Marc Lichtenfeld’s latest teaser pitch can be pretty well summed up by this one sentence:

“This is the absolute best time in 20 years to buy bonds. Right now, they’re offering BETTER returns than the stock market with just a fraction of the risk.”

And that’s grown to become a much more common refrain in recent months, as you’ve probably noticed, mostly just because all kinds of bonds — government bonds, corporate bonds, municipal bonds, you name it — now offer, in many cases, a chance to actually earn a return that’s higher than the rate of inflation, for the first time in many years, as the “zero rate” environment of most of the past decade fades into memory. And stocks remain pretty expensive, compared to history and compared to the yields on safe government bonds, so it’s now easier to imagine that a bond paying 3%, 5%, 8% or even more might turn out to be as profitable as a stock portfolio. Without as much risk of losing a meaningful amount of money. Rates have come down quickly in the past week, after the very rapid climb in interest rates for 2-3 months that helped to reset everyone’s thinking a little bit, but they remain higher than they’ve been in a very long time.

Bond-focused newsletters are very rare, though, and for pretty clear reasons: Bonds are boring, they rarely provide sexy returns that you can brag about at cocktail parties, newsletter pundits and the financial media have conditioned us to expect gangbuster stock returns from speculative ideas, brokers don’t often provide great bond-trading services and it’s not as easy or intuitive as stock trading, partly because corporate bonds aren’t super liquid and there’s a lot of friction in those transactions, so the copywriters often have a hard time selling us on the perfectly reasonable notion that we should probably also owns some bonds. Especially since bonds were a loser’s bet over the past few years, with rates so low that it was almost impossible to imagine making a real profit, and plenty of bond funds and bond traders have lost tons of money as the 40-year bull market in bonds petered out.

Porter Stansberry has tried to sell a bond newsletter a few times, most recently called Credit Strategies, I think, and the Oxford Club has tried to promote their Oxford Bond Advantage a couple times over the past decade, but that’s about it when it comes to bond investing letters from the big publishers. Both of them, as far as we can tell, have generally focused on what I’d call “value investing” in the bond space, which mostly means buying “junk” bonds that have traded down to a low price, usually because of some fear that the company has become riskier, with the strategy mostly being that they’re still not as risky as stocks… and often enough, even the riskiest bonds end up being repaid, because even weak companies pretty rarely fall into actual bankruptcy. That’s about the only space in the bond world where you can find some potential gains that are big enough to tempt investors to stray from stocks, most of the time.

And Marc Lichtenfeld is next up, it appears, with a “Stock Quitters” promo for his Oxford Bond Advantage ($995/yr, no refunds — another challenge with these letters, they don’t appeal to folks who might only want to spend $49 a year for something fun and exciting, which makes it hard to get thousands of subscribers, so you gotta charge a lot more)… so let’s take a look at what he’s selling…

“The way I see it, you have three choices…

“One…

“Keep playing with fire in this volatile market. Maybe you’ll get richer. Or maybe you’ll lose money.

“Two…

“Sit in cash and watch it dwindle away as your cost of living and taxes increase.

“Or three… try something new and lock in a rate of return that you KNOW will be there through retirement.

“A return greater than 100%.”

When arguing for bonds over equities, you essentially have to lean hard on that “lock in” aspect — a stock can and will go almost anywhere, from wildly undervalued to wildly overvalued, and a company can have a great year or a terrible year, and it can grow or shrink. But a bond is a legal contract, it requires the repayment of a specific amount of money, on specific days, and the repayment of all of the borrowed money at the end of the bond’s term, whether the company or the stock market had a good year or not. (I’m speaking of conventional corporate bonds here, there are some variations — like convertible bonds, or special terms, or adjustable rates, and some even amortize, but most corporate bonds are just simple loans at a fixed rate that pay interest every six months, with the full amount of the initial loan repaid with cash at maturity).

Stability is valuable, especially at times when people feel nervous, or when you can be paid a reasonable rate for accepting stability — but it comes at a cost, of course, because while there are ways that a bond can provide a capital gain, if it’s distressed enough to be bought at a steeply discounted price, a bond can’t ever really grow or compound or become something greater than you thought was possible, like the best equities do. There are no 100-baggers in the world of bonds, no Amazons or Apples that can provide daydreams for the next generation of stocks, but there are also very few persistent long-term losers that erode your capital. The value is in knowing how much interest you’ll earn, for how long, and knowing the day you’ll be paid back… with some calculation of what the risk is of not being paid back, if it so happens that you chose a bond of a company that goes into bankruptcy and doesn’t have enough assets to make all of its creditors whole.

And what Lichtenfeld is really talking up are what he calls “Superbonds”, which means bonds that can provide a high and guaranteed return, somewhat similar to stocks, but still with that legal guarantee that stocks lack. And he hints at one of them…

“I have multiple superbond picks right now…

“But there’s one superbond that I’m most exciting about right now.

“It offers a nearly 100% return from now until 2027.

“It comes from one of the largest media companies in the world.

“It’s the No. 1 audio company in the U.S. and reaches more than a quarter of a billion listeners every month.

“It has two times the reach of the largest TV network in the United States, CBS.

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“And in four years, you can nearly double your money with this investment… no matter what happens to the stock market.

“And as I mentioned, we like this opportunity because it’s short term and has a heck of a predetermined return at 91.49%.”

OK, so the company Lichtenfeld is talking about here is iHeartMedia (IHRT), which is primarily known as the owner of iHeartRadio, which you’ve probably heard of… here’s how they describe themselves:

“iHeartMedia is the #1 audio company in the United States, reaching 9 out of 10 Americans every month – and with its quarter of a billion monthly listeners, has a greater reach than any other media company in the U.S.

“The company’s leadership position in audio extends across multiple platforms including more than 860 live broadcast stations; its iHeartRadio digital service available across more than 250 platforms and 2,000 devices including smart speakers, smartphones, TVs and gaming consoles; through its influencers; social; branded iconic live music events; and podcasts as the #1 podcast publisher.

“iHeartMedia also leads the audio industry in analytics and attribution technology for its marketing partners, using data from its massive consumer base.”

This looks like a very small company, with a market cap of less than $400 million, and it’s been posting disappointing earnings numbers of late, with the falling stock price that often accompanies such situations. They also report earnings tomorrow, so things could change pretty meaningfully if they say something really optimistic or pessimistic about the end of the year or their plans for 2024, but right now the stock chart makes it look like they’re floundering.

And it’s not actually as small as it looks to a casual stock investor, the market cap is $367 million today… but the enterprise value is $5.5 billion. That’s because they’ve been capitalized almost entirely with debt, which in basic terms means they borrowed money instead of selling ownership stakes. Well, they did both, really, for a very long time, but borrowed more than they raised in equity sales… and over time, as the company had disappointing results, stock owners gave up and the stock price fell, but the money they borrowed was still sitting on the balance sheet, needing to be repaid eventually.

This has always been a company that had a lot of debt, even before they made the big shift to separate out their billboard company, Clear Channel Outdoor (CCO), back in 2019, but the lopsided balance sheet really emerged over time because the stock price fell and the equity ownership became a little tail, trying to wag the debt dog. That split from Clear Channel reduced iHeartMedia’s debt from $16.1 billion to $5.75 billion, giving them, they hoped, a bit of a new lease on life, but so far it hasn’t worked that well — they got a little reprieve from the manic 2021 market, thanks in part to some buzz around their podcast initiatives and their music festivals, but the stock has generally gotten weaker and weaker in recent years. This chart tells most of the story — the share price performance is pretty clear, in purple, despite the fact that revenue has grown pretty strongly, to about $3.9 billion, and that’s probably because the total debt (green) is still in the $5+ billion range, costing them $375 million in interest last year (pink), the share count has more than doubled, and their GAAP loss over the past year (blue) has been over $1.3 billion.

So that’s the business which offers this “superbond” that Marc Lichtenfeld speaks of. What’s the actual bond? Well, thankfully iHeartRadio does investors the favor of listing its credit facilities and bonds on its investor relations page, which is very unusual, so they’re pretty easy to find even without browsing through the 10K or the FINRA listings (or trying to figure out which name iHeartRadio was using at the time the bond was issued). And they have a couple notes that mature in 2027, their 5.25% Senior Secured Notes which mature on 8/15/27, with CUSIP 45174HBE6 (or U45057AJ2), and their 8.375% Senior Unsecured Notes, which mature on 5/1/27, with CUSIP 45174HBD8.

First let’s look at the relatively safer one — their 5.25% Senior Secured Notes are higher up in the debt structure than the Unsecured Notes, which means they’d likely end up being treated better in any kind of bankruptcy workout, and might get back more of their money if iHeartRadio goes kaput (though the flip side is that the Secured Notes have a lower coupon payment). “Secured” means there’s some kind of specific collateral attached to this loan, so it’s at least a little (and maybe a lot) more certain than an “unsecured” note, which is just a promise from the company itself, not tied to any of their specific assets. I don’t know what assets this note is secured by, but it is on the relatively high end of “non-investment grade.” That term just means it’s what we used to call a “junk bond” when Michael Milken popularized that term and used high-yield bonds to finance corporate buyouts in the 1980s… it doesn’t mean it’s actual “junk,” just that it is not safe enough for widows and orphans, and may have to be treated differently if it’s owned by, say, an insurance company or a pension fund that’s counting on those bonds to meet specific obligations, some institutions can only own “investment grade” bonds that are perceived as bulletproof.

The ratings agencies are the folks who assign bonds a grade, so that’s why we know it’s on the high end of the “non-investment grade” spectrum (this one is designated as B1 by Moody’s, B+ by S&P, according to FINRA), with a “negative” outlook, mostly because the leverage is so high and “likely to be increasing” because radio advertising hasn’t fully recovered.

Moody’s bases that negative outlook mostly on the cost of the leverage, they estimated early this year that IHRT would have $3.65 billion in revenue in 2023, down about 10% from 2022, and that their debt would be about 7X the company’s EBITDA, though the cash flow was expected to be enough to cover interest charges this year and next. Since that rating was issued, the revenue has been a little better than expected, but the EBITDA has been much worse, though that’s mostly because of a huge non-cash asset impairment charge in the second quarter (they had to write down their goodwill from past acquisitions, and the value of their intangible assets). They’ve been trying to pay down their debts when they can, but the cash flow is not high enough to pay it down quickly in any meaningful way, and they ended their last quarter with about $165 million in cash.

Which is why, as you’ve probably guessed, the bond presents the opportunity for capital gains and high income. It is a simple fixed-rate bond, offered at a coupon of 5.25% back in 2019, and like most bonds it pays interest twice per year… so if you had bought it back then, for $1,000 (bonds typically price in principal increments of $1,000 — though brokers and informational websites often cut off the zero and refer to everything relative to a $100 principal amount), then you’d be getting coupon payments of $26.25 each February and August.

Those don’t ever change. If we assume that iHeartRadio doesn’t default on their debt, which would likely only happen in the event of a bankruptcy, you’d get those coupon payments twice a year until the bond matures on August 15, 2027, at which point you would get back the full $1,000 that was borrowed (that’s the “principal”, the principal amount is also often called “par,” presumably because investment bankers like golf).

The appeal, for investors in junk bonds, is that you can often buy them “under par,” for less than the principal — so you can buy $1,000 worth of that initial loan for about $750 now. That makes all the numbers look much better — it means you would get a total of $210 in coupon payments over the next four years ($52.50 per year), plus the return of the $1,000 in principal at the end, for a total of $1,210. If you can buy it at $750 today, then that’s a return of 61% on a legally required payment, over four years, so that’s roughly 15% per year. According to my broker (Fidelity), the last trade of this bond was on November 2 at $74.77 per $100 of principal, and the lowest it has traded this year was about $70… so I don’t know where Lichtenfeld gets his “almost 100%” gain from if this is the bond he likes, that’s more like a 73% gain if you caught the lows, but it’s still pretty good for a bond.

So that’s the safer option among the 2027 maturities, at least slightly safer (again, I don’t know what “secures” the Secured Note in that case, but it will be something specific — maybe a subsidiary, or a group of radio stations, real estate, etc.).

The Unsecured notes are probably what Lichtenfeld is touting, though, because the potential gains are higher… that’s where you can probably get a ~100% return by 2027, perhaps more than that now. Those mature earlier, on 5/1/27, and pay a 8.375% coupon, and the total amount of that note offering was larger, too, so that’s a billion-dollar offering (which means there are more notes out there, perhaps it’s a little more liquid, and it is also a tougher challenge to refinance… though it will theoretically have to be refinanced before the 8/15/27 loan — and usually companies start planning their refinancings a year or two out, they understandably don’t want to have to raise money all at once at the last minute).

We can run through those basic numbers, and the appeal is pretty clear — an 8.375% rate means the semiannual payments would each be $41.875 per $1,000 of principal (this one pays on May 1 and November 1, so you just missed the November one). That means there are seven payments left to be made before maturity, so that’s a total of $293.13 in interest payments you’ll receive between now and when you get your $1,000 back, assuming all goes well, on May 1, 2027.

Ah, but like we said, this one is Unsecured, which means it’s a legal obligation of the corporation but is not actually backed up by any specific collateral that the company controls, and the raters therefore think, probably with good reason, that it’s quite a bit riskier (the Moody’s rating is Caa1, S&P CCC+, firmly in the low end of “junk”). Understandably, then, the price is even a bit more beaten down — the last trade, which was yesterday, was at $61.75 per $100 in principal. So that means you could buy $1000 worth of principal for $617.50, and, if they don’t go bankrupt, you’ll be repaid a total of $1,293 between now and May 1, 2027. Which is actually an even higher return that Lichtenfeld teased, that’s now a total return of 129%. And as you wait for the $1,000 principal repayment, the coupon payments are pretty high — that’s an annual coupon yield of 13.5% (that’s not on top of the 129%, to be clear, it’s included in it).

There are lots of ways to think about bond investing, but the basic assessment is just a judgement call about whether you think you’ll get paid back. Bankruptcies are fairly rare, but companies with a lot of debt don’t always have a lot of options, even if they own important brands or assets, like iHeartRadio’s big network of radio stations. That’s why it’s nice to see the debt info clearly laid out on iHeartRadio’s website, since they tell you when those bonds mature — they’ve got a $2.265 billion term loan facility that matures in May of 2026, and an $800 million Note that matures at that same time, so that’s a total of $3 billion they have to refinance somehow in the year before we get to our maturity date. They’re not going to have that kind of cash built up by the business, so they’ll need to borrow it again — and maybe it will be easy, and the interest rate will be much friendlier in a couple years, and nobody will worry… or maybe it will be hard, and the company will have to issue shares or sell assets, and sometimes that leads to a death spiral and bankruptcy, during which the owners of the Unsecured Notes will probably get less than the owners of Secured Notes. It’s even possible they’d get very little, or next to nothing, if the company’s asset value erodes over time because the business gets worse — on average, the creditors do get back a decent amount of their investment in a bankruptcy, but when you’re dealing with a single company and the challenges and assets and specific business value it represents, “average” doesn’t necessarily mean all that much.

Normally I’d check and see how investors are bidding on those earlier bonds, the ones that mature before the one we’re looking at, to get an idea of whether they think the company can repay the 2026 loans before we even get to worrying about 2027. Most of that 2026 debt is in the form of term loans, which don’t seem to be publicly traded, but there is also a Senior Secured Note that matures on that same day, May 1, 2026, and that $800 million of debt is trading with a much smaller discount — you can buy $100 of principal there for about $85, so investors think it’s saver than the similarly structured bond that matures 15 months later. Which makes sense, there’s no obvious sign that the company is getting better so if you’re counting on some persistent cash-generation capacity or asset value, you’re betting on something that is gradually wasting away, which means being repaid earlier is better. That one is CUSIP 45174HBC0, in case you’re curious.

There are a couple other loans and bonds that mature later on, too, later in 2027 and in 2028, but that 2026 refinancing is going to be the linchpin, it appears — if they can refinance those 2026 Notes and Loans, probably in about two years, the folks holding the 2027 debt will likely breathe a huge sigh of relief, and those Notes might shoot up in value at that point. 2026 is where the most obvious future risk comes in, with $3 billion in borrowing all due to be repaid on the same day, which could lead to bankruptcy if the business is not looking good in 2025. If they do go bankrupt, most likely the bondholders would get a little bit of cash back, if there’s any on hand at the time, but if it’s a regular Chapter 11 reorganization, where the company intends to keep operating, mostly the bondholders would just end up owning the equity of the reorganized company (the common shareholders would almost certainly be completely wiped out), but the Secured Note holders would very likely get a better workout than the Unsecured Note holders.

That could also happen before those bonds hit their maturity date, it doesn’t have to be a failed maturity payment or refinancing that leads to bankruptcy — they might breach their loan covenants in some other way, or just see the writing on the wall and have bankers yelling in their ear that they’re definitely not going to make it through to the other side, and file for relief from their creditors while there’s still some hope of the business surviving through a restructuring.

My guess is that they’ll at least survive for a couple years going into that big $3 billion refinancing challenge in 2026, but that’s all it is, a guess. I don’t know what their assets are worth, particularly their softer assets like the podcast networks, but the fact that they had to write a lot of that down this year is maybe not a great sign.

But that’s why you can pencil in those 100% plus returns: Because people are worried that they won’t meet their obligations. And who knows, maybe those bond investors are worrying too much — particularly if we don’t really spiral into a debt crisis nationally, or if interest rates moderate and drift a little lower, and the economy hums along, Goldilocks-style, and companies start spending like mad on radio ads. If that happens, probably most of the junk bonds will work out OK, as is usually what happens, the high coupon payments compensate adequately for the risk that a couple percent of those bonds, on average, will default… but, of course, “most” or “average” doesn’t ever mean “all.” Lichtenfeld is careful to note that investors in individual bonds need to diversify, just like stock investors do — particularly because the sexier sounding bonds that get promoted, like this one with a potential gain of 130%, are also likely to be among the riskier offerings that individual investors might reasonably be able to buy. If you bought 100 of these bonds from different companies, it’s likely that at least 5-10 would default, which means the high yields would still be enough to probably generate a good return, but it could, if you’re lucky or really good at judging balance sheet risk, be only two or three defaults, turning you into an investing genius… and if you’re bad at judging the risks, or the economy or interest rates turn dramatically against you, maybe 20-30 will default, and you’ll lose a ton of money. Maybe not as much as if you had bet on risky stocks at that time, since junk bonds and stocks do tend to move in the same direction most of the time, but you’d still lose, despite the legal guarantee. That’s what bankruptcy is, it’s the breaking of a contract, with the settlement being worked out in court, and even that settlement is very company-specific and not very predictable when it comes to “what bondholders end up getting.”

What other junk bonds does he like? He doesn’t hint at the other two bonds which are in his latest “superbonds” report as his favorites, but he says he recommends a couple bonds a month, and he calls out a few other “superbonds” that provide high yields….

“There are SO many companies out there offering superbonds. You could get…

“A 61% predetermined return in less than five years from Navient Corp. With a MEAR of nearly 11% each and every year you hold it!

“You could also get 82% from Office Properties in less than four years, also with a 20%-plus MEAR…

“Or how about 148% from QVC Inc. in five years… with a staggering 20% MEAR every year you hold it until maturity!”

Lichtenfeld’s MEAR is just an acronym, it stands for minimum expected annual return — that’s what you’d get back, in total, if the bond coupons are paid and the maturity is repaid at the end of the term. It is possible to earn higher returns than that, but really only if the company’s prospects turn around dramatically and they get re-rated and people begin to consider the company a safer credit risk, which means they’ll pay more for the bond — that doesn’t necessarily increase the total return, but it could speed it up and increase the annual return if the trading price of bond gets back to its full principal value a couple years before the bond matures, so you can sell it at “par” if you wish. To get a lot more than that, you’d need a pretty dramatic re-rating, and perhaps also a drop in overall interest rates, which would let the bond trade at a premium to its maturity value — so, for $1,100 instead of $1,000 — and you could always sell if that happens, though it’s pretty rare with shorter-term bonds unless the initial coupon rate is very high (the fair value can’t drift all that high above $1,000 and still make sense in most cases, since you’re still being repaid only $1,000 when the bond matures, so you’d need an extremely high coupon payment to make up for that).

And yes, as you might imagine, all those companies are seen as at least somewhat distressed — Office Properties (OPI) is a disaster of an office REIT that was a disaster even before the interest rate/work from home crisis, we’ve written about that one a few times… Lichtenfeld is probably referring to 67623CAE9, which matures in February of 2027 and trades at about a 40% discount to PAR, so at about $60 per $100 in principal, plus the relatively low coupon of 2.4%, you would indeed get roughly a 20% annual return from buying this bond. It’s not named a “Secured” note, and I don’t know where it ranks in the capital structure, but it’s got a rating from Moody’s and S&P that tells us it’s a little safer than that IHRT 2027 Secured Note, it’s about as high a rating as you can get and still be “junk,” probably because OPI owns a lot of buildings. I’d rather lend OPI money than buy their stock, so I can see at least some temptation here… but that’s a common sentiment, since OPI shares currently have a 25% dividend yield, even after the dividend was cut by more than half in April.

Navient (NAVI) is the big student loan manager, that company has one 2028 maturity I can see, that’s their 3/15/2028 Note with a 4.875% coupon, CUSIP 63938CAL2, currently trading at $86 per $100 of principal, though that looks like it will provide an average yield of only 8.7% to maturity. That’s also up at the top end of “junk.”

QVC I’ve written about a couple times, since QVC is also part of Qurate (QRTEA) and I own some of the Qurate Preferreds (QRTEP), which are also an extreme “junk” bet on the company avoiding bankruptcy. The QVC notes are safer than those preferreds, though Qurate is clearly struggling with its turnaround efforts and most of the questions on the conference call are usually about how they’re planning to refinance their 2024 and 2025 loans, which makes the 2028 loans clearly riskier. That’s probably CUSIP 747262AZ6, which trades in the low $60s as well (per $100 of principal), but QVC and Qurate have a lot of Notes and Bonds available if you want to take a chance, and they all pay a pretty high yield, with the discounts to par getting more dramatic the further you go out in time (the preferreds don’t mature until 2031, just FYI, and they trade at about a 70% discount to par, investors clearly believe, probably correctly, that the risk of bankruptcy will grow with each year that passes, though that could change if the company’s operating performance improves). They also have some Senior Secured Notes that are publicly traded, but with extremely long maturities (QVCD and QVCC, maturing in the late 2060s… if the company survives that long, which of course is a big “if”, you get to collect 15% per year for 40+ years, I don’t know what those Notes are “Secured” by).

We’ll just close out with a few more words from Lichtenfeld’s tease:

“… if you don’t want to see your portfolio get hit by the current turmoil, this is a way to safety – to better protect the money you cannot afford to lose.

That’s what being a Stock Quitter is all about….

“We don’t worry about stocks, and we focus only on showing our readers how to make safe, consistent money with bonds.

“I look for my special type of bonds that come from great companies and offer big, locked-in returns that are backed by legal contract.

“The key with this is KNOWING exactly what you’re going to get.

“We don’t guess where our investments are headed.

“Once you lock in your return, you don’t have to check it every day….

“If some idiot gets elected… or the Fed starts meddling… or a disease comes out of left field to tank the markets… it doesn’t matter.

“Your gains are protected as long as the companies you invest in don’t go bankrupt, which is rare.”

So the calculus for these kinds of investments involves understanding the company’s operating prospects and the likelihood that they’ll keep generating enough cash to pay the coupon until maturity, having some consideration for how easy or difficult it might be for them to refinance at maturity (ie, issue new bonds so they can repay their existing bondholders — most of the time at least some of the debt, often all of it, is effectively “rolled over” to new lenders), and, perhaps most importantly for junk bonds, making some risk assessment that you’re comfortable with about how likely the company is to go bankrupt before maturity and whether they own assets that are valuable enough to repay bondholders if they do have to liquidate or reorganize.

And sometimes, companies that still seem like they can be viable operators after the debt is cleared get a decent deal in bankruptcy court and the bondholders essentially just end up owning a company that continues operating, but which is far less valuable than the bonds had been, and may keep declining in value. Just ask anyone who owned A&P bonds 15 years ago, for example — $1,000 in bond “face value” seemed appealing to buy at $600 or so, with a high yield, but after the company went through bankruptcy in 2010 and tried to reorganize and keep operating, the bondholders became the new holders of new equity and new debt of a new A&P, which was probably worth much less than $1,000 (if memory serves, the “fair value” after that bankruptcy was something well under $100 for each $1,000 in principal, and it might have been as low as a few bucks). That new A&P equity was never publicly traded or listed again, so bondholders were mostly stuck with it, and after trying to survive after that reorganization, the company went bankrupt again in 2015, selling their remaining assets in a fire sale to Albertson’s and other operators, for much less than the debt that was still on the books, so that $1,000 in principal bought, for most people, ended up being very close to a 100% loss, even with the “guarantee” that the bond was a legal obligation of the company. Buying at a 40% discount to par is less comforting if the company loses all its value, a 100% loss is still a 100% loss.

So that’s the downside risk, and corporate bonds — particularly junk bonds — are often quite illiquid, so you can’t count on being able to sell your bond at a good price if you think things are deteriorating. Diversification is at least as important for corporate bonds as it is for stocks, partly because of that lack of liquidity and the general lack of coverage of corporate debt in the financial press (at least, the financial press that’s focused on individual investors). I don’t want to overstate the default risk of corporate bonds — even for junk bonds, most of them are repaid and don’t default… but if you buy just a couple bonds as an individual investor dabbling in debt, one of them going south will clobber that portion of your portfolio. Bonds are far less likely than stocks to fall abruptly in value, and even less likely to not repay the principal at maturity, but that doesn’t mean it’s impossible… particularly if you’re dabbling in the riskiest part of the bond market, these high-yield bonds that look so appealing with a discount to maturity value and a double-digit coupon yield.

Sound like the kind of thing you’d like to get involved with? I agree that bonds are more interesting than they have been in a long time, now that we’re at least temporarily living in a world of “real” interest rates, and I’ve dabbled in some preferred stocks, which are less safe than junk bonds, but I haven’t owned an individual corporate bond in a long time. Maybe it’s getting to be time to look at corporate bonds again, if only to prepare for another possible stock market downturn that could create more discounted bonds of better companies, but I haven’t convinced myself to rush in just yet. What say you, dear reader? Have any favorite junk bonds we should consider? Reasons to stay away? The friendly little comment box below awaits your opinion…

Disclosure: Of the companies mentioned above, I own preferred shares in Qurate. I will not trade in any covered stock (or bond) for at least three days after publication, per Stock Gumshoe’s trading rules.