Investing "experts" and the media have been pushing everyone to buy bonds. But that makes no sense to us because it's so hard to find good undervalued bonds right now.
We only buy bonds when they're depreciated well below their Par Value. And almost everything we're seeing right now is close to Par or above.
To us that signals the time to get out of bonds which is exactly what we've started doing. We bought our bonds 6 months to over a year ago and have made some pretty amazing profits.
As bond opportunities are drying up, we don't want you to lose money trying to get into them now.
But if you really want some bond-type assets in your portfolio, here are a few options that are decent and are currently undervalued.
Bonds
- Pemex Bonds
- Petroleos Mexicanos
Bond ETFs
Bond Close Ended Funds
Foreign Bond Close Ended Funds
Municipal Bonds
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Welcome to Roaming Returns, a podcast about generating a passive income through investing so that you don't have to wait till retirement to live your passions.
We decided to do this time sensitive bonus episode on bonds. Because the experts are pounding the table right now is the time to buy. But we completely disagree with that sentiment and we're going to tell you why when you tune in to this episode as promised, we're back with the bonds.
Bonds, James Bonds.
Did you just do the glasses tilt?
Hey, guys, this is gonna be a quick one. I was looking through, look at my bond screener and it's very difficult to find any bonds like I was fine than last year like last year I could I had my choice of what industry what sector and and that stuff I could just pick and choose like I got a GM one I got a Milan one I got it out through year one I got me like I was just picking whatever bonds i freakin felt like now is not the case for bonds. I was looking and the only ones that you can actually kind of pick and choose would be the junk bonds and you don't really want to do that if you're looking for income. I mean, you can I'm not saying don't. You can dig through there like, technically DISH Network is a junk bond and GAO the prison wants a junk bond. And there's some quality companies in the junk bond status where you have to do a shit ton of research and I'm not sure if you want to do that. Normally,
if we add junk bonds to the mix, we have other good bonds to offset the risk. So we
always have something to offset the risk of I do so
right now there really aren't a lot of good bonds to offset I
found two companies that you could get bonds from through if you want to. One is p max p e m e x and the other one is petroleum Mexicanos. Tim's motherhood they both are under the $100 par value like you can get them you can get one of those MexicanUS ones for like 60 to 66. You get a P max one for like 70. So there's a couple that they have and they have BBB ratings. If you don't know what that means. That means it's decent. It's not great like ay ay, ay. So you have three A's two ways. One is as those are the best three tears. So you have the BBB which is both Petroleo, Smith, conoce and Peenics. But there are a couple steps ahead of the jump on so you can get those those are the only two I found in all of my research that were, quote, investment grade bonds that were undervalued right now because everyone's beating the table about bonds.
Goodbye, buy a bond, buy a bond, we're like everything's overpriced for bonds.
So if you don't feel comfortable because they're both in the crude oil thing so if you already have say you already have a pretty good poor portion of your portfolio and crude oil, well that makes literally zero sense to buy bonds in crude oil. So what I did is I found some ETFs that kind of like cool a bunch of bonds together and they give you a dividend the best ones are m FHVX. That the high yield one that has a small market cap, and it has almost a 10% yield. So that's cool. was the other one I found the other one I found was CR D O x, which is six circles, credit opportunities and other high yield bond but that one has a pretty that one like so what I would do, this one has a 3.3 billion market cap, whereas the other one had a 91 million market cap. So I would basically do like a 6040 7030 split between the one that has a 70% and the one that has three point 3,000,000,030% And the little tiny one. The reason for that is the little tiny ones going to be harder to get in and out of so you don't want to have a bulk of your position in something that only has a $91 million market cap because those are sometimes very difficult to get out
quickly can really really eat into your profits when it comes time to buy or sell because
you're gonna be paying more because there's only like six people that have it and you're gonna be selling for less because again, there's only like six people trying to buy whereas opposed to the 3.3 billion when you have millions of people that want it and millions of people that are selling it. That's why liquidity matters in that regard. It's not that one is better than the other. It's just that people are greedy. And if there's only 10 people selling, they're going to collude amongst themselves and be like, well, we're not going to sell for less than this. Whereas if there's 100 million people selling then you have a better chance of getting the price that you'd like from the ETF so that's basically it. I don't really like ETFs when it comes to bonds because if you do a little bit of research, you can find a shit ton of closed ended funds that deal with bonds and they are bang and they can you literally can just go into their homepage and you can say Oh this one's 12% under nav value, so I'm getting that 12% discount. The only time I really really really beat the table about closing the funds is if you're specifically looking for MLPs energy or bonds because they are the best ones to actually get.
Get some examples of those closed ended funds for the bond category.
Yes, DSL and dry they're both in the same company double line. One yields 10.8% One yields 9.5%. That's pretty good. They're both under NAB price right now. And then my pent up the Pemko ones are always like the one that we're in that I've told people in my emails is PDI it's really well ran bond fund and it yields 14% And then it has a sister one that's called PDO that yields 12%. They're literally like the dub like like the double one ones. They're from the same company. So they're gonna have a lot of the same holdings. But at the the most important thing is they both have the exact same strategy like they just it's this simple so you can pick and choose which one you like one like PDI is 18 Something whereas PDO is like 12 So you probably apply if it was me just buying now I do PDO because you're gonna get more for your X amount of dollars that you're investing, you're gonna get a smaller dividend yield, but you're gonna get more shares and because their monthly dividend payers, the more shares you can get is better because you can compound quicker
rule of compounding more frequency is that
whereas if I was investing in the double line ones, I would actually go for DSL because it costs less and it yields more. It costs 12 and dry like 15 something and dry has the 10 9.4% yield and the SL has the almost 11% yield. So that one I actually would do I would get the higher yielding one or both ha the one I've you know I would go for that one. It's lower yields. So this one I'd actually go for the higher yielding one because of the metrics. Then if you're doing bonds, you don't want to just stick to American bonds and what reason I really like closing the funds is because you can literally go into a screener and type in I want emerging markets or I want the Indian market or I want the Asia market and they actually will have clauses and funds that specifically will purchase bonds from that location that you're interested in. The two that come to mind that I would look at would be aw F and EMP. Aw F is a global one that like they just pull bonds from everywhere. So it's going to have some American bonds but it's going to have some European it's going to have some Asian it's going to have some African and then the EMV is the emerging markets that was specifically to emerging markets. So it's not going to have American or European it's going to have the smaller ones. So
why is that diversification of location important? Because
there's because not all the global markets moving symptoms separately with each other like when there's going to be a year where American markets like last year were awesome, but Asian markets weren't that good. So if you diversify into the Asian markets, you're going to probably get some upside not when in the years that the American market sideways or down. So you're looking
at this from a longer term holding Yes, these are because what I was going to iterate or interject here is that the reason bonds are becoming popular is because people are anticipating interest rates to be decreased, meaning bonds are gonna get locked in at the current rate if they buy them now as opposed to waiting to buy them for the interest rate change. So that's why everybody's jonesing they're like late to the game.
They're late to the game have to group two regards. First is the interest rates. Like because the interest rates are anticipated to go down and 2024 people are starting to pour in the bonds because they know when interest rates go down bonds usually generally go up. Same with REITs. Same with BDCs. If you follow us, you know that we're contrarian value investors and the reason that I like the contrarian approach of that whole big long sentence that's us is because why everybody was pissed, pissing their pants, not willing to buy bonds, and REITs and stuff like that. We were picking up the best ones because everybody was selling so we were well positioned months ahead of this nonsense is going on right now.
And we have evidence to prove that that was a great decision because almost all the bonds that we got, we got a 20 30% increase in value on top of consistent coupon payments throughout the entire period
we got so like, soon as people started pouring into bonds that shot the prices of bonds. up so if you were holding bonds, in anticipation, because every everything's cyclical, like if bonds go down, they're gonna go up at some point,
why and the other risks that you have with potentially buying bonds too late is them calling them back We actually just had one that had a call back right. Have you bought it? We did. Yes. Had you bought it recently and they did a call back. You could have very well lost money if
you don't follow your discipline and buy undervalued. Like
if you would have bought it closer to par value and they did a call back because if you think about it from a business perspective, they would want to call back their higher interest bonds. To then re reapply for loans or funding through lower prices
called back all of their bonds that they were paying 7% on. And I pretty sure at some point this year, they're going to issue a bunch of new bonds, maybe not equal to what they call back but it's going to be comparable to what they call back at like 6%. So they're gonna say one percentage point,
which adds up if you have a lot of money on interest. Anybody who had credit cards knows that's that 1% makes a big difference. So that
is why you never buy for more than 100 because bonds can be called at any point after a certain date. It says in the like when you're researching them. And I'll say callable day, you always have to pay attention to callable day because that means they literally can just say we're taking them back. And if you say you spent 103 So you spent you overspent by 3%. Well, you're losing that 3% Because they call back at par Yeah. Okay, so that is now one area that I would if you are older and closer retirement, I would actually also buy some municipality bond funds only because they're tax free. You're gonna have you're gonna hear your dividend yields going to be lower, but you're not going to pay tax on it. So it's actually higher. Well, this
doesn't really matter if you have your money in a retirement account, because you're kind of that doesn't matter. Because if you're in a Roth, it's not tax on profits anyway. And if you're in a tax deferred, traditional, then you pay tax later, indefinitely anyway. I mean, I don't actually know how the unis will be found or
pay taxes on the middle spot muni bonds, even if you're in one branch tax deferred.
Well, it's just a good option to consider, especially if you're outside of a retirement account. I'm not exactly sure we'd have to probably get more expert
because I have three of them, and they yield 4.6 4.6 and 5.2. So the yields obviously you can see are dramatically lower than the bond funds and then the tax after paying tax on American jump up to about 7% and 8%. When
it comes all said and done, so that isn't that's like a behind the scenes increase. You have to kind of like, try to make it apples to apples to compare those
folk apples that don't care. Just say
like if you look at that and you're like, Oh, that's a really low interest rate. It's not really
the three of them are any a and a D and n the n z f those are the three Muni muni bond closing funds. They trade for around $11 Like I said, it's 4.6 4.6 and 5.2. You so the yields not too much, but it's tax free and then they're generally are very calm, they're not volatile, usually. Well,
the other thing I like about the funds is that they have lower price points. You could buy a lot more shares, as opposed to buying a bond individually where they have the $1,000 purchase price. There's
two there's two frayed the there's two Francophile I was just read an article about one of the authors that I have been following for like four years and he said he doesn't ever recommend bond funds. He always recommends individual funds because a you don't have to worry about dividend yield. Fluctuations at all, like with these funds, they can cut their dividend if they need to. And like if you buy a bond, you know you're getting X percent per year so you can actually make adjustments so made from that regard. If you're like a, you're a strictly fixed income retirement person where you need to know exactly how much you're getting every month, then bonds would make more sense than a bond fund. But other than that, like that's all he said, The only reason he doesn't recommend bond funds, it's like well, okay, so if I was a fixed income person, I would basically just buy what's best and if I have to kind of forecast what I'm going to get down the road, so be it I just want what's best value, best entry price, most love liquidity, less volatility, so I don't really care too much about that whereas bonds have been going kind of crazy the last month like there's one like one day they're up 3% And then they're down 2%. So they're going all over the place. It
shows high interest, high volume, high interest. That's usually when volatility spikes around. So if there's nothing available, that's good, we don't buy right if we don't have stuff that meets our criteria, we do not shoehorn
things well, I was just looking at it because of there's going to be a point this year when that's going to be a problem for not just us but a lot of investors and I'm every why no Vanguard and Schwab I don't know I can't say every brokerage but Vanguard Schwab have money market accounts that you can literally just drop your extra cash in a money market and make 5.5% until you feel like pulling it out. I would rather do both shares but I mean, that's an option market because there's like literally no volatility whatsoever in that, but
we'd rather buy that than buy a under a bond that is not meeting our metrics just because we want to advance
Yes, you have to be very disciplined. Like that's one thing that I just mentioned in an email recently, like, if you are like I am and my personal life, I'm very undisciplined when it comes to like, oh, I can do that or like that looks fine. Let's do that. So if you're like me, where you're kind of like scattered all over the whole spectrum of discipline, whenever it comes to your personal life, you need to actually establish a very disciplined and pragmatic approach to investing that you follow regardless of what your personal life does. If you do that, you're good. If you let your personal life how you just kind of like that, and you do that with your investing. That's bad. That's how you lose money. Yeah.
So if you're gonna apply discipline to one area in your life, do it for your investing. But if you
know me, like, hopefully at some point down the road some of you guys will meet me I am very non disciplined outside of investing. Tim's favorite, favorite line is YOLO YOLO. And learn by doing learn by doing I love to learn by doing just set me down somewhere. Let me just tinker with stuff and I'll figure it out. And if not, then I'll think I won't. I'm bored. Light fixtures I broke it. I hate when you do that. Yeah, that was looking like this because I was specifically interested in utility company bonds. And I couldn't find any under like 111
Oh, wow, that's crazy. overpriced. Wow. I
do believe this year is I think that points to you too. We
us preemptively picking the right sectors at a time doesn't
it? Yeah, I was looking at energy and I was like a utility so that I think 2024 is going to be a very good year for utilities and pretty good year for energy. We're
gonna get the other episode. Don't go too. far down that rabbit hole. So I
was looking at bonds for those and they were very, very, very high. And I've made the mistake. The reason that I'm actually pretty confident speaking about bonds is because I've made the mistake of buying like a bond at 116 and getting really good, really good compounds, but then it was either called back and I lost everything that I made, because it was called back and I lost like 10% but you
find yourself wanting or again,
because people like bond traders are quite astute. I think they can actually identify like when you're trying to sell something before it's been called, like, they're going to really lowball you because they know you got it overpriced. So when I was trying to like sell it on the secondary market, it was it was trading at like 112 and I was trying to sell it for like 110 111 112 and in fact the best I was getting was like 103 Holy crap. So it's like they knew.
So it's a supply and demand thing.
That's why I really liked some of the ones that I was seeing like those those. Some of those Petros ones were really good. They were like 68 and I've like I wouldn't generally like they had a Petros Mexicanos for 6.75 through 2047 to 6.75% is your coupon per year that you're making all the money you invest in it. It's trading at 6466. So that means it's 35 plus percent undervalued. So I would get like those are the ones that I love because you can get those and the price goes up naturally. So while you're waiting for it to go up, it is you're collecting Pretty Pretty cool, pretty cool yields like I think I think there's an even better Mexicanos one Hold on one sec bear with me. Tim loves his Mexican stuff. Smartphone lovers. I like
the guy and I'm just making fun of you because we always joke about the whole fact that Tim's got Mexican heritage but he's the whitest pasty us person you'll probably ever meet.
There's a there's a petrol Petroleos Mexicanos 10% You and it goes through 2033 and it's trade like this is probably the one that I have. Again. It is at 9833. So you're not getting a lot of appreciation on your entry price compared to that, but you're getting 10% for 10 years, nine years. And that's cool. There's a third one that's 9.98% but see like do you see the difference? That was 130 to 46? Yeah, that's crazy. It has a lower credit score like the fourth one, I'm looking at 9.9 a coupon yield through 2047. It's trading at 132 46 and it has a BBB minus credit rating, whereas the petrol is Mexicanos is 10% or 2020 2033. So it's what 14 years less, you're getting into 9833. So that's 33% less and it has a different has a better credit rating of a BBB so you do need to pay attention to the s&p credit risk rating and the moody credit rating mean for you as an investor it doesn't mean much. But for them as a company the difference between a BBB minus and say a BB plus is probably two to three percentage points when it comes to them borrowing money, the difference between a BBB and a BBB minus is probably another I got another one to 2% So like, that's why I would do the Petroleos. Mexicanos one even if even if the numbers were identical, I would still do the patrols Mexico last ones because it actually has a better s&p rating. So there you go on that one, but you see there some like the geogrid that's a really big prison one. Navi and that's where I have my student loans through until I saw them. That's a pretty big student loan company that has a B plus like it's it's garbage credit rate. For did like I said BBB minus good years. Only a B plus feel good year to tires.
So like it's interesting that companies that love their
trash when it comes to London, there's the there's the one of the P maxes, but that one there are still overpriced is one on 172 Like the highest, highest I would ever go on a bong you'd actually have to bust out like a calculator and do some calculations. My nerdy like if you're getting nine say you're suppose you're getting 9% If you're overpaying by 2%. Well, whenever you go to sell, you're not going to get anything lower than what you're selling for us. We're at 7% That makes sense because you get 9% And you're overpaying by 2% so that your flat 7% to start with. At the price goes up, you're gonna sell off like you might be able to shrink that down to like maybe 8% But like, the highest I would ever go is like 100.5
And that's only if it typically sold we're hiring. Like if it's
1011 12% coupon rate. You look at some of the blue chips you're getting like 104 for like a 4% coupon right that's stupid. That's just that's just like if you want to give money away can give me I'm cool
yeah, we'll take that money you're you're
literally just giving money away. Anytime you overpay for a bond you're giving money away. Just like the overpay for a stock like generally speaking you're just giving money away. That's that's the bonds like I gave you plenty of closing the funds that I would actually buy more than bonds right now. If you're going to do bonds, you're gonna have to do junk bonds. I saw a couple municipality ones but they were only like 4%. So if you want to do like individual muni bonds, you're gonna get 4% as opposed to the five or 6% you get when you do the actual conglomerate the fund the fund version. So that's up to you. And then the agency one I've seen a couple agencies that like 6%, but that it was nothing like this. Like I I wish we went into more detail back when I was buying the bonds again 2023 But we actually weren't even recorded at that point.
We'll do that. We'll actually do that. Next time. bonds become a good buying strategy. When they when they pivot
because like I was buying bonds at the end of 2020 to 2023. You were just buying whatever whatever the hell you wanted to.
It was like candy. It was such a rainbow. It was dirt cheap
and like I was holding some of my house for like six months somewhere like a year somewhere like three weeks. Like you literally could just buy a bong at like 68 cents, and then sell it like three weeks later at like 80 cents. So you're made like 11% and like a week or two. It was fantastic. Yeah, it's crazy.
And that's those are that's a heck of a frickin increase and you're expecting the stock to go up that percent. Like you can do the same thing with bonds if you just buy at the right time.
The reason people invest in software the boss because stocks have more, more window of opportunity like that, whereas bonds this is what we just went through I'm assuming happens maybe once a decade for everything, no matter how good the company is on sale. I think that happens like once a decade. So hopefully you guys are still listening the next time within the next 10 years this happens where you can just get shit like for
me bond buying opportunities even if it's not that people
people were like if you were a bond trader you were making millions of dollars because it was just it was so easy. It's like whenever you're investing I'm not sure if you how long you guys have been investing but like with the last bull market like no matter what stock I picked, it was up by like 20% within like a month or two. Like that's how this bond stuff was going. Whenever they finally turned from everyone. All the security pants had sold out. And it was people by him.
Was it scaredy pants or is it people that saw other opportunities elsewhere? So they just like jumped ship? No, it was security pants.
Like, oh my god, the interest rates are gonna go up forever which will happen oh my god, that's rates are gonna go forever. So I have to get rid of all my bonds. I'll take them for a loss as long as I because they wanted they were so focused on getting their money into cash, which I've been reading report after report after report like the last nine months like five years ago, when they said put your money in like you want to have a dry was a cold dry powder cash on. That's not the case. They weren't holding your money and cash is stupid. You're not making anything on your cash if you hold in cash, so that's just dumb. You have to put in stuff. But that's a whole other topic.
All right. So that is the bond update the
bond and the bond funds because they're the way to do bond right now. So we
just wanted to give you that because they're everybody every experts pounding the table on buying bonds and we did not agree.
Don't buy, don't buy if you unless you do like unless you
absolutely need to have that diversification in your portfolio for whatever reason if you
do a screener and you find when that's like 68 cents and or 60 or $68 out of 100 then okay, maybe
stick to the metrics, and that'll create the margin of safety that you need to ensure profit gains when things turn
That's that. Alright guys, we'll see you in a couple of days. When we do a reason that Tim is bullish podcast,
even though the whole beginning of this year has been like crash and burn, crash and burn, crash and burn. So fine. Yeah, we'll explain exactly why Tim Ultra bullish for this year while a lot of other people are very, very,
they're calling for recession this blah blah end of the world that. It's just the same shit different day.
Alright guys, see you next episode.