Infinite Duration Bonds

With interest rates as low as they are in fixed income securities, there has been much deliberation about the investments in equities that pay dividends. From that I have felt that income investors should consider dividends of stable blue chip companies in terms of bonds.

 

Therefore I found the following comments from Steven Romick, portfolio manager of the FPA Crescent Fund, regarding one of their equity investments as an “infinite duration bond”.  I think this is a great concept that should be discussed more.  There are a few theoretical papers out there that attempt to measure the duration of equities and even an index like the S&P 500.  So while I would argue infinite might be extreme, the concept is still valid.

 

The bottom line is that when you see an investor such as Warren Buffett take on significant leverage to purchase and “infinite duration bond” such as H.J. Heinz Company then you get the sense that it is a real concept that should be better understood.

 

 

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