Beating the Indexes: Investing in Convertible Bonds
to Improve Performance and Reduce Risk
By Bill Feingold
Pearson Education, Inc.,
Publishing as FT Press, 2012
$44.99, 296 pages.
In “Beating the Indexes” experienced convertibles trader and Minyanville columnist Bill Feingold makes a solid case for convertibles as a more profitable alternative to trading indexes. Convertibles are part bond and part stock instruments. Feingold uses his expertise to explain the attributes of convertibles to a sophisticated audience; but he also outlines the basics of these instruments and offers trading strategies learned during his many years in that market.
This book is written primarily for individual investors and professionals who pick their own stocks, but want help to find the best way to structure their investments. Feingold explains how convertibles work and then looks at the securities from the perspectives of different constituencies.
Part I of the book, “Our Flawed Institutions,” lays out the hypothesis that the professional investment world is largely designed for mediocrity and job preservation at the expense of the forward-looking asset allocation it is supposed to provide. Feingold says that the intent and workability of index funds have been subverted by closet indexers who cut corners on original research. He contends more and more people charged with analyzing securities are instead taking someone else’s word for it. “The decisions on where society’s capital goes are falling to fewer and fewer active participants.”
Feingold’s solution? The markets should charge closet indexers a fee — just as, say, toll roads charge users. True indexers would not have to pay because they are providing a legitimate service by keeping costs at a minimum.