When there is high volatility in the markets there is an opportunity, for a wide variety of reasons. If we use the example of oil prices, as they fell from over $100 a barrel and went down to $25 and now is trading near $50; many companies stocks and bonds went downwards. During the fall, the rating agencies would have downgraded some bonds which meant institutions holding the bonds had to sell. The price has gone to some form of normal which meant there were opportunities in the market. On Bond fund you can track is the Merrill Lynch US Fallen Angel High Yield Index.

In an article by Emma Orr of Bloomberg News, she notes the index has risen 17% this year well above normal and the experts are suggesting not to buy right now. in the example of the oil company, a company called Encana was investment grade, then a month later it was not, then it was investment grade again. There are many institutions which have in their bylaws they can not hold non investment grade or lower than A rated bonds, which is one of the reasons the price falls. Ideally they need to have AA and AAA rated bonds. Encana has bonds payable 6.5% due in 2034, the price went down to 55 cents on the dollar compared to 85 cents on the dollar, now it is properly trading at 103 cents on the dollar.

Bond companies likely made money on the trade, for Encana was not alone there were many companies that fell have since recovered.

Linking to dividend paying stocks, the reality of the stock and bond market is volatility can be your best friend to make money, if you have the ability (cash) and discipline to take advantage of it. When a commodity price falls, you need to get out or move to alternatives, as it rises you get back in and ride the increase. Owning dividend paying stocks helps ensures you have cash which you can reinvest or buy alternatives or hold cash. The lows of the market are when there is most panic, but unless the world collapses the markets will rise again. Dividend paying companies also help you figure out the alternatives to take advantage of given patience time frames.

There are more questions than answers, till the next time – to raising questions.