Convertible Securities: a complete guide to investment and corporate finance

Like many, I kind of fell into the stock market. I left the Army after the Vietnam war and returned to school to study philosophy. Six year later, I looked in vain for a teaching job. A fellow student, who had made a mid-career change from graphic design to aesthetics, suggested I look to finance. It’s not boring, like many other jobs, and you’re so old (30) that no industrial firm will hire you, she said. The second was certainly true, and I couldn’t get a starting-out finance job, either. Among my rejections was an “are you joking” letter typed on a manual typewriter that desperately needed cleaning, from Value Line.

A couple of months later, in the midst of a newspaper strike that prevented VL from advertising for new help, the company lost a large part of its staff to a brokerage just recovering from a brutal mid-1970s slump. I was in …because there was no one else.

One of my more respectable and much better qualified colleagues at Value Line was F. Barry Nelson, who has gone on to a long and successful career in convertibles. Tracy Maitland, Daniel Partlow and he, all of Advent Capital Management, have just written the definitive book on convertibles. Here’s my review of it:

Convertible Securities: a Complete Guide to Investment and Corporate Financing Strategies (McGraw Hill, 2022) is a fabulous, and very important, book. 

–it’s a gold mine of practical information about the convertible world, much of which would be hard/impossible to get otherwise.  I think it’s the first book anyone interested in convertibles should read

CS is an exceptionally thorough analysis of the interesting, but not top-of-mind for the investing public, world of convertibles (hybrid securities issued as fixed income but having the extra feature of allowing/compelling the holder to exchange them for something else—usually equities)

–it argues persuasively that a well-constructed portfolio of convertibles can deliver equity-like returns with considerably greater downside protection

–McGraw Hill is the go-to imprint for serious finance

–most important, CS is written by three seasoned investment professionals from Advent Capital Management, a firm that specializes in convertibles.  (My friend Barry Nelson was a senior analyst at Value Line when I joined VL in 1978.)

On another level:

CS is 500+ pages long.  Some of it is tough going.  Think of it as a way of apprenticing yourself to a group of master craftsman to learn a trade

–the book itself is a great illustration of the deceptive simplicity of Wall Street, where complexity arises from the skill of combining a welter of relatively easy-to-understand elements into a multi-aspect conclusion that’s not intuitively obvious

–maybe my strongest impression of CS is about the generosity of the authors in revealing craft knowledge it would have taken them years of hard work to amass.  Very un-Wall Street, but lucky for the rest of us.

3 responses

  1. Hi. You studied philosophy? How does this influence your investing or even life? Soros also studied philosophy. I have always been fascinated with philosophy…

    • I spent six years after the army studying European, mostly German, thought from the late 18th century through the first half of the 20th. What carried over to the stock market was that I could think more clearly and logically than before. I also realized that most things are more complex and nuanced than they might initially appear. On the other hand, given Wall Street’s anti-intellectual bent, I had to live down having had an extensive academic background. On George Soros, the parts of his investment record that I’ve seen suggest he was a brilliant currency trader and a pretty poor stock picker. Of course, it may be hard to disaggregate his results–both good and bad–from the input of the equally brilliant currency trader, Jim Rogers, who was his long-time business partner. What I find most curious about Soros having studied philosophy is his book The Alchemy of Finance. In it he advances the principle of reflexivity, which he claims to have invented. But the principle is straight out of Hegel and Marx in 19th century Germany. Very hard to believe he was unaware. Easier to believe, but less flattering for us, is that he figured no one in the US would know.

      • PS. I’m a big fan of Michel Foucault. Not much direct stock market relevance but very interesting. Also, most people would probably name Kant and Hegel as the greatest modern Western philosophers, with Plato and Aristotle completing the Big Four.

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