Friday Fixed Income, August 3, 2018

Something a little different emanating from bond research.

music selection:  “I Think We’re Along Now” — Tiffany (tee-hee-hee)

On Friday’s I like to cover the fixed income investing universe.  My favorite way to invest here is by buying corporate high yield bonds that are selling at a steep discount to par that I think will either mature or liquidate at a fair price.  I have made great money that way.  Better than with equities and options.  My second favorite, which has been the subject of many FFI posts; is to buy closed end funds with high yields that are trading at a discount to Net Asset Value (NAV.)  Today, I’m going to show you a third way to profit from bond research.  You see, the bond market is often called the “smart money”.  It is mostly institutional investors that have huge teams of analysts, attorneys, and expertise in multiple industries to help them evaluate a security.  Sometimes, a stock (the equity) will fall 50% or more while the same company’s bonds barely budge from trading around par.  Nine times out of ten or better, in the disagreement regarding the company’s future, the bond market has it right.  You can expect the equity of these beaten down companies that still have the faith of the bond community to double or better over the next 18 to 24 months.  It is important however to wait for an uptrend to establish itself.  I’m going to share three recent purchases I made that fit this description.

Acuity Brands (AYI) is a lighting and lighting solutions provider in North America.  It’s shares have fallen from a high around 277 to a low of 112 around April of this year.  Since then, shares have rallied to over 136.  Throughout the period the shares were tanking and continuing through today, the bonds always traded ABOVE par.  I bought shares at 133 and expect a double in the next 24 months.  The smart money will rarely steer you wrong.

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Joe Black 1 week ago Member's comment

Good stuff, thanks.