You Swear You'd Never Buy 'Junk,' So Why Do You Own So Much? (Hint: Check Your Equity Portfolio)

Jun. 27, 2022 11:04 PM ET56 Comments


  • There is a lot of misunderstanding about so-called "junk" bonds and other credit investments.
  • Lots of investors who swear they'd never buy ultra-risky (they think!) junk bonds typically have lots of the same "junky" issuers in their equity portfolios.
  • That's because they own "mid-cap" and "small-cap" equity funds, whose debt, of course, while "junk," is much safer than the equity below it (and ahead of it in bankruptcy).
  • All of this merely reflects the fact the average investor knows a lot more about stocks than they do about bonds, loans, and other credit investments.
  • Which just creates more opportunities for the rest of us, especially if we can figure out how to earn "equity returns" from credit, a safer, more predictable bet than equity.
  • Looking for more investing ideas like this one? Get them exclusively at Inside the Income Factory. Learn More »
Document with title junk bond on a table. Selective focus.

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Corporate Bonds Before "Junk"

Labels can mean a lot. A wrong, or misleading, or even nasty label can follow a person through life and cause a lot of unhappiness or missed opportunity.

That's basically what happened with the term "junk" when it

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Steve Bavaria

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Steven Bavaria publishes a boutique marketplace service - Inside the Income Factory® - here on Seeking Alpha, which helps members implement the strategy outlined in his book "The Income Factory: An Investor’s Guide to Consistent Lifetime Returns" (McGraw Hill, 2020).


Bavaria introduced the Income Factory philosophy in his Seeking Alpha articles over the past ten years, drawing on his fifty years experience in credit, investing, journalism and international banking. His earlier book "Too Greedy for Adam Smith: CEO Pay and the Demise of Capitalism" exposes the excesses in the CEO pay arena. Both books are available on Amazon. 

Bavaria began his career at the Bank of Boston, handling international credit workouts that included managing a fleet of ships, chasing a Vatican-owned bank in Switzerland, and leading the turnaround of troubled branches in Australia and Panama.

Later he worked at Standard & Poor's, where he introduced credit ratings to the leveraged loan market, helping to open the loan asset class to pensions, mutual funds and specialized investment vehicles like CLOs.

Bavaria graduated from Georgetown University and New England School of Law. He lives in Ponte Vedra, Florida.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My articles published on Inside the Income Factory or elsewhere on Seeking Alpha, including comments, chat room and other messages, represent my own opinion based on personal knowledge and experience. I am not an investment “expert,” counselor or professional advisor, and while my articles may reflect substantially the strategies I employ in my own investing, there is no assurance that these strategies will be successful, either for me personally or for my readers. In other words, while I do my best, there is no warranty or guarantee that the ideas expressed are correct or accurate, and I urge all readers to take my opinions for what they are – “opinions” – and to do your own due diligence on, and check out personally, every investment idea, stock or fund that I may present, so you can make your own informed decisions.

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