Picking Up $100 Bills in Front of a Steamroller a Block Away

Picking up $100 bills in front of a steamroller a block away... Make a fortune from doomed, dying companies... You've likely never considered this safe and simple strategy... How you could've almost doubled your money without touching stocks... Hear one subscriber's success story with this strategy...

Editor's note: We're turning the Digest over to Mike DiBiase today...

If you don't know, Mike is our resident bond expert.

More specifically, he's the editor of Stansberry's Credit Opportunities...

Since its inception, our bond-focused investment advisory's recommendations have delivered more than 10% annualized returns with an 81% win rate. And since the COVID-19 pandemic, the results have been even better (37% annualized return and a 92% win rate).

This essay is adapted from the July 5, 2019 Digest. But as you'll see, Mike's take has never been more timely. And we hope you can see why he's so passionate about this topic.

We get it...

Most investors have never considered putting any money into corporate bonds. It sounds scary. And it's much easier to just buy stocks in your brokerage account.

But as Mike will explain, it's a big mistake to let fear keep you out of the bond market...

In short, bonds are actually much safer than stocks. And if you know what to look for, they can offer better returns.

Companies are legally obligated to pay you – even if the prices of their stocks drop.

To find the best opportunities, you first need to understand what Mike calls "the only thing that matters in bond investing." And in today's Digest, he'll show you how to do that...

Regular Digest readers know all about 'picking up nickels in front of a steamroller'...

This old Wall Street adage simply refers to trying to earn small returns while taking on the risk of large catastrophic losses. The strategy works as long as you don't slip.

But you'll never get rich doing that. And eventually, you'll get crushed.

Several years ago, my colleague Dan Ferris used this saying to describe the dangers of the "short volatility" trade. This seemingly "no lose" proposition ended in a colossal bust.

In today's Digest, I (Mike DiBiase) will share a strategy that's the complete opposite...

It's like picking up $100 bills in front of a steamroller a block away.

And as you'll see, with this strategy, you could potentially earn significant returns while taking on far less risk...

Most investors want to stay as far away as possible from dying companies...

The idea of investing in companies spiraling toward bankruptcy scares them. Investing your hard-earned money in businesses headed to zero seems like a sure-fire way to get wiped out.

That's understandable. But the thing is, fears of impending doom can sometimes create opportunities for savvy investors to make huge returns before these companies go bankrupt.

To be clear, this isn't a strategy where you profit as a company's share price falls – like shorting the stock or buying put options.

With those strategies, it's critical to get the timing right. And they expose you to large losses if the stock suddenly rises.

With the strategy I'll share today, you're making an actual investment in a company...

You aren't taking on any additional risk if the stock's price rises. In fact, a rising stock price only reduces your risk.

And no... I'm not talking about investing in "penny stocks" with the hope that they'll double from $0.30 per share to $0.60 per share.

Investing in penny stocks is nothing more than gambling. These stocks could just as easily go all the way to zero.

In fact, you might've realized by now that this strategy doesn't have anything to do with investing in stocks at all...

I'm talking about investing in a company's debt...

More specifically, I'm referring to buying corporate bonds issued by companies you don't need to love. In fact, some of these companies might even be headed for bankruptcy.

To be clear, you don't want to touch these companies' stocks. Their best days are long behind them.

Now, you could make some money if investors react favorably to any glimmer of good news. That would send the stock higher for a brief period of time.

But betting on these companies' stocks is generally a losing move. It's not a matter of if, but when, these companies will go belly-up.

Here's the important thing to remember...

Just because a company is headed for bankruptcy doesn't necessarily mean its bonds aren't safe. You can earn massive, safe returns when you invest in the debt of dying companies.

This is because bond investing is a lot different from stock investing...

Most folks have never thought about investing in corporate bonds. They believe stocks are the only way to invest in companies.

That's what Wall Street wants you to think...

They save their best investments for their wealthiest clients. Have you ever had a stockbroker try to sell you a corporate bond? I doubt it. They make massive profits on the commissions from investors buying and selling stocks.

But bonds are actually much safer and easier to understand. And unlike stocks, when investing in bonds, you don't have to love a company or think it has a rosy future. You don't need to come up with estimates of what you think the company is worth.

All you need to understand is whether you'll get paid what you are contractually owed.

Unlike equity, bonds are legal obligations for the company to pay you...

You'll receive interest payments (called "coupons") every six months. And you'll get paid $1,000 in principal (called the bond's "par value") when the bond matures at some point in the future.

If the company doesn't pay all of the interest and principal as it comes due, it'll go bankrupt. As we like to say, bonds are binary – you either get paid in full or the company goes bust.

They're the only two possibilities with bonds. And unlike stockholders, even in bankruptcies, bondholders usually end up recovering at least part of their investments.

That's why investing in bonds is far safer than investing in stocks. And it's why I urge you to consider investing in bonds today if you haven't done it before.

Our monthly Stansberry's Credit Opportunities newsletter is devoted to finding the best opportunities in corporate bonds...

My colleague Bill McGilton and I spend a lot of time studying and writing about debt. Bill is a former corporate lawyer who analyzes all of the important bond documents. We recommend safe bonds – bonds that we research thoroughly and determine will pay us in full and on time – that deliver equity-like returns.

But why, you might wonder, would we ever suggest you invest in the debt of a company headed for bankruptcy? The answer is simple...

Companies headed for bankruptcy are great places to find some of the best bond opportunities...

Here's why...

Most investors do a poor job of evaluating heavily indebted companies. Their sentiment about the companies tends to go from one extreme to another...

They either assume a company is completely safe and pile into its stock and bonds... or they assume it's completely toxic and sell anything associated with the company.

More importantly, this overall sentiment can flip from one extreme to another quickly...

When investors turn on a company, they turn fast and hard. This "love 'em or hate 'em" mentality creates wild swings in both its stock and bond prices. And that creates mispricings...

Some of the bonds issued by these troubled companies can trade for far less than the $1,000 par value. They might trade for $500, for example.

But remember, bondholders are still entitled to collect $1,000 at maturity – plus all of the interest payments along the way.

The only thing that matters in bond investing is whether the bond you buy is safe to own...

You can be extremely pessimistic about the company that issued the bond – and still be comfortable owning one of its bonds.

If the company that issued the bond goes out of business a few years after you've been paid, who cares? Your money will be elsewhere by that point.

Now, I need to be clear...

You don't want to buy just any bond of a company headed for bankruptcy. Not every bond is safe. With some bonds, you don't ever want to touch them – no matter how cheap they get. But it's also true that not every bond is toxic.

You need to understand a company's debt schedule and borrowing capacity to figure out which ones are safe.

That's because most companies don't go bankrupt overnight. They die slow, painful deaths...

These bankruptcies frequently take much longer than investors expect.

New management is often brought in to run the troubled company. This new leadership implements its "turnaround" plan, trying to resuscitate the dying business. It cuts costs, sells off old assets and product lines, and invests in new technologies and businesses.

These folks have a lot invested in the stock, so they do everything they can to bring the company back to life. No executive wants to see a company go bankrupt under his watch.

The new management "sells" its strategy to new investors. The company's stock price often temporarily recovers. And as long as the business is still remotely profitable, banks and other creditors freely lend their capital to fund management's new strategies.

It can take years before investors realize the turnaround isn't working. Meanwhile, the dying company continues to make its interest payments and meet its debt obligations.

And that's how savvy investors can earn huge returns. Let me give you an example...

You could've nearly doubled your money investing in a bond issued by now-bankrupt retailer Bon-Ton Stores...

The department-store chain filed for bankruptcy on February 4, 2018.

The bankruptcy surprised no one. What surprised nearly everyone was how long it took to happen...

In 2011 – seven years earlier – everyone knew Bon-Ton would go bankrupt. The "retail apocalypse" was sweeping the country. Tens of thousands of brick-and-mortar stores started closing. Bon-Ton's sales had already fallen 15% from a few years earlier, and the company was no longer profitable.

Investors priced Bon-Ton's stock for bankruptcy. The company's market cap dropped to less than $50 million. And it was sitting on a pile of debt that totaled nearly $1 billion.

Bond investors gave up, too. In January 2012, you could've bought Bon-Ton's only outstanding bond for around $540 – a substantial discount to par value ($1,000).

But if you did your homework, you would've known this bond was safe to own...

Smart investors knew it was too early for Bon-Ton to go bankrupt. Although the company was posting accounting losses, it was still generating around $100 million in annual "cash profits" – the cash it generated from its business.

The company could easily afford its interest payments. And it owed only a small amount of debt before the bond came due a few years later. On top of that, Bon-Ton's banks were willing to lend it another $450 million on its revolving credit facility.

Investors who bought the bond in January 2012 stood to earn nearly 50% on their investment if Bon-Ton survived another two years and paid off the bond. As it turns out, folks who bought Bon-Ton's bond didn't have to wait that long...

Just a few months later, Bon-Ton issued a new $330 million bond maturing in five years.

The cash infusion temporarily restored investors' confidence in the company. By the end of 2012, the bond that investors bought for around $540 traded for more than its $1,000 par value.

Investors who sold the bond when it returned above par earned a 92% return in less than a year.

The following year, Bon-Ton paid off the bond early – and in full.

The stigma of impending bankruptcies can often create opportunities like that.

But the thing is...

At certain times, even bonds from fantastic companies sell off to absurd levels.

Their prices fall... and their potential returns soar.

Now, these times don't happen often. In fact, they only occur about once every decade.

They happen during a "credit crisis" – when credit becomes tight...

Investors begin to panic as defaults and bankruptcies soar. And since the bond market isn't as liquid at the stock market, bond prices collapse fast. This hasn't happened since 2008.

Here's the deal...

Most investors don't realize it yet, but I believe the next credit crisis is just beginning.

Bankruptcies are starting to soar. They're now at their highest levels since 2010.

Put simply, this is the moment Bill and I have been waiting for since we launched Stansberry’s Credit Opportunities back in 2015. Very soon, you'll be able to earn massive, stock-like returns from investments that are far safer than stocks.

And again, these investments come with legal protections that stocks don't have.

If you're like most folks who are new to the bond market, you're probably still skeptical...

You probably figure there has to be a "catch" of some sort. You probably don't believe that investing in bonds can really be this easy, safe, and profitable.

Well, you don't just have to take my word for it...

You can hear it directly from one of your peers.

A while back, one of our own paid-up subscribers contacted us with an unusual request. He wanted to go on camera to share his personal experience with our bond recommendations.

So... we let him do it. And for the first time in four years, we recently invited him back to the office to give an update on how he's doing... and to once again share why he sees distressed-bond investments as "The Answer" to early retirement.

I guarantee you don't want to miss what he has to say. See for yourself right here.

New 52-week highs (as of 6/29/23): Apple (AAPL), A.O. Smith (AOS), Atkore (ATKR), Copart (CPRT), Covenant Logistics (CVLG), Commvault Systems (CVLT), DraftKings (DKNG), Expeditors International of Washington (EXPD), Comfort Systems USA (FIX), Fortive (FTV), W.W. Grainger (GWW), MSA Safety (MSA), MasTec (MTZ), Parker-Hannifin (PH), Roper Technologies (ROP), iShares 0-3 Month Treasury Bond Fund (SGOV), Sherwin-Williams (SHW), TE Connectivity (TEL), Vericel (VCEL), VMware (VMW), West Pharmaceutical Services (WST), and Zimmer Biomet (ZBH).

Before we get to the mailbag, please note that our offices will be closed Monday and Tuesday for the Independence Day holiday. So we won't publish the Digest those two days. After this weekend's Masters Series, we'll pick up our regular fare on Wednesday, July 5.

Today's mailbag features a question about FedNow, a "digital dollar" payments platform that's launching in July. It's the subject of our colleague and Crypto Capital editor Eric Wade's newest free presentation. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Is [FedNow] really true? How come nothing is said about this on public television or other media sources? The way it sounds, you would think your local bank would be warning you about these significant changes. What's the real skinny on this?" – Subscriber Jerry M.

Corey McLaughlin comment: That's a great question, Jerry. You would think you'd be hearing more about a 24-hour and seven-day-a-week payment platform that American banks will begin to use next month.

But as you alluded to, Eric is the first person we've heard talk about it.

Mainstream media outlets might be oblivious to the news. But sharing this kind of information is what we aim to do as an independent publisher of financial research...

FedNow is really true.

The platform's launch is scheduled for July. And I can tell you that just yesterday, the Federal Reserve announced 57 "early adopter organizations, including financial institutions and service providers" that are "ready" for the debut of the system.

The list includes 41 banks – ranging from big ones like JPMorgan Chase, Wells Fargo, and BNY Mellon to community-based institutions like 1st Bank Yuma in Arizona and credit unions based in Michigan and Hawaii. The goal is for 10,000 U.S. financial institutions to use the platform.

To hear more details about FedNow and what Eric learned from four years of investigating it, be sure to check out his free video. And as always, Stansberry Alliance members and existing Crypto Capital subscribers can also learn more here in Eric's latest issue.

Regards,

Mike DiBiase
Atlanta, Georgia
June 30, 2023