HYBRID VIGOR VOL 2 ISSUE 22: Will He Or Won’t He?

You would think, as the publisher of the preeminent convertible newsletter, I would be inundated with requests to name my favorite bonds. You’d think I’d be surrounded the way people used to surround E.F. Hutton.

Strangely, that doesn’t appear to be the case. What people do want to know, though, is whether American Pharoah will break the 37-year Triple Crown drought. As I said a couple of weeks ago, for what it’s worth: we’ll probably know in the first 200 yards or so. If he manages to get an easy lead, he’ll be very tough to catch. Otherwise, he will have a difficult time. Remember, win or lose, he’ll be a bad bet. This is because many people will buy $2 souvenir tickets on him, not intending to cash them. You can root for American Pharoah—I certainly will, though I’m not going to be there. Too old for those crazy crowds. But please, please, please don’t bet on him.

If you do bet: trainer Todd Pletcher is often maligned for his poor Kentucky Derby record, but he’s won a couple of Belmonts, and of the three horses he’s sending out on Saturday two have an excellent shot at beating American Pharoah. Materiality has the raw talent and Carpe Diem has plenty of top-level experience. Also, if the other jockeys ride to beat American Pharoah the way they rode to beat Smarty Jones 11 years ago (and Pharoah reminds me of Smarty, in running style if not appearance), Carpe Diem may be the prime beneficiary. Carpe Diem was my third choice in the Derby, and he disappointed, but there’s a rich history of horses disappointing in the Derby and running big in the Belmont.

Since this is, after all, a convertible newsletter, let’s finish this Triple Crown discussion by asserting that convertibles, done right, win the Triple Crown of investing. As we never get tired of saying, you really only look for three things from an investment: income, upside, and capital preservation. It’s hard to find single assets offering all three, but convertibles do, at least if you buy them right. It’s important to keep that faith amidst a richly valued market at a tricky time. Seize the day.

(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).