The market's rally so far this year has given way to a flood of profits for investors. Since early March, the Dow is up more than 49%. But starting today, you can begin cashing in even larger gains using the stock market "Trump Card," which can guarantee you at least triple your money.
But first, there's a catch…
These "Trump Cards" aren't traded very often. And you can't find them on an exchange. That's what makes them so lucrative. You see, it's this lack of liquidity that makes these high-yield bonds, as they're called, double and even triple overnight.
Once you get past the sometimes-frustrating volume issue, you'll find many advantages high-yield bonds use to trump regular stocks.
First, there is the time element. You can hold a stock indefinitely, as long as the company stays in business. Bonds, however, mature at a certain date. They can even be called away. But unlike options, bonds use time to work in their favor. The closer to maturity date, the better. Time adds an extra benefit, because once it runs out, investors get paid.
Bonds are also higher on the importance scale for a company. Even if the unfathomable occurs and the issuing company liquidates, bondholders are paid first. Next come preferred stockholders and finally common stockholders.
The most important advantage bonds have over stocks is their guaranteed value. Stocks are bought and sold with a constant moving target. Each investor has his or her own target value. Bonds, however, have a face value. That face value, usually $1,000, is the price those holders will receive at maturity. This gives us a clear picture of what our investment will pay us. It can also give us a guaranteed double or triple.
Say you buy a corporate bond with a face value of $1,000 and a maturity date of August 2011. Instead of paying the full $1,000, you'll oftentimes receive a hefty discount. Let's say in this case, the bonds are trading at around $330. That's a guaranteed triple as long as the company doesn't go insolvent.
Here's why the guarantee is so important. Even if the company does go belly up, every asset sold will be used to pay you. Common shareholders might receive a few dollars of whatever is left in the end. But you are paid first.
Don't want to wait until 2011 to have your payday? No problem. Just trade it in early. As you can see, that's an equally lucrative choice.
Instead of waiting until October 2027 for a 614% payday, investors on this bond could've cashed out today for a 5-month 186% gain. It's easy enough to flip that gain into other fast moving high-yield bonds.
To get you started, here are two of the top traded bonds:
- Realogy Corp 10.5% Coupon Maturing Apr. 2014 (CUSIP: 75605EAT7)
- Clear Channel Communications 10.75% Coupon Maturing Aug. 2016 (CUSIP: 184502BB7)
Note: Be careful trading these. Corporate bonds can be extremely volatile.
The coupon rate is the original yield based on the $1,000 face value. This is also a large selling point for income investors as the yield becomes inflated with lower prices.
The CUSIP is the equivalent of a stock's ticker symbol. Although, instead of using it to place orders on an exchange like stocks, the CUSIP is used for bond traders to quickly identify each particular issue.
To find your own high-yield bonds, you can check out any free bond screener such as Yahoo! Finance's. Just enter the criteria you are looking for – like coupon rate, maturity date, and credit rating – and scan through the results until you find one you like.
Sincerely,
Jim Nelson
