Help me(urgent)..?

Question

is this statement correct..... Because most bond contracts require higher claim on assets, they are less riskier than ownership shares of the corporation.... if correct plz explain how and also explain if wrong and correct answer..

Answer 1

You are correct in that if a company files for bankruptcy, bond holders have a higher priority over assets than shareholders.

So if the assets have to be sold, bond holders will get their money before shareholders.

Secured creditors, employees, and government tax agencies have higher priority than either bondholders or shareholders.

If you're worried about your position in the queue in the event of bankruptcy, and if you think bankruptcy is a real possibility, you should reconsider whether or not you really want to be investing in the company.

In today's uncertain investment climate, you should be looking to invest in companies that have real intrinsic value, rather than merely speculative value.

That's what Warren Buffet does, and that's why he's the richest man in the world.

Look for companies with solid growth, management you can trust, that have stood the test of time.

If a company has little intrinsic value, and only speculative value, then if it ever goes bankrupt, there will be little value left in the assets for you to get anything back as a bondholder.

In that case, you might wish you had gone to the race track instead :)

Investing in good quality companies does not mean lower returns.  Remember, $10,000 invested in Warren Buffet's Berkshire Hathaway Company in 1967 (at $14 per share) would be worth over $80 million today (at $118,000 per share).  

Now that's what I call quality.