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Bogus yields


I read both the Wall Street Journal article and your response, “Just How Smart is the ‘Intelligent Investor’?” I think the WSJ article really was saying that some muni bonds and dealers state the “distribution yield” to their clients, in addition to the yield to worst and yield to maturity. Many clients probably don’t bother to understand what they mean and falsely interpret distribution yield as if it is a meaningful number. In my opinion, and hopefully yours, it is an irrelevant and meaningless number. I recognized that when I bought my first muni bond, but I am a highly analytical type. I would venture to say that most muni bond buyers are not so mathematically inclined. Probably “distribution yield” should never even be mentioned because the mere mention of it conveys the impression that it has some relevance. That was my takeaway from the WSJ article, and I agreed with that message because I’d already reached the same conclusion.

S.M., Pennsylvania


James A. Klotz responds:

Good point. The distribution yield is the same calculation as the current yield referenced in our article. We also called it bogus and misleading. This term is used by many mutual funds, not for purchases of individual bonds.

Nov 12, 2015

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