Re: Reverse Convertible Securities.
We are looking at moving 10% of our portfolio inot 6 month Reverse Convertable Securities that have a coupon of from 10% to 15%. Does anyone here have any experience with reverse convertible securities?
I don't have personal experience with them. But I considered them for my own portfolio and decided I don't like how those contracts work.
Don't let the high coupon fool you. Reverse convertible securities
work either like stocks, or like bonds, or like cash, at the issuer's discretion. The issuer, of course, will make whatever choice is best for him, or conversely, worst for you. The high coupon, then, represents a premium for a risk to your investment; and a considerable one at that. You may be betting that the market will stay flat for a while. I won't argue with you about that, but whoever is trying to sell this asset to you wants to bet the opposite. He either bets, contrary to almost everybody else, that the market will go through the roof, in which case he'll convert to cash. Or he bets that the market will go south, in which case he'll convert it to equity and leave you with the bill. Are you sure this is the kind of investment you're looking for? Or did some sleazy used car salesman type investment banker recommend it to you as a get-rich-quick scheme?