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Budgeting for Losses

January 18, 2002
Christopher J. Carney, Jason A. Elder

For those of us who spend most of our time in the investment trenches, decisions and decision-making outcomes often seem obvious. Assuming that other portfolio managers share our “front-line” perspective can be dangerous to our bottom line, our shareholders, and our career. Given enough time, energy and effort, a front-line soldier can usually make his point with even an armchair general. However, on a constantly shifting investment battlefield, we may not have the time. For instance, taking losses on investments “in the heat of the battle” is typically very unpopular. Earnings pressure and accounting considerations cause management to regard such actions skeptically, even when taking losses increases shareholder wealth. If we wait for actual losses to appear, the fight to persuade management to realize them may take a long time. If and when we succeed, it may be too late!

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You lost…Congratulations!

January 11, 2002
Kurt A. Fritz

Some of you will recall my article from October of 2001 entitled “Finally catching some ZZZs (DI Volume 8, Number 56 ).” Many of you will not. In the article I discussed my initial inability to understand the large volume of super high quality VADMs being produced, until I realized that they were being created due to large demand for Z tranches. This demand was being driven by a desperate need to “extend” many investment portfolios’ durations.

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