Posted by JT-IN on September 12, 2010 at 10:16:43:
Cash Flow Forum found here: http://www.creonline.com/cashflow/wwwboard3/index.html
You will learn far more about notes in the CF forum, as there are a number of seasoned note investors there to answer your questions… But, for the basic premise.
Think of a note as a dollar bill. We all know what a dollar bill is and what its purchasing power is and it is highly liquid. You can readily buy a cup of coffee or other comodity worth about 1 dollar. Now if a dollar bill wasn’t quite so liquid and you had to shop for a bidder for your dollar bill in order to exchange it into some other form of liquid trading wampum, then you might be trading it for less, and sometimes far less, depending on the market and quality or condition of your dollar bill. The market meaning the number of folks who are looking to buy or invest in dollar bills; as the market heads south fewer investors means you will be able to sell your dollar bill for less, on avg. The quality of your dollar bill, (which in note terms would equate into the interest rate your note earns and the underlying strength of the guarantor of the note) will determine whether a bidder might pay you 25 or 75 cents for your discounted dollar.
Notes, just as dollars are all about liquidity or the ability to convert them into liquid capital. Note buyers usually have the ability to warehouse a note, meaning buy it when conditions are poor, (at a larger discount) and sell when conditions are better, maybe even a par, or full value, therein making the spread on the purchase and resale.
Now hopefully that elementary explanation gives you enough of an idea and when you visit the c/f forum at the link above you can learn much more from the vast experience of those who trade in notes on a regular basis.
