Is investing in financial assets just investing and it does not matter whether we are talking about bond port

Question

Bonds and stocks are very similar securities in many respects. For example, market value of both are determined by their expected future cash flows; and both show price sensitivity- some more, some less- to a set of common market factors. At the same time, some may even go further and state that when it comes to portfolio investing details, there is really no difference between the two either. What do you think?

Answer 1

of course there's a 'real' difference between the two.  First of all, bondholders have a higher claim on assets in the case of bankruptcy.  In the case of bankruptcies, 99% of the time, common shareholders end up with zero.   Bondholders meanwhile, depending on the seniority of their bonds, can often get over 50% of their ivnestment back, or trade them to speculators.  

also, the predictability of cash flows for bonds is much much higher.  they're stipulated in the loan agreement, as is the timing of the cash flows.   w/stock, dividends usually aren't fixed and can be cut or reduced anytime.  Look at citigroup - ten years ago, people would've laughed if you said they would cut their dividends sometime soon. but it happened.

there are all kinds of differences in the risk/return characteristics of stocks vs. bonds.  there are a wider variety of types of bonds, including convertible bonds which can be converted into common stock.  And even THOSE i would say are not very similar to stocks.

of course, it's all relative and there's some subjectivity here.  and yes, i could name a number of similarities between the two.  but i could also name a bunch of commonalities between me and George Bush, and we're probably nothing alike.

Answer 2

Bonds are debt, you loan money

stock is ownership equity, you are an owner