Part 5 – The Speculative Portfolio

Hi everybody, I’m Marc Lichtenfeld, the editor of Oxford Bond Advantage. Welcome to the final part of my bond tutorial series.

This segment concerns the third and highest-risk, most aggressive portfolio in Oxford Bond Advantage… our Speculative Bonds portfolio, which contains bonds rated BB- or lower.

Every rule I have discussed in the previous four tutorials applies to these superbonds, but their higher risk requires we use a few additional control factors to protect ourselves.

There is huge return potential in these bonds – 100%, 500% and 1,000% annual returns are not unusual. But there are risks here, and you must never allow the return potential of these bonds to cloud your judgment.

First up…

These are aggressive investments, and that means occasional losses will be unavoidable. You can’t earn triple-digit returns without some downside. But when we have big winners – and we will – they will more than make up for any losses.

With that in mind, please note that you should never own more in any one bond than you can afford to lose.

In a previous tutorial, I discussed why we hold only small positions. To limit your downside with superbonds, you must take the small position thinking to a new level.

All of the companies recommended here have disappointed the market in some way, and their market prices have dropped significantly. The most common issue is larger debt loads than what the market considers reasonable.

Very often, bonds are down in price because a particular industry is being punished by the market. In those cases, good bonds have been hurt by nothing more than panic- and mob-selling, and those are the types of bonds we will buy.

The bonds I will recommend will have key financials that my Research Team and I have found to have the greatest chance of turning around and running up in price.

No matter how good these bonds look and no matter how much you stand to make, never get overcommitted in any of these bonds. Keep the dollar amount invested even smaller than what you have invested in your other, more conservative positions.

Many of the bonds recommended will be less than $500 per bond – and, in some cases, less than $200 per bond. Remember, they will mature at $1,000. So you have the opportunity to make a lot of money by committing very small dollar amounts. Make sure you stick to that thinking.

Finding superbonds is more difficult than finding conservative and high-yield bonds, so our Speculative Bond portfolio will not have as many recommendations or open positions as our other bond portfolios.

As with all the bonds in this service, superbonds are meant to be held to maturity. If the market rewards us with a big return before maturity, we’ll take the money and run. But always assume you will hold to maturity.

Remember, you must never invest money that you will need before maturity. 

Keep the proper balance between the conservative and high-yield bonds, and use these super bonds as a “side bet.” These should not be a major part of the bond portion of your holdings.

There is huge money to be made here, but you must keep your ambition under control.

Finally, most of the superbonds in the portfolio will not be listed in online inventories.

In most cases, you will have to ask for your broker’s corporate bond desk, tell them the CUSIP you’re looking for and ask them to go out with a bid.

Your broker is required to advise you about the risks… So please plan to keep your positions small, never get overloaded in these bonds and play these as side bets.

That’s about it. Ask questions if anything is ever unclear.

If you need additional clarification, you can email me at editor@oxfordbondadvantage.com. I look forward to hearing from you.