Business
“Tax-free bonds are materially different from common stocks or corporate bonds in that there are literally hundreds of thousands of issues, with the great majority having very few holders. [Very few holders] substantially inhibits the development of close, active markets.”
“In my opinion, there is frequently insufficient differential in yield at time of issue for the marketability differences that will exist once the initial sales push is terminated.”
“[2% to 5% spreads] would be devastating if you attempted to trade in such bonds, but I don't believe it should be a deterrent for a long-term investor.”
“The real necessity is to stay away from bonds of very limited marketability - which frequently are the type local bond dealers have the greatest monetary incentive to push.”
“For a period of time there was a very substantial prejudice against [Development Authority bonds], causing them to sell at yields considerably higher than those commensurate with their inherent credit standing.”
“If I can't understand something, I tend to forget it. Passing an opportunity which I don't understand - even if someone else is perceptive enough to analyze it and get paid well for doing it - doesn't bother me.”
“The bond salesman doesn't usually explain [penalized resale] to you when you buy the $10,000 of bonds from him, but it gets explained when you later try to sell the $10,000 to him.”
“[Call contracts] are really outrageous and exist because bond investors can't think through the implications of such a contract form and bond dealers don't insist on better terms for their customers.”
“One extremely interesting fact is that bonds with very unattractive call features sell at virtually the same yield as otherwise identical bonds which are noncallable.”
“Anyone who has done much predicting in [future rate levels] has tended to look very foolish very fast. I did not regard rates as unattractive one year ago, and I was proved very wrong almost immediately.”
“If it is a 50-50 chance as to the future general level of interest rates and the yield curve is substantially positive, then the odds are better in buying long term non-callable bonds than shorter term ones.”
“Interestingly enough, for most taxpayers, [higher yields at discounts] over-compensate for the probable tax to be paid.”
“Banks have historically been the largest purchasers and owners of tax-free bonds and anything that precludes them from one segment of the market has dramatic effects on the supply-demand situation in that segment.”
“Sometimes the tax-free bond market has more similarities to real estate than to stocks. There are hundreds of thousands of items of varying comparability, some with no sellers, some with reluctant sellers and some with eager sellers.”