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A bond has a fixed return if held to maturity. Equity has unlimited upside and has no maturity. Stock is the residual claim on a company's assets after all othe

A bond has a fixed return if held to maturity. Equity has unlimited upside and has no maturity. Stock is the residual claim on a company's assets after all other claims are settled. Equity isn't a junk bond, with or without voting rights.

Thrymr 8y ago
"junk stock"
all_blue_chucks 8y ago
Non-voting shares as an asset class are very much like junk bonds in that they give you no control of a company, and they are worse than junk bonds in that they are even lower than junior unsecured junk when it comes to recovery. "Fixed return" isn't really relevant from a practical standpoint because shares and junk debt both have volatile prices, and price is what actually matters when it comes to securities like this.
- soVeryTired 8y ago
  > "Fixed return" isn't really relevant from a practical standpoint because shares and junk debt both have volatile prices... It's absolutely relevant. Sometimes junior debt trades a little bit like equity but the point is that bonds mature whereas equity exists for the lifetime of a company. >... price is what actually matters when it comes to securities like this. Absolute return is what matters, not price. The return of a bond - junk or otherwise - is known on day one of a bond issuance in the absence of default. That makes fixed income a fundamentally different asset class to equity. Even a junior perpetual junk bond is different to equity. The junk bond's coupons would be fixed, whereas dividends vary according to company profits.
  - all_blue_chucks 8y ago
    What percentage of junk bonds are bought at issuance and held to maturity by investors? 0.5%? Maybe? For literally everyone else, it is, in fact, price that matters.
    - soVeryTired 8y ago
      > For literally everyone else, it is, in fact, price that matters. I made the distinction between price and total return above because an asset's price can remain more or less constant while still being a profitable investment: for example a utility company with a high dividend yield. Let me try another tack. Would you rather own non-voting equity or junior debt in a company that is about to strike a deal that will make them wildly profitable?

Thrymr 8y ago

"junk stock"

all_blue_chucks 8y ago

Non-voting shares as an asset class are very much like junk bonds in that they give you no control of a company, and they are worse than junk bonds in that they are even lower than junior unsecured junk when it comes to recovery. "Fixed return" isn't really relevant from a practical standpoint because shares and junk debt both have volatile prices, and price is what actually matters when it comes to securities like this.

soVeryTired 8y ago
> "Fixed return" isn't really relevant from a practical standpoint because shares and junk debt both have volatile prices... It's absolutely relevant. Sometimes junior debt trades a little bit like equity but the point is that bonds mature whereas equity exists for the lifetime of a company. >... price is what actually matters when it comes to securities like this. Absolute return is what matters, not price. The return of a bond - junk or otherwise - is known on day one of a bond issuance in the absence of default. That makes fixed income a fundamentally different asset class to equity. Even a junior perpetual junk bond is different to equity. The junk bond's coupons would be fixed, whereas dividends vary according to company profits.
- all_blue_chucks 8y ago
  What percentage of junk bonds are bought at issuance and held to maturity by investors? 0.5%? Maybe? For literally everyone else, it is, in fact, price that matters.
  - soVeryTired 8y ago
    > For literally everyone else, it is, in fact, price that matters. I made the distinction between price and total return above because an asset's price can remain more or less constant while still being a profitable investment: for example a utility company with a high dividend yield. Let me try another tack. Would you rather own non-voting equity or junior debt in a company that is about to strike a deal that will make them wildly profitable?