My 6 month Report in the Junk Bond Market

Well it has been 6 months since I told the public to rearrange their IRA accounts so that they are buying Junk Bonds or as they say now, “non-investment grade Corporate Bonds.” As many of you have read in the Business Section of such newspapers as the Patriot News, they quoted financial experts as saying that junk bond investing is a risky business. You can do better in the stock market as they would say.

The Dow Jones Industrial Average Index has come back from 8,000.86 at the close of January 26, 2009 to around 9,068.83 at 3:00 PM today, July 24, 2009. That is a gain of 13.25%. If you listen to the experts and you guessed right in picking the right stocks or mutual funds, you could be doing as well as the Dow. I confess I am not that smart. That is why I am not an expert. Instead, I told you, the public, to buy junk bonds, the same junk bonds that I was buying for my own accounts. In six months, my accounts have gone up 27.95%. That is twice what the Dow has done in the past 6 months. Since I buy these bonds in my IRA, I make this money tax deferred. That means that when I retire and I have nothing but Social Security coming in, I will start withdrawing my money at a 15% tax rate.

As my bonds mature, I am buying new bonds. In the coming months, I will tell you what I am buying. But sometimes, under the right conditions, I will buy stock. The conditions in which I will buy stock is now. I use a strategy called, “Buy and Hold, Cost Averaging.” I buy stocks of companies that have been beaten up by the economy and by the stock market. When the stock market is booming and the economy is running at top speed, I sell my stock to the unsuspecting greedy people just coming into the market.

For the past two months, I have been buying Ford Motor Co (Stock Symbol f). As you know, I have been telling you to buy Ford Corporate bonds. Many issues at the time were giving as much as 36% interest. Over the past two months this stock sold for as little as $5.26. Lately, it as been selling for $6.75 to $7.10. The car manufacturing business is cyclical. At the moment, they are seeing hard times. Ford is the only one of three domestic companies that has not been forced into bankruptcy. The stock was as low as $1.43 per share because no one could figure out if all three companies would go under. Remember, in bankruptcy, the bond holder gets paid before the stockholder. So bonds are a safer bet than stocks.

But in the past two months, the smoke cleared a little to where most business people felt that the company will turn around. This is the time to buy and buy over a period of time. My buy range is under $7.00 per share. My sell range is over $14.00 per share for 50% of my holdings. I will sell the rest when Ford cannot keep its car in the show rooms because of the high demand. At that time, the stock should be over $30 per share. At $14.00, I would have taken out my investment. After that, I would only have my profit making more profit.

But keep in mind, when we talk about stocks we are talking about speculation. That means that we have no idea how much money we can make. We have a higher risk of giving your money away. When we talk about bonds, we have an amount that we expect to make and a time when we will have the money. That is called investing. Bonds have less risk than with stocks because bonds are first to be paid interest before stock dividends and return of our investments before stockholders when a bankruptcy occurs.