Your broker probably never mentions this... A Q&A with our Mike DiBiase... How billionaires make money during a credit crisis... What to buy when everyone else panics... A legal contract beats a stock certificate...
Editor's note: As Stansberry's Credit Opportunities editor Mike DiBiase wrote to you yesterday, most investors don't even consider the corporate bond market when thinking about putting money to work.
But that's a mistake, he says, as the asset class can provide equity-like returns with far less risk...
Today, as our team enjoys some time off for the holidays, we're following up with more detail from Mike. He and I (Corey McLaughlin) had this Q&A in 2022, and it remains relevant now.
In it, Mike shares more about the distressed-bond strategy that he and Bill McGilton use in Credit Opportunities to find ways to profit in the long run when "everyone else" inevitably panics in times of crisis, which Mike thinks is around the corner heading into 2026...
Corey McLaughlin: Let's start here... We always have a lot of new readers, so I just want to give a proper introduction. If you had to describe what you do in Stansberry's Credit Opportunities and why people should give it a try, what's your pitch?
Mike DiBiase: Sure. Thanks, Corey.
In Stansberry's Credit Opportunities, my colleague Bill McGilton and I recommend cheap corporate bonds. Our goal is to earn stock-like returns with investments that are much safer than stocks.
I'd be willing to bet most folks have never thought about buying a corporate bond. They probably don't even know it's possible for retail investors to buy them.
But they're missing out if they've never considered them. Corporate bonds are a great supplement to any investor's portfolio.
The irony is that most brokers and investment advisers never mention them as an investment alternative. If you ask about them, they'll probably say they're "too risky" for average investors and will try to talk you out of the idea. That's comical. These are the same people who are more than happy to push you into much riskier investments like stocks.
CM: So how would you explain how bonds really work? Why are they safer than stocks?
MD: Bonds are nothing more than loans. Companies issue them to raise money. When you buy a corporate bond, you become a lender. When you buy a stock, you're an owner.
Bonds are typically issued in increments of $1,000, which is known as the "par value" or "principal" of the bond. On the bond's maturity date, the buyer is legally entitled to collect the full $1,000 par value.
In addition to the principal, the issuer is also required to pay you interest in the form of two semiannual payments each year through the maturity. When you divide the annual interest payments by the $1,000 par value, you get what's known as the "coupon rate" of the bond. For example, a bond with an 8% coupon rate will pay you $80 per year in interest ($1,000 times 8%).
Here's what's important... A bond is a legal contract between you and the issuing company. The company must pay you all of your principal when the bond matures. And it must pay you all of your interest on time. It has no choice. If it doesn't, lenders can force the company into bankruptcy.
Because bonds are backed by these legal obligations, they're much safer than stocks.
When you buy a stock, the company doesn't owe you anything. If it pays a dividend, great. But it can cut that dividend at any time without notice. And with stocks, your capital is always at risk. You have to hope you'll be able to sell your shares to someone else for more than you paid.
CM: But "corporate bonds"? A lot of people might simply freeze up at hearing the phrase, or think it's not for them – sort of like options trading – or that they can't easily buy bonds. Why is that not the case?
MD: It's simply a matter of education. Bill and I go to a lot of trouble to explain everything to our subscribers in great detail and in easy-to-understand terms. Once people understand the basics, they realize bonds are actually much simpler than stocks.
They are much easier to analyze and value. When you buy a bond, you know exactly when and how much you'll be paid. You know exactly what your return is going to be on the investment as soon as you buy it.
That's the complete opposite of what folks are used to. With a stock, you don't know what your return is going to be until you sell it.
A lot of investor apprehension goes back to what I said earlier... Wall Street doesn't push corporate bonds on retail investors. The pros like to keep this secret to themselves. They seem to go out of their way to make it more difficult to buy them.
For example, you'll likely have to ask your broker for permission to buy corporate bonds. You don't have to ask for permission to buy stocks, which are much riskier than bonds.
Even the unique identifiers of bonds are more complicated. Stocks are assigned short, easy-to-remember tickers that mirror the company name. Bonds, on the other hand, are given difficult-to-remember nine-digit alphanumeric symbols called CUSIPs that have no intuitive meaning.
Folks shouldn't let these complications and minor inconveniences stop them. The rewards of investing in corporate bonds are well worth it.
CM: Similarly, a lot of people might think about bonds today and say, "Oh, inflation is eating away at my purchasing power. Bond yields aren't worth it for me." But we aren't talking about low-yielding government bonds or the typical bonds in your 401(k).
MD: That's right. Most people hear the word "bond" and think of sleepy 4% returns.
Some corporate bonds do have yields like that. They're issued by companies with the highest credit ratings. But those aren't the kinds of bonds we recommend in our newsletter.
We recommend what we call "distressed" bonds. These are bonds that trade for much less than par value.
You see, after a company issues these bonds, they trade in a secondary market just like stocks. Their prices fluctuate just like stocks. They can trade for much more or much less than their $1,000 par value, depending on how risky investors perceive them to be.
Bonds that trade well below par value are mostly issued by companies with lower credit ratings, which is why they're sometimes called "junk" bonds. But folks shouldn't let that name scare them. Many so-called junk bonds are completely safe.
We look for annual returns of 10% or higher. The high returns compensate us for the credit risk we're taking.
CM: This makes me think about investors like Howard Marks and others who have made fortunes buying distressed corporate bonds, right?
MD: Right. Howard Marks is probably the greatest distressed-bond investor of all time. He started the world's first institutional distressed-debt fund back in 1978 and has made a killing for his investors. His fund averaged something close to 20% per year, after fees, for more than 20 years.
But he's far from alone. Many billionaires use the secret of distressed bonds. Guys like Warren Buffett... John Paulson... Sam Zell... and Wilbur Ross. These guys do the exact opposite of most investors.
While everyone else is chasing prices higher in the late stages of a bull market, they're busy raising cash. Then, when the crisis unfolds, they pounce. These guys did this during the last financial crisis, and you can bet they'll do it again during the next one.
CM: Generally speaking, what do you look for in a good bond investment?
MD: It's pretty simple... We look for deeply discounted bonds that are safe.
By "deeply discounted," I mean bonds that trade for discounts to par value of at least 10%, preferably much cheaper.
By "safe," I mean bonds that will pay all of the interest and principal on time and in full. Remember, these are amounts that are contractually and legally owed.
The great part about bond investing is the only thing that you need to worry about is whether you'll get paid. It's as simple as that. We like to say they are binary. You either get paid on time and in full, or you don't.
You don't have to love the company that issued the bond or believe it has a great future. Heck, you don't even have to like it. The only thing that matters is whether the company can afford the interest on all of its debt and will be able to pay you your principal at maturity.
The beauty of buying bonds at big discounts to par value is that you earn capital gains in addition to your interest. The capital gains are the real power of this strategy.
For example, let's say you pay $800 per bond for ABC Company's 8% bonds that mature in two years. Remember, at maturity, ABC is contractually obligated to pay you $1,000 in principal for every bond. Your capital gain will be $200 per bond ($1,000 minus $800).
You'll also collect $80 in interest per year. Because you bought the bond at a discount, your annual interest rate on the bond will be higher than the stated coupon rate. In this case, it will be 10% ($80 divided by your $800 cost).
Adding the total interest payments of $160 over two years to the $1,000 principal, you'll collect a total of $1,160 on an $800 investment. That's a gain of more than 40% in two years, or around 20% annualized. Had you bought the bond at par value, your annualized return would have been only 8%.
In this example, you've nearly tripled your return simply because you bought the bond at a significant discount to par value.
CM: You mentioned you don't need to like the company – you just need to know if it can afford to make good on its debts. I'm wondering what your analysis can tell folks about businesses in general?
I know from reading your work that you share a lot of metrics to help folks avoid investing in bad companies, or "zombie" companies, which is a tremendous value on its own...
MD: Thanks, Corey. Our subscribers learn a lot about how to evaluate the solvency of businesses. That alone makes you a better investor. If you're not comfortable owning a company's bonds, you certainly don't want to own its stock.
The first thing we look for is whether a company generates enough cash to pay the annual interest on all of its debt. The size of the debt doesn't matter. What matters is whether the company can afford it. If it can't, creditors can force it into bankruptcy.
We like to see companies that generate enough cash to cover their interest obligations by at least two times. That gives it a nice cushion if the business suddenly suffers a downturn.
And we make sure the company will be able to pay off or refinance all of its other debt maturing before our bond.
If we believe there's even a small chance a company won't be able to do this, we won't recommend the bond.
We use a lot of estimates in our projections. Of course, no one can predict the future. No matter how much work you do, a few bonds you buy are going to default... meaning they won't pay you all of your interest or principal.
That's why we also always analyze the worst-case scenario... bankruptcy. In a bankruptcy, bondholders often recover some portion of their principal. Stockholders, on the other hand, are almost always completely wiped out.
We project the value of a company's assets in a hypothetical bankruptcy to estimate what our recovery would be for every bond.
A small number of defaults isn't going to wreck your portfolio. If one out of every 10 bonds defaults, the returns you can make off the nine that don't more than make up for the one that does.
I'm pretty proud of our track record...
[Editor's note: We asked Mike to update us on his current track record last week, which is what we're sharing below.]
Since launching our service back in 2015, we've recommended and closed 70 positions, of which 57 (81%) have been winners. The average return of those recommendations, including the losers, is about 10% over an average holding period of roughly one year. So it's the same 10% return on an annualized basis.
That beats the 6.5% return of the overall junk-bond market.
But we've done even better over the past five-plus years. Since the pandemic in 2020, our win rate is 91% on 32 closed positions. The average annualized return of those 32 positions is 23%, crushing the junk-bond market's 10% return.
That's even close to the stock market's 28% return over the same holding periods... even though stocks have been in a bull market during most of that time.
CM: What conditions do you look for in the credit market? You're not necessarily talking about "backing up the truck" to buy corporate bonds just yet, right?
MD: Right. This distressed-bond strategy works best during a credit crisis... when there's real fear in the markets. That's when you back up the truck.
That's when bonds go on sale. I'm talking deep discounts. Remember, bond prices and returns are inversely related. The lower the bond price, the higher the return.
You can gauge fear in the credit market by looking at what's called the high-yield credit spread... It's the difference between the average yield of less creditworthy junk bonds and the yield of similar-duration U.S. Treasury notes.
It's measured in basis points ("bps"). A spread of 600 bps means that junk bonds yield 6% more than U.S. Treasurys. That's about the average throughout history.
[Editor's note: Today, this spread is around 300 basis points.]
Still, even during calm markets, there are normally a handful of what we call "outliers" every month... safe bonds that trade for much less than they should. An outlier could be caused by a company getting its credit rating downgraded, a bad quarter, or some other negative news surrounding the company.
But no doubt, this strategy works best during crises. We haven't seen a real credit crisis since 2009. But I think we're on the cusp of the next one right now.
You'll know it's a real crisis when the spread soars to more than 1,000 bps. During the 2008 financial crisis – which I would call the last true credit crisis – the spread soared to more than 2,000 bps.
CM: What's your background? How did you end up getting involved in a bond newsletter? It's not exactly something that's commonly taught...
MD: I'm a numbers guy. And to make sure bonds are safe, you need to be able to crunch numbers and read financial statements.
I have bachelor's and master's degrees in accounting. I began my career as a certified public accountant, auditing public companies for one of the Big Four accounting firms. Then, I worked in corporate finance for a publicly traded software company for nearly 15 years before joining Stansberry Research in 2014.
So I have lots of experience preparing, analyzing, and reading U.S. Securities and Exchange Commission filings. I know how to cut through all of the noise in them and focus on what's important.
My colleague and co-editor Bill McGilton is a former corporate lawyer. He had more than 10 years of experience in corporate law before joining Stansberry Research in 2014. He's great at reading and interpreting complicated legal documents.
Analyzing bonds and corporate debt structures might seem boring for most folks. But for us, it's fun. I analyze the numbers to assess whether we'll get paid on every bond. And Bill reads the relevant bond and debt agreements to make sure there are no hidden land mines.
It's not something that an average person is equipped to do – or would want to do. We do all the hard work for our subscribers.
Editor's note: If you're interested in getting more familiar with Mike and Bill's distressed-bond strategy, now is the perfect time – before the next credit crisis hits. And that could be right around the corner, Mike says, as cracks in the economy are increasingly showing up.
Click here to learn more in this free presentation and get started with a subscription now.
You'll hear directly from a Credit Opportunities subscriber who used the strategy to retire at age 52. Now, he says he never worries about stock market volatility anymore because of the equity-like returns he can make following Mike and Bill's corporate-bond strategy instead.
Our team is taking some deserved time off around the holidays, so we won't be sharing the 52-week highs, top open positions, and mailbag again until after New Year's Day.
Additionally, our offices will be closed later this week for the Christmas holiday. The next Digest you receive after today will be this weekend's Masters Series... Then we'll pick things up again on Monday with a special series of essays from our Dr. David "Doc" Eifrig.
In the meantime, as always, send your comments and questions to feedback@stansberryresearch.com... And happy holidays.
All the best,
Corey McLaughlin with Mike DiBiase
Baltimore, Maryland and Atlanta, Georgia
December 23, 2025
