Appel, Higher Returns from Safe Investments

Investors in search of a clear description of income investing need look no further than Marvin Appel’s Higher Returns from Safe Investments: Using Bonds, Stocks, and Options to Generate Lifetime Income (FT Press, 2010). He wisely spends most of the book on bonds since this is one of the most misunderstood areas of investing. He then looks at preferred stocks, dividend-oriented ETFs, and covered calls. Throughout Appel meticulously outlines the risk factors in these so-called safe investments and, where appropriate, their tax consequences. He illustrates his points with charts and tables and keeps statistics to a minimum (normally, just return and drawdown).

Appel has the rare ability to explain and analyze investing alternatives in a way that respects the intelligence of his reader. He doesn’t assume much knowledge, but he provides far more than an introductory overview. Take, for instance, his description of buying bonds from a broker. “[U]nlike stocks, there is usually no specified commission per trade for buying bonds. Rather, buying bonds more closely resembles buying a car. The price you pay includes a profit for the dealer. Like buying a car, and unlike buying a stock, you can sometimes negotiate a better price for a bond than what is posted on the broker’s Web site.” But sometimes the broker sees you, the odd-lot buyer, coming and bumps up his price. “Another way in which buying and selling bonds resembles dealing with a used car is your experience when you want to sell back to the dealer. You will frequently find when you go to sell a bond from your account before it matures that the price you are offered is much less than you think the bond is worth. Indeed, the price offered to you might be well below the value stated for your bond on your brokerage statement, just as the value a car dealer offers for your trade-in is frequently far below the Kelley Blue Book price.” (pp. 25-26)

Occasionally Appel suggests some tactical trading strategies, such as trading high-yield bond funds with 3% buy and sell stops evaluated once a month. He points out that this strategy works “only for investments where the size of the trend is significantly larger than the size of your stops,” (p. 87) which precludes most stock market investments.

Preferred stocks are a neglected area of investing and hence poorly understood. Appel explains that, unlike bonds, they are callable. So, although when preferred stock yields rise the prices of preferred stocks fall, “the converse might not be true: A drop in interest rates might not boost shares of preferred stocks if the issuer can call the shares.” (p. 119)

I seldom write about books directed at the average investor because most of them are both boring and useless. Perhaps because Appel has investing in his blood (he’s the son of Gerald Appel and left a medical/biomedical engineering career to become an asset manager) he draws on a store of knowledge that few financial planning authors could ever aspire to. As a result, he writes with fluency and authority. Will he keep your nest egg safe? Probably not, but then anyone who thinks there’s a sure path to investment success should probably read Tarot cards rather than this book.