06-11-2015, 12:53 AM
Only thing I don't understand is this obsession with credit rating. Especially weighing your whole portfolio based on just credit rating. I guess it's a risk management thing for you but apart from making sure that you don't load up on companies that are likely to default, what do you hope to accomplish with it? Surely your own research into the company... even a quick glance into the finances (such as earnings, earnings growth, debt levels and structure etc) will weed out the horrible ones?
Not only are these credit ratings more geared towards the debt market than stocks, you will also have to remember that they are just invented by a couple of big agencies who are wrong just as often as everyone else. Maybe even more often since the companies pay the credit agencies to rate them. And the credit agencies have HUGE control over certain market movements, which I guess is fine if you believe that they (or their employees) are most definitely not going to take advantage of this power that they have. You don't even need to go back 10 years to see the mess that several banks were in because their AAA rated loans defaulted or suddenly got converted into junk-rating. In other words you are putting your research into the hands of other people... people who don't exactly have a great history of doing things right.
I'm not saying to completely disregard the credit rating. But I can't understand basing your whole portfolio weighing system on it. Would it not be better to weigh the companies based on your own research and opinion of them and their future?
Not only are these credit ratings more geared towards the debt market than stocks, you will also have to remember that they are just invented by a couple of big agencies who are wrong just as often as everyone else. Maybe even more often since the companies pay the credit agencies to rate them. And the credit agencies have HUGE control over certain market movements, which I guess is fine if you believe that they (or their employees) are most definitely not going to take advantage of this power that they have. You don't even need to go back 10 years to see the mess that several banks were in because their AAA rated loans defaulted or suddenly got converted into junk-rating. In other words you are putting your research into the hands of other people... people who don't exactly have a great history of doing things right.
I'm not saying to completely disregard the credit rating. But I can't understand basing your whole portfolio weighing system on it. Would it not be better to weigh the companies based on your own research and opinion of them and their future?