1419 Investing in Fixed-Income Securities
W
arren Buffett is perhaps best known in the investment world
for his decisions in common stocks, and he is famous for his
“buy and hold” positions in companies such as Coca-Cola,
American Express, the Washington Post, and Gillette. His activities are
not, however, limited to stocks. He also buys short-term and long-term
f ixed-income securities, a category that includes cash, bonds, and pre-
ferred stocks. In fact, f ixed-income investing is one of Buffett’s regular
outlets, provided—as always—that there are undervalued opportuni-
ties. He simply seeks out, at any given time, those investments that
provide the highest aftertax return. In recent years, this has included
forays into the debt market, including corporate and government
bonds, convertible bonds, convertible preferred stock, and even high-
yielding junk bonds.
When we look inside these f ixed-income transactions, what we see
looks familiar, for Buffett has displayed the same approach that he takes
with investments in stocks. He looks for margin of safety, commitment,
and low prices ( bargains). He insists on strong and honest management,
good allocation of capital, and a potential for prof it. His decisions do
not depend on hot trends or market-timing factors but instead are savvy
investments based on specif ic opportunities where Buffett believes there
are undervalued assets or securities.