Hi fellow AFers, Would appreciate inputs on how I can possibly get about doing a presentation to 1. The CIO 2. The end investor based on the below scenario: Investment Idea: The financial sector is at the heart of the current crisis. So far many financial institutions have gone bankrupt, or been forced to merge to survive, on the back of significant government assistance. From a global perspective, are the bonds/preferreds/perpetuals and/or the common shares a BUY at this point in time for an investment portfolio? Why? What are the points that I should be looking out for? And I would also need data to back the arguments. Thanks for your help!
You mean bonds, preferred, common shares of financials? There’s still a real possibility that more firms will go under. That means equity and preferreds can be wiped out 100%, some bonds too, and the remainder might be wiped out by a very large percentage. If you can somehow guarantee that there won’t be a bankruptcy, the bonds might be the better deal. A convertible bond or bonds with attached warrants maybe, but it all really has to do with how you price them. Traditional option/warrant pricing models are highly suspect here because the returns distribution is relatively unprecedented - you’d very likely be modeling the risk based on data from a non-comparable period.
major negative skew risk, only guys like Buffett are getting good deals. The rest of us are at the end of the lunch line waiting for cold meatloaf.