Review of Income Investing Today: Safety & High Income Through Diversification (Hardcover)

In this low interest rate environment investors need to work harder to maintain a high level of income from their investments. Add to this that author Lehmann sees low interest rates for the "forseeable future". This means that an income portfolio needs to diversify across an expanding variety of financial instruments, maturities, and even credit (risk) quality to achieve its goal. The key here is to recognize that some income investments respond to "drivers" (viz. circumstances) other than interest rate moves which in turn insulates them from this traditional risk.

It follows that the diversified income investor will consider some non-traditional or out of favor (relatively cheap) assets such as REITS (driven by real estate cycles), Canadian Energy Income Trusts (the demand for energy), dividend paying common stocks (affected by broad economic cycles), near investment grade junk bonds (discounted by fear but subject to credit upgrades), and beleaguered automotive bonds. Closed end funds also get the nod because they generate high income and can often be bought at a discount to their underlying values. Given that the retail investor is the focus of this book and that new CEFs are rolling-out monthly, I would have liked more discussion of their trading strategies and risks.

Among the investments to avoid are unit investment trusts, collateralized mortgage obligations (CMOs), packaged equity hedges marketed under cutesy acronyms as Sequins, Elks, etc. and hedge funds ("rarely has so much money been entrusted to so few people with such limited talent"). Lehmann is decidedly ambivalent about mutual funds due to their internal costs, tax inefficiencies, and focus on short term performance. No surprise his preference is for individual securities which are also less sensitive to interest rate changes as they move their principal to date certain maturities.

The serious do-it-yourself income investor will find some good ideas in these pages, but I question Equipment Trust Certificates as a retail investment. Good luck if you need to sell them. A section on Direct Access Notes is in intriguing, but again, I wonder about their liquidity. Lehmann is a strong proponent of preferred and convertible stocks, but there is a confusing amount of information on their structures. A discussion of the bankruptcy process, advice on when to sell your positions, and useful information that can be gleaned from prospectuses and financial statements might have gone to an Appendix with more direct focus on securities in the main text.



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