Second Quarter Discount Bond Picks

Junk Bond Picks for the Second Quarter

As I explained earlier, a bond investor can make money in this market by buying short term bonds of companies that are in serious trouble. Since then, the stock market has stabilized and you can pick a stock now for long term and make a lot of money. That is if you pick a stock that will go up. Even at the beginning of a stock bull market, I still would stay with Junk or non-investment grade bonds. As my bonds purchased last year matured, I bought the following bonds.

HILTON HOTELS NOTE 7.200% 12/15/09 does not have a rating. The Yield to Maturity is 19.12%. This issue matures in 9 months. This bond is not rated. The price is $866.60.

FORD MTR CR CO CONTINUOUSLY OFFERED BONDS RETAIL 5.450% 06/21/10. Yield to Maturity 36.303%. This issue matures in 14 months. Yield to Maturity is 36.602% with a price of $719.10. S&P rating of this bond is CCC+.

DOLE FOOD INC SR. NOTE 8.875% 03/15/11 matures in 23 months, with a Yield to Maturity of 17.38%. The price of this S & P rated bond is B- is $865.

REVLON CONSUMER PRODUCTS CORP SR. NOTE 9.500% 04/01/11 matures in 24 months, with a Yield to Maturity of 28.225%. The price of this S&P rated bond is CCC+ is $730.

Since I had to change strategies selling longer term bonds and buying shorter term bonds, I had a bad last 6 months. I only made 15% return. But that is still better than the negative returns that other people made. Just with the bonds above, I should make between 20% and 30% over the next two years. I am not greedy. I can live with that.

From Zions Direct Brokerage

Total(Min) Bonds in Inventory

Price YTM Moody/S&P

318(20) American Gen Fin Medtm Sr Listed 4.625 of 05/15/2009 98.215 26.008% Baa2/ BB+

30(10) American Gen Fin Medtm Sr Listed 5.375 of 09/01/2009 95.250 18.715% Baa2/ BB+

14(1) American General Finance Listed 3.875 of 10/01/2009 95.000 15.468% Baa2/ BB+

Here are three more bonds that you may want to investigate. American General Finance has a bond that matures on May 15, 2009 giving 26.008%, September 1, 2009 giving 18.715%, and October 1, 2009 giving 15.468%. All three bonds have an S&P Rating of “BB+.” Zions Direct, a member of SIPC has these bonds in its inventory. The May and September bonds have to be bought in lots of 20 and 10 bond per trade. The October bonds can be purchased one at a time.

Investment Models and Strategy Introduction: Part 2

Strategies Are Made to Change

Investment Models are about working toward a given life style. Life styles change depending on the conditions that surround you. Investment strategies are about funding the life style that you want to live by. Your investment strategy should be influenced by the economic conditions that surround you. That is why they are a "Work in Progress."

Your aggressive investment broker will tell you that you should trade stocks to get that large percentage of growth. I read a book that said that you can get over 500% growth out of stocks in a year. No one ever seems to make it. Conservative investment brokers tell you that you should have a "Buy and Hold" Strategy. You buy the right stocks a little at a time then when they are as high as you think they will go, you sell them getting a large profit. But no one tells you when you reached that high. Then we have the income stock broker. They have you buy stocks that give large dividends such as 3% to 5%. As the companies grows, so will the price of the stock and its dividend. This does work as long as the stock grows. In this market, good luck!

They are not wrong. But they are only right when the conditions in the economy, the business, the industry, market conditions, and investor psychology dictate that the strategy is correct for you. That is a lot of variables. But it is better than going to the race track and betting on "Stuball" in the fifth race. At least you will not loose all your money.

With bonds, your investment strategy is simple. You pick bonds that will pay you. With Junk bonds or non-investment grade bonds, you pick companies that you believe will pay you and stay in business. With discounted junk bonds, you pick the company that you believe will pay. You pick the company that you believe will stay in business. Plus you will pick a company that will pay principle on the maturity date. These returns can be very large.

As far as strategy, in good economic times, you may buy bonds that may mature 10 to 20 years out, giving you 8% to 25% per year. In bad economic times, you should limit your investment to bonds that mature in one year or less, keeping your eye on their ability to pay you, the investor.
I recently had to change my bond investment strategy, once I realized how bad this depression is going to be. I went from bonds that mature in 4 to 7 years to bonds that mature in 3 to 9 months. That meant that I had to take some losses but nothing like the losses that the stock and mutual fund investors are taking. Some of these people lost most of their portfolio. I lost a few dollars in comparison.

You can watch the financial news channel and financial internet sites to find out who can pay, who the government is helping to pay, and who can’t pay. From that news you can figure out what bonds to buy and at what maturity. When the bonds mature, you buy more with more money and so on and so forth. Just continue to turn the money over. Here is an example of part of one of my portfolios;

Nova Chemicals Corp. 7.4% 04/01/09 bought at $800; now $982.50, will return $224.32 for an 87 days per bond investment. A simple 28.04% return. The company is being bailed out by the Canadian Government.

Ford Motor 8.5% 09/21/02 bought at $750, now $737.80, will return $304.70 for a 6 month per bond investment. A simple 40.63% return. They are in line to get a US Government bailout.

Dole Food 8.625% 05/01/09, bought at $920 now $985 will return $115 for about a 90 days per bond investment. A simple 12.5% return. The company will pay off bondholders early. The company is financially independent but the bonds were under pressure by the financial bear market.

City Group 3.375% 04/01/09, bought at $850, now $988.82 will return $161.10 for a 120 days per bond investment. A simple 18.95% return. The company is being bailed out by the Federal Government.

Now who and where did you think all that government bailout money was going to? It is going to people like me!

Investment Models and Strategy Introduction: Part 1

Why You Need an Investment Model And an Investment Strategy!

Since I started this blog on Corporate Bond Investing back in late November 2008, the stock market has fallen more than 25%. From the stock market all time high in 2007, the fall has been almost 60%. In all this time, the experts have been telling clients to "Stay the Course." If you had, you have gone down with the ship. So the evidence shows that the experts have no clue what they are doing. It is not that your broker or your brokerage firm is incompetent. Their problem is that they never experienced a market like this before. Never have I. However, as a student of market history, I have looked at financial markets going back 200 years and anyone who follows stock and bond markets would have seen this mess coming from at least 10 years ago. In my book, "Building Wealth With Corporate Bonds," written in 2004, talks about investments in the stock market. I say that it is a very bad idea. It is next to gambling.

Brokers go to class to learn how to sell stocks, mutual funds, and other securities to clients. In college, they are taught how to sell products/services, manage companies, and purchase products/services. They are not taught how to react to changing investment and business situations. On the job, people learn how to keep their mouth shut and get promoted. The person who can play the best corporate political games moves to the top. The person who knows what is going on and speaks out stays on an entry level. So it takes about 30 years for your incompetent people to rise to the top and mess up everything from the economy to your small business. I am talking about people like George W Bush, Bernard L. Madoff, and the leaders of GM.

Here are the reasons why the world economy is in the situation that it is in today; top political leaders corrupted; business leaders walking away with billions while their company goes into chapter 11, laying off most of its workers; and your broker telling you to stay the course while you watch your returns decrease as much as three percent per month. The stock market will come back one day. The stock market came back from 1929, in 1956. If you can wait that long then the stock market is for you. But if you are in this to make money then you may want to do what people have done from the beginning of the Twentieth Century to the 1970s. That is to create an investment Model for yourself. From that, create an Investment Strategy.

Your Investment Model includes these three things; financial (like a house), temporal (such as time spent together) or emotional (such as in the welfare of the children). When I was Eight Years old, I started developing my investment model by looking at people in several stages of their lives; my sister and brother who was in their early and mid teen years, older teenagers, people in the area who were in their 20s, married people with children, people in later stages of their lives, and the retired old people. I started looking at their needs, their problems, and what they were doing to fix their personal problems. Looking at these things gave me an idea of what I wanted to do, how I wanted to get there, and what to avoid. Now your model and strategies are a "work in progress." At 8 years old, I can't be set in my ways because in the next 60 years, I have to adjust to future economic and social conditions. In 1959, I did not know that I would live under a Black President, let alone that I would be able to eat at the best restaurants in town. In 1959, in many places in the country, I was not allowed in the business establishment or use their bathroom.

Your Model and your strategy is personal. No one knows where you want to go in life better than you do! It is best to get ideas from other people but other people's top priority is their interest, not your interest. That is why no one prepared you to be in the Blue Jay group instead of the Red Bird group in second grade. No one taught you how to play basketball early so that you can be on the championship basket ball team in High School. That is why your next door neighbor got into Yale while you went off to work at Wal-mart. That is why the people running your 401K told you to "stay the course," while your investments fell 60%. That is why Obama, the son of an African, is President while you sit at your desk worried about being next in your company layoffs.. Your family has been in this country for the past 400 years and no one has gotten past entry level employment. It is all because you and your family had no Model and no Strategies. They did.

Next let's talk about creating that strategy to finance that model.

Using the Discounter

The Discount Brokerage Industry: Part 2

You want to use discount and specialty brokers when you feel that you have enough confidence in yourself to make your own buy and sell decisions. Discount brokers are far less expensive than the full brokerage firms. That also means that you will be offered less services than what a full brokerage firm will offer you.

Discounters have a broad range of services. Discount brokerage firms can offer almost the same services of a full brokerage firm to just offering stock and bond execution services. So you have to know what services you want and ask questions as to what the discounter is offering. You have to interview the firms just like if you were going to hire them to do a job. In fact, you are hiring them to do a job. So know what they can do for you before you commit your money to an account with them. If you are hiring them to buy and sell bonds for you, know if they have a large enough bond inventory to choose from. If it is stock execution that you are after, make sure that they have computer equipment that can buy and sell for you in less than 5 minutes at a very cheap price. If you are looking to have some "hand holding" such as research or advice but at a price less than you would pay at a full brokerage firm, make sure that they can help you with the special need that you require.

The dark side of bond executions with a discount or specialty broker is that you as a client is closer to the trading than if you would use a full brokerage service. Because of the change in the economy, I was forced to change my investment strategy or model to fit the current investment climate. I called my discount bond broker Zions Direct in Salt Lake City, Utah to execute the trade for me. I asked that my long term bond issue be sold at a specific price on the next days trading. At a full brokerage firm, my personal broker would have taken care of that for me. But not with a discount or specialty firm such as Zions Direct.

When selling Corporate Bonds you have to tell the broker who answers the phone that you are interested in selling your bonds. When the market is trading, the firm will put the issue out for bids to other firms around the world since the Corporate Bond Market is mostly an "Over the Counter" Market. As a client, you will have to check back with the firm in about 30 Minutes to see if someone offered to buy them and at what price. At that time, you except the price and sell or refuse to sell. If you refuse to sell, you may want to put them out for bid a few hours or days later. So you as a client may have to act as your own Bond Broker Dealer.

With discounters, you may have to use the library and the internet to do your own research on companies that you are interested in. Some discounters have news services where you as the client can look up public company information and opinions from professional investment analyst.

Next we will look at short term bond strategy for use in your investment model.

What Brokerage Firms to Use

Who To Use For a Broker? Part 1

So you want to get into the stock and bond markets but don’t know what to do. Back in the 1970s when I first walked into a brokerage firm things were a lot different. You could stand around and talk to the retired people who had nothing to do all day but stand around and talk about the market. At that time, a person at age 21 and Black was a rare sight. The old timers would call you over and teach you a few things that wasn’t in the brokerage booklets.

Today you don’t have board rooms where people could hang out. Because of 401K programs and layoffs, people of all ages and colors have to use brokerage firm if they want to increase their retirement holdings over time. The problem has become for many people, how do I select the brokerage firm for me? First you have to know what you want to do with your money. Do you want to invest in stocks, bonds, mutual funds, insurance products such as annuities, or other products that they sell or broker?

The Full Brokerage Service

If you know nothing at all about investments and you are too lazy to learn on your own then the Full Brokerage Services might be what you need for starters. These are the big firms such as A.G. Edwards, Morgan Stanley Dean Winter, Merrill Lynch, or my families firm, Smith Barney (Citi). While these firms have much higher commissions and fees than the discount brokers, they do offer a much wider range of services than other firms. They have a wide array of search sources to reference from. They also can give you guidance on your investment program. Full brokerage firms employ financial planners who can help with Wills and Trust (working with your lawyer), college planning, retirement planning, and other major mile stones in your families life. Your personal broker will suggest investments for your portfolio and give you advise on when to buy and sell.

Brokerages have begun offering Visa Check Cards which work exactly like a credit card. The difference is, the money you spend is taken directly out of your brokerage account. This way, you have the combined functionality of a checking / savings / money market account with a stock and bond investment account. It is tremendously convenient and can help simplify your finances. If you are looking for an all-in-one solution to your banking and investment needs, an Asset Management Account may be a more attractive alternative.

But there is a downside. In the 1987 crash, my full service broker would not pick up the phone. In fact, all I got was a busy signal. In the 9/11 bear market, I heard stories from people who told me that they followed their broker’s advise not to sell their investments. After the market hit bottom, they lost almost half their investments. They listened to their broker again in 2007 not to sell but this time they lost most of their investment. Now they can’t retire. Brokers are tied to their firm and most of the time will do what their brokerage firm tells them to do. In most markets, the advise will be right but in that one in a 20 to 50 year market they can be totally wrong. But it is you that will pay that price if you don’t understand the markets and your risk.

Next time we will look at discount and specialty firms.

Do you need Tuition Insurance?

What about College and Private School Tuition Insurance? Part 2

I saved my money every month from the time my children where born to the time they started college. That was the only way I was going to put them through college without putting me or my children in the poor house. But there is one thing that I never thought about while they were in college. What if my children had to leave college in mid semester due to illness, death, or some other disaster? For some of these people who pay for their children to attend a private school from K thru 12, what if the parents job goes south for one reason or another? What if the major breadwinner confronts a job layoff? What if they have to move away because the job demands it? What if your angle of a child gets a student's suspension from school?

In a few schools, if a child withdraws in a short time after starting, they will be refunded all or in part by the school. Many schools have other refund policies. Some schools provide up to a 60% refund if the student withdraws for mental health or emotional reasons. You should protect your investment in your child by asking the school administrator what the policies are for mid-semester withdraws. Many schools offer a third party insurance policy that may be something that you as the parent or the student may want to consider.


When figuring out if you do or don’t want to take the risk of losing tuition, you must think of two issues. The first is, who is paying for this education? If the person paying for this education has a job where the employer has a history or reputation of laying off workers, it might be reasonable to consider insurance, especially if the tuition is high at that institution. The second is the condition of the student. Does your child struggle with disciplinary problems? Is the child an angle at home but a devil away from home? If so, an insurance policy may come in handy.


For the parents who have children in a private school from K thru 12 grade, I have two extra questions? Do you, the parent, have a job that has a history of job transfers to other parts of the country? Are the parents in careers that require them to transfer to other parts of the country? If so, insurance is a good way to protect your children’s tuition.


According to Kenyon College in Gambier, Ohio, about 13% of students bought tuition insurance in 2007. Most people would rather self insure themselves. But for a small minority of students, the protection is worth the cost of insurance. With tuition rates skyrocketing and a weakening economy, obtaining tuition insurance may be the way of the future.

Insurance Contracts

Insurance vs. Investments: Part 1

Several years ago, I got a job as a Part Time Flex (PTF) at the Harrisburg Main Post Office. I needed a part time job (so I was told by the family.) I thought that the name meant part time but I forgot I was dealing with a federal government corporation who does not know that slavery ended in 1865. I worked 12 hour days for 5 days then one day at 8 hours. Most of the time, when a holiday was not involved, I got one day off. That day was for sleeping.

One day, someone got me out of bed by ringing my door bell. It was an insurance salesman who came to give me a free book that I ask for. I did not know that this free book was connected with an insurance company. I filled out the card in the Post Office Cafeteria and mailed it in. This man wanted to talk to me about buying an annuity giving me 6% guaranteed. All I had to do was give his company so much money a month for so many years and I could get $25,000. I calculated the payment over time in my head then said, "You mean to tell me, if I give you $51,000, you will give me a guaranteed $25,000 back?" He looked at me then looked over at my book shelf, full of mathematical, computer, and financial books. He got up, collected his information, and said good day. That was the last that I seen of this salesman.

Most people do not know that insurance and investments are two different subjects. Insurance is protection against loss. You buy insurance to protect your families way of life incase you, the bread winner dies at a young age. You buy car insurance to protect you from being sued and loosing everything you have because you killed someone in an accident or caused some property damage. You buy umbrella insurance like O.J. did so that you can hire high priced lawyers to defend you in court in case you slander someone or incase you are involved in a wrongful death suit.

According to Dictionary.Com, the definition of insurance is;

1. The act, system, or business of insuring property, life, one's person, etc., against loss or harm arising in specified contingencies, as fire, accident, death, disablement, or the like, in consideration of a payment proportionate to the risk involved.

2. coverage by contract in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract.

3. the contract itself, set forth in a written or printed agreement or policy.

4. the amount for which anything is insured.

According to Dictionary.Com, the definition of investments is;

1. Investments are Property or another possession acquired for future financial return or benefit.

2. A commitment, as of time or support.

You buy an $18 US Savings Bond for 10 years giving $25 at maturity. That is an investment. You buy a corporate bond for 3 years, giving you 4% a year with payments to you of $20, every six months. These are investments. You know them because they give you more money in the end than you put into them at the beginning.

Annuities are insurance contracts. Along with insurance policies, it will pay you so much money in case you do not suffer the loss that you had expected. Some people use them as expensive savings accounts like the insurance salesman was trying to talk me into buying. You must know what product to use to meet your objective, protection against loss or to later maintain your own way of life.

By now, you heard of financier Bernard Madoff. The 70-year-old former NASDAQ stock market chairman was arrested Dec. 11 on securities fraud charges alleging he duped investors out of as much as $50 billion in a giant Ponzi scheme. The real problem was, he took the rich for everything they had. If it was a bunch of poor people, it would not be in the news and he would not have been arrested.

What he appeared to have done was bought stock then wrote "PUTS" against the stock and made 1% a month on the investment of "PUTS". He also wrote what is called NAKED PUTS". "PUTS" are insurance contracts against loss in case the stock unexpectedly would go up. "NAKED PUTS" are "PUTS" that are written but are not backed by stock. In the 1980s, 1990s, and until last year, stocks in general, always went up. So the people who bought his "PUTS" lost their money and Mr. Madoff made his money.

Then we had the big crash from 14,000 to 8,475 in less than a year. Many stocks fell 60% or more. Mr. Madoff had to pay off the people who bought his"PUTS" in stock. If he did not have the stock, he had to pay them off in cash. Just like in 1929, he had to give away his new clients money to cover his old clients contract obligations. So he and all his clients went broke. The clients had no idea that they were in the business of writing insurance contracts.

Moral of the story, know if you are dealing in investments or insurance. Next time, we will learn about using insurance to cover your children’s education fund.