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Many Happy Returns
Returns are the sine qua non of the investment community – meaning they are the “essential condition, the thing that is absolutely necessary.” Necessary perhaps, but not guaranteed, our Chief Compliance Officer would hasten to add. Traditionally, bond investors – who see the glass as half empty – have been focused on return of capital. Consigned to at best a return of principal plus interest owed, their dour perspective is understandable. Stock investors – who in theory enjoy limitless upside – look for return on capital and can sometimes be overly optimistic dreamers. In practice, both bonds and stocks offer the possibility of loss or a return on principal. Positive returns come as income (dividends for stocks and interest for bonds) and possibly capital appreciation if stock and bond prices increase. Total return is defined as the sum of income plus the change in the value of principal over time.