An opportunity arose to purchase a large block of bonds in Overstock.com and an explanation might help explain why we think this is an attractive investment. These bonds pay 3.75% annually, were priced below 72, mature in December 2011, are callable in December 2009, and are convertible into Overstock common at a price of $69 per share. The yield to maturity is about 10.6%, while the yield to call is around 14%. Half the yield comes from the coupon and the other half from appreciation, as the bonds move to par at maturity. These are "busted converts", since the underlying stock price has fallen so much the security trades like a bond, with almost no value given for the conversion feature, which is unlikely to be exercised. So, why did we buy them?

Most importantly, these bonds enabled us to lock in a return in excess of 10% for the life of the investment, which...