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The f

eatured financial

question of the week.

The Coach says:

(

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Saturday,

March

, 201

)

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click the appropriate book)

          The Convertible Bond

       Never, never, never buy a common stock without looking
                               at the convertible bonds

( Seminar question from a Construction Engineer, Fort Worth, Texas )

Dear Professor Smarba,

I recall from a financial course I took some twenty-five years ago at my alma mater that the
holder of a common stock is an owner of the corporation, while the holder of a bond is a
creditor of the corporation.

Also I recollect my professor saying, “Never buy a common stock without looking at the
convertible bonds.”

What’s so special about convertible bonds?

Dear Construction Engineer,

Give your life a solid foundation.

Construct your investment portfolio with that same solid foundation...the convertible bond. Better still,
give your future a solid grounding by building on the Profit-Taker philosophy.

As a shareholder or part owner, you are entitled to your proportion of the earnings after the prior claims
of the corporation have been paid.

These profits may be paid in the form of a dividend.

However, one of the prior claims that must be satisfied before you receive any dividends is the interest
to the bond.

The amount of interest, which is paid regularly to the bondholder, is usually fixed at the time the bond is
first issued.

For our purposes, it is crucial to appreciate the salient fact that the interest on the bond receives priority
and must be paid before any dividends are paid to the shareholder. In other words, the bond is the
senior security.

Similarly, in the case of a dissolution, the senior status entitles the loan by the bondholder to be satisfied
in full before any remaining cash from the sale of the assets is distributed to the shareholder.

You'll find your complete answers on pages 46 to 48 in
“The Profit-Taker Equalizer for the Underdog”,

(Thank you for your many questions by letter, e-mail and asked at the Profit-Taker Seminars.
Send your questions and comments to Prof. Smarba E-mail: profsmarba@aol.com)