CFA Institute

Bond and Money Market Investments by Marcia Stigum; Frank J. FabozziReview by: Martin S. FridsonFinancial Analysts Journal, Vol. 43, No. 2 (Mar. - Apr., 1987), p. 85Published by: CFA InstituteStable URL: http://www.jstor.org/stable/4479024 .

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Book R eview s Robert I. Cummin, Lloyd Investments, Inc., Editor

BOND AND MONEY MARKET IN- VESTMENTS. By Marcia Stigum and Frank J. Fabozzi. Dow Jones- Irwin, Homewood, Ill., 298 Pages, 1987, $25.00.

Reviewed by Martin S. Fridson, CFA Principal, Manager of Credit Research Morgan Stanley & Co., Incorporated

Fixed income securities have inherent appeal to those who like knowing ex- actly what they are getting for their money. Such individuals will appreci- ate Bond and Money Market Investments, for it is precisely what it purports to be-a "nuts-and-bolts book" that ex- plains how small investors can lend their money to "creditworthy banks, corporations and governments at the highest available rates."

Marcia Stigum and Frank Fabozzi, respectively affiliated with Yale Uni- versity and Lafayette College, have addressed their topic comprehensively and in detail, in language accessible to the layman yet not condescending. This well organized volume covers the spectrum, including short-term and long-term securities, taxable and tax- exempt instruments, convertibles, mortgage pass-throughs, fixed income mutual funds and swapping tech- niques. Within the municipals chap- ter, the authors describe 18 distinct varieties of revenue bonds, 11 kinds of hybrid and special bonds and four types of anticipation notes, plus such exotica as super sinkers and option tender bonds. A 10-page glossary sup- plements the definitions, provided throughout the text, of terms not readily understood by the non-profes- sional.

No less impressive than the book's breadth and depth is its practicality. Considerable space is devoted to the mechanics of effecting transactions, not a simple matter for small investors in a market largely geared toward in- stitutions. The reader can learn how to participate in a Treasury auction, se- lect a bond-wise broker, and obtain credit information on corporate issu-

ers. Interspersed with the text are ba- sic calculations (bond equivalent yield, after-tax yield) and reproductions of such items as the Banxquote Deposit Index, which can help buyers to be- come more discriminating. One full chapter deals with federal income tax considerations.

Perhaps the most commendable as- pect of Bond and Money Market Invest- ments is its candid approach to fixed income securities' hazards. For exam- ple, Stigum and Fabozzi encourage a healthy skepticism toward profession- al interest rate forecasters, whose ad- vice about timing of purchases might be thought infallible by the naive in- vestor. The authors are also forthright about the risks of heavily promoted products such as zero-coupon bonds and wisely counsel individual inves- tors to consider certificates of deposit only if they are insured by federal agencies. They steer potential junk bond buyers toward bond funds, where they can achieve reasonable di- versification. To their credit as well, the authors clearly explain the differ- ence between call protection and re- funding protection, a distinction not always made by professionals, despite the quite different risk implications of these two indenture provisions.

Any book as wide-ranging as this one inevitably obliges the reviewer to take exception to a few points. First of all, the authors' assertion that "there is a growing tendency today to protect bondholders with various protective covenants" is contradicted by research that documents a 10-year trend toward elimination of these provisions by ma- jor corporations. (See Morey W. McDaniel, "Bondholders and Corpo- rate Governance," The Business Lawyer, February 1986, p. 426.) One might also question the authors' recommenda- tion of Treasury bonds purchased on margin as a means of speculating on interest rates. Although options and futures lie outside the scope of Bond and Money Market Investments, they ought at least to be mentioned as alter- native, and possibly superior, vehi-

cles. Finally, in a book otherwise nota- ble for its impartiality (exemplified by its comparison of banks' money mar- ket deposit accounts and money mar- ket mutual funds), it is disappointing to read two-and-one-half pages extol- ling one particular investment dealer's retail CD program, followed by a mere two sentences acknowledging that several other firms (which are oblique- ly chastised as copycats) offer similar products.

Of less concern are the occasional solecism ("sufficiently high enough") and typographical error (including, on the dust jacket, the misspelled name of a prominent bond house). Also in the venial category, an unfortunate juxtaposition of sentences may leave the impression that Pembroke Capi- tal's bonds are joint and several obliga- tions of Gulf Oil and Texaco. (The guarantors are in fact severally but not jointly liable.) On the whole, however, Dow Jones-Irwin has packaged the au- thors' work attractively, with gratify- ingly readable type and straightfor- ward graphics.

Bond and Money Market Investments is an excellent reference work for the individual investor, and for any broker or investment adviser who is not a specialist in the markets it covers. Bringing to bear their academic back- grounds, as well as substantial con- sulting experience, Stigum and Fa- bozzi provide perspective on the forces that drive financial innovation, while also delivering the promised nuts and bolts. Individuals seeking to invest their money wisely will find this book a solid value.

Financial Analysts Journal will consider for publication reviews of current books on topics of in- terest to investment profession- als. Submissions should be ad- dressed to: The Managing Editor, Financial Analysts Journal, 1633 Broadway, 14th Floor, New York City, New York 10019.

FINANCIAL ANALYSTS JOURNAL / MARCH-APRIL 1987 O 85

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