Bonds and the Circle of Competence

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The Bunyip

Hi guys,

First up, thanks for the podcast! I don’t have a lot of mates investing in the market – everyone is obsessed with buying a house (or houses!) – so it’s great to have some ‘mates’ to share the journey with. I have two areas I’d love to hear your thoughts on:

First, I would love it if you could get your mate Knes (or another bond expert) on to chat about WHAT THE HELL IS GOING ON!

I still have some bonds in my super which I have been slowly moving across into index ETFs. They were originally set up by an Investment Adviser (long since released from service) as a ‘safe base’ for my portfolio, however all of my bonds are down around 20%. So my questions:

– Why would a bond with a 4% yield drop 20%?
– Are people simply taking money out to invest in equities at a discount (surely not that many?) or are people betting that bond issuers might go broke? (my bonds are CommBank and Bank of Queensland)
– How long do experts expect it will take bond unit prices to recover? ie Since my aim was always to switch into indexes anyway, I need to decide if it’s worth waiting for bonds to recover for a ‘guaranteed’ close to 20% recovery or just switch into indexes now and look for greater long term gains.

Second, I would like to know how you guys define ‘circle of competence’. It’s a term that a lot of people throw around, but no-one ever really defines what it means. I direct television commercials for a living so I know a lot about video technology, but from Ren’s discussion of Atomos, it’s quite clear he doesn’t! For example, he mentioned that Atomos will be the first to use the new ProRes RAW codec. This codec is not new, and pretty much every camera we use has this codec as an option – it’s only really adding it as a feature for phones and other non-professional cameras. (for the record, I think Atomos is a great business producing world class tech). That’s just an example, and I don’t mean to have a crack at Ren! But it does make me wonder – how deep you feel that our knowledge of a business should be for it to enter the ‘circle’?

Thanks!
B.