The Great Wealth Transfer Issue #5:



  • How to buy dollars for cents...
  • How to put the world’s foremost expert at finding hidden gems to work for you – in the biggest treasure hunt in history!
  • ​A simple story that may change the way you view the stock market, your portfolio, and maybe even the world...
  • How one man turned $14 into $7,000 – accidentally – but you can make similar outsized returns systematically with distressed bonds.

Zach Bodish turned $14 into $7,000.

Not in the stock market, but in a Volunteers of America thrift shop.

Turns out that hidden in the depths of this Ohio thrift store was a signed and numbered print by Pablo Picasso. 

The strange poster of a 1958 art show cost just $14. Zach then sold it for $7,000.

Imagine finding Picasso’s signature on a $14 print… 

Better yet, imagine having a world-renowned art expert scouring flea markets and thrift stores for you… all day, every day… and then bringing you the incredible bargains he found. 

Or, even better, imagine being able to purchase rare works of art – reliably, month after month – from your local thrift store… and then turning around to sell them for a small fortune.

It may sound too good to be true, but this is the perfect analogy for the bedrock of our distressed investing strategy.

We find rare, incredible bargains that other investors have thrown out – then we buy them for pennies on the dollars – and sell them back at full price (plus, collect double digit yields along the way).

With less risk and greater upside than equity holders.

Today, we’ll show you exactly how we find these hidden gems.

To start, let’s talk about where to look, and that’s in the distressed debt markets.

Debt becomes distressed when the market believes a company has insufficient funds to service its debt obligations… 

And when there’s fear or skepticism around specific companies and industries, investors will flock to sell their bonds.

They’ll accept lower prices than they acquired the bonds for because of the new sense of uncertainty that the bond issuer will default on future payments.

A good company, perhaps with a weak balance sheet, can get thrown in with the junk. 

While the negative emotions and characteristics in the market cause too many bonds to trade too far below intrinsic value – or fair price.

Making it possible for us to come along and pluck a winner out of the pile. 

Imagine the biggest pile of junk in history. With the most winners hidden inside. That’s the setup for the Great Wealth Transfer and that’s where we come in…


Let’s say you’ve just bought your first distressed bond.

Here’s what’s happening: Your hypothetical bond is trading at a discount to its future cash flows, or in other words, its trading at a fraction of its face value – the future value of scheduled cash flows.

As we covered in our last issue, because bonds are contractual companies must pay them back if they are to remain in business.

Therefore, buying the bonds of companies backed by enough assets or future cash flows will allow you to collect the full principal at the time of maturity.

So, if the company has the means to pay their debt obligation… they will.

This is the secret to our strategy – it’s the bargain prices for which we acquire these assets.

But these prices are only achieved when there’s a great deal of pessimism or fear that causes bondholders to sell at irrationally low prices. 

And here’s the sweet spot in all this for you:

Pessimism is exactly  where we’ve arrived in our current credit cycle

In times of distress (like this one) there are rare opportunities to buy the debt of stable, healthy companies…

And here’s one more advantage we haven’t talked about yet.

As individual investors, we can buy distressed bonds that pension funds and insurance companies are often prohibited from buying.

These bigger types of funds usually cannot buy distressed debt because the securities are considered below investment grade.

Given insurance companies and pension funds manage a large pool of funds for the public, by preventing these asset managers from buying assets below investment grade, it assures that the pensioners or insurance customers will be paid out on time and in full.

People often hear high-yield bonds and immediately think of junk, but it’s this perception that allows us to be greedy shoppers…

Since there is less competition in the high-yield market, we can be patient and only buy the assets we are most confident will stay in business and can pay out the terms of the bond…

Here’s another way of thinking about it, if there’s only one auto-financing company in a town, then the auto-financing company can be selective in regard to the applicants it approves and because there is less competition in the area, the auto-financing company can demand higher rates.

We’re going to do the same thing for high-yield bonds. 

Except we are determining whether a company will be able to pay their upcoming debt obligations and using the lack of demand in the market to scoop up assets that are in better shape than they appear…

Since there are fewer buyers, it allows us to scoop up bargains and be patient. Because these bargains will appear risky to the average investor. (Otherwise there would not be any deals, right?


Because there is a lack of demand for these assets, as they are already being discounted, the “bid/ask” spreads will be wider than they typically are for stocks.

This differs from the stock market because large public companies like Apple and Walmart have a much higher demand for their equity.

Since these are large companies that are stable with little to no bankruptcy risk, there’s a greater demand for the stock in these companies.

The greater supply of buyers and sellers results in narrower “bid/ask” spreads for equities. 

But on the other hand, the bond markets have less buyers and sellers, which is why you’ll notice greater spreads in the bond market…

This is a big advantage for us… the lack of demand in the bond market is what allows us to take advantage of deals. 

The pessimism creates opportunities for the contrarian investor and that’s what makes distressed debt such an attractive market.

Remember our “ex-wife vs. girlfriend” conundrum?

As a stockholder, you’re the girlfriend.

You don’t know the value of the present you’re going to get…or if you’re even getting one at all. 

Maybe your boyfriend will decide against getting you the new car and just take you out for dinner instead?

And guess what, you can’t really complain…

You aren’t guaranteed cash flows or dividends. 

Rather, stockholders are entitled to future profits – and those may very well be hypothetical.

Yeah, stocks have unlimited upside, sure, but the future cash flows or profits are unknown. And the market determines what the shares are worth at any given time.

On the other hand, bondholders know exactly what they will receive when the bond is repaid in full (at face value) as well as the cash flows along the way…

Stockholders of a bankrupt company are entitled to precisely nothing. But bondholders are guaranteed a seat at the table.

Now, listen carefully…

What we’re about to show you next may change the way you view the stock market, the world, your personal fortunes, and maybe even the world…

Let’s say Company ABC issues a bond with a face value of $1,000 with 7% semi-annual interest payments that is due in three years.

Now, let’s assume that a year after the bond was issued, Company ABC experiences operating challenges and as a country, we’re facing rising inflation. 

This leads to greater fear the company will default on its interest payments…

Sound familiar?

Remember, when there’s fear or skepticism around specific companies and industries, investors will flock to sell their bonds for lower prices than they bought in.

This is where the opportunity lies, and we scoop in to buy dollars for cents...

To give you an idea of exactly how we go about this, let’s walk through a real-life bond bargain uncovered by our Director of Distressed Investing, Martin Fridson.


Bond: 7-1/2% due 2031
3/31/20 25.5 (Current Yield: 29%)
3/31/21 78.75
Return: 238%

Investor hysteria unfairly punished this company – and Martin saw a chance to get in at rock-bottom. 

Here’s how he described the opportunity:

"Crude oil prices plunged to under $20 a barrel, their lowest level in 34 years, during the brief, pandemic-induced 2020 recession. 

Half of the high yield bonds were trading at distressed levels. Offshore drillers’ bonds were among the hardest hit energy issues. 

One of Transocean’s major rivals filed for bankruptcy, which ironically seemed likely to make it a tougher competitor, since it would be freed of much of its debt obligations. 

Transocean helped ensure that it would not follow that company into Chapter 11 by successfully refinancing a big chunk of its nearer-term maturities.

There was a setback as the company consequently came under added pressure for legal reasons. 

Some of its bondholders claimed that the company was in default as a result of pledging some assets that were already pledged to them. 

A court ruling in Transocean’s favor on that matter removed some of the clouds hanging over it. 

With the crude price up to around $60 a year after the recession began, Transocean’s business began to stabilize and the market’s fears of a default eased."

And then boom… a 238% gain!

It’s not quite as lucky as Zach Bodish’s find.

But then again… how often are Picasso prints sitting by the cracked Folgers coffee pot at your local junk shop? 

Distressed investing is a far more predictable — and replicable — way to earn a return on your investment.

Of course, there’s still the question of how we find companies that look scary, but have a low actual risk of default…

And we’ll show you exactly how that part of the equation works next.


Porter & Co. 













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