
Sky Lucas, Chris Sferruzzo, and Franklin Parlamis

Just because everybodys doing it doesnt make it right, and just because nobodys doing it doesnt make it wrong.

Nicholas Arrigan

I wouldnt have been able to write this book without the support of my familyespecially my wife Jennifer, who understands how Im constantly wavering between the worlds of trader and writer and puts up with it. My daughters Abigail and Elizabeth give me daily joy beyond what I ever could have imagined. Any skill I have as a writer comes mostly from what my father, a retired English professor, taught me when I was growing up. His encouragement and praise are priceless because he never hesitates to tell me when he thinks I could and should have done better.

I wrote this book while sharing a Westchester office with my close friend George Chuang, whom I first met at Lehman Brothers back in the late nineties. George is one of the best friends and best businessmen I ever hope to know. Hes always graciously made a comfortable desk, complete with a great Internet connection and all the trimmings, available to me during my sojourns away from Wall Street and into writing. Thanks also go out to his team at USB Media Company, especially Maggie Dobbins and Cristina Herrera.

Also in Westchester, my good friend Dan Riseman, the hardest working man in education, has encouraged me by example and with humor. Dans not only a uniquely capable teacher and businessman, hes also a fine writer, as his first novel, Dancing in Puddles, proves. Dont miss it.

To my horse-racing friends who have given me airtime on their investing programs, Gary Greco, Ron Olinsky, and Derek Simon, I say its always a pleasure to work with you. When it comes to friends Ive met through racing who also know a thing or two about the markets, no one rivals Cary Fotias, the best handicapper I know, and a friend of 25 years whos always supported my writing efforts. I also thank Mike Tolaney, another terrific handicapper and market student, for his good words and encouragement.

I send out a special thanks to Tatyana Hube, who worked as a convertible research analyst at Merrill Lynch for more than 12 years, and graciously assisted with historical data. Other convertible pros who have aided and encouraged me at various stages throughout my career include Bart Baum, Brian Bentley, Sabina Bhatia, Frank Bianco, Tom Birkett, Mike Brailov, Doug Burke, Kevin Cadden, Joe Castro, Mike Chizmar, Richard Cunningham, Scott DeCanio, Scott Dillinger, Brian Donahue, Mark Edgar, Tom Felgner, Ron Fertig, Doug Fincher, Eddie Finkelstein, Howard Fischer, Abby Flamholz, Jeff Fox, Tony Frascella, Greg Freihofner, Richard Gatward, Salma Gaya, Ryan Goldman, Eric Grant Jr., Darren Haines, Bob Hamecs, David Harris, Rick Hochman, Steve Hodulik, John Idone, Alireza Javaheri, Chris Keller, Jim Kenney, Asad Khan, Catharina Kusuma, Rob Langer, J.P. Latrille, Bill Lee, Eric Lovelace, Steve McCormick, Tom McCusker, Larry McDonald, Donough McDonough, Walt McNulty, Greg Miller, David Muccia, Sri Nadesan, Howard Needle, Charles Ng, Van Nguyen, Mike OBrien, Scott Parrot, Curt Peters, Jason Pinkernell, Adam Posnack, Pat Prendergast, Dave Puritz, Tim Reilly, Sean Reynolds, Marc Rice, Mike Rinaldi, Pat Rossi, Jeff Sawyer, Bennett Schachter, Erich Shigley, Abe Shulman, Mark Steele, Adam Stein, Mike Stewart, Scott Subeck, Ravi Suria, Mark Vanacore, Tom van Buskirk, Joe Venn, Bob Wagner, Livia Wei, Dan White, and last but certainly not least, Eric Xia, Rich Yakomin, and Pete Yeranossian.

I thank Bernie Schaeffer, my fellow horseplayer and horse owner, for giving me the chance to start writing about convertibles at his Web site, Schaeffers Investment Research, back in 2006. I also give thanks to Todd Harrison of Minyanville. You will not meet a better trader or student of the market. But as good as he is in those areas, Todds even better as a person. Its a clich, I know, but Todd is one of those guys worthy of it. Todd gave me a forum at Minyanville, and his vision of positive social change through financial education underlies this book. Todds willingness to take risks other people wouldnt touch led to Minyanvilles alliance with Pearson and, by extension, this book.

At Pearson, I thank Jeanne Glasser, my wonderful editor, whose encouragement and constructive, pointed criticism have made this book far better than it would have been without her. Weve had our disagreements but her arguments have always been well reasoned. For the books possible shortcomings, I take full responsibility.

Others to whom I owe gratitude include, but are not limited to, Ravi Arcot, Robert Arnott, Joel Greenblatt, Mark Mitchell, Lasse Pedersen, Antti Petajisto, Todd Pulvino, and John Succo. And thanks to Scott Raab, my new friend and the author of the best sports book Ive ever read, The Whore of Akron. Scott has encouraged me to push for getting this book to the widest possible audience and to give myself the benefit of the doubt, and then some, in taking on new challenges. My lifelong buddies from Berkeley, Robert Sasaki and Serge Wilson, have done the same.