Is equity-linked notes (convertible) good investment? What is the pitfalls?

Answer 1

I think it is a good investment. It just might take a while for some gain. Good luck.

Answer 2

The main pitfall is that the underlying stock's price never appreciates beyond the level needed to make a reasonable return. Another pitfall is that they usually have a poor yield to offset the derivative-like qualities and opportunities they offer(often 2-3.5% when comparable non-equity linked notes are 7-8%, look at HGSI for example).

Often times these are very attractive investments when corporations are in distress as they offer you equity appreciation and a senior claim on liquidated assets to a pure equity investment.

In general, unless you have a lot of time to read, and the ability to understand, 100+ page bond indentures to know what the convertible note really is, I would suggest you stay away from them and stick to more traditional investments.