Here is a conversation I had on the way to the lunch room today:
Q: Hey, Doug. Are Bank of America bonds safe?
Doug: Huh? (My spidey senses are tingling).
Q: My broker wants me to buy their bonds.
Q: They pay 5%
Doug: What do you mean by ‘safe’?
Q: Well, you know, are the U.S. Banks going to go down?
Doug: Well, they won’t be like buying a Government of Canada bond, no. Are you worried about the U.S. Banks?
Doug: Why would you consider buying an investment that worries you?
Q: Because it pays 5%.
Doug: Is it an I.P.O.? (Initial Public Offering).
Doug: How does your broker get paid? By commission?
Doug: Did your broker do a K.Y.C? (Know Your Client).
Doug: What does your K.Y.C. say your risk tolerance is?
Q: I have to decide by 3pm today.
Doug: Ah. Classic ‘sense of urgency’ sales technique.
Doug: Have you ever bought a bond before?
Q: No, just GIC’s.
Pause. No breath.
Q: Ok, Thanks.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan