Investing

Leave the Risk-Seeking Behavior to the Bullfighters

By Charles Sizemore  |  November 4, 2019

I’ll admit, I got a late start this morning. Yesterday was the start of Lima’s annual bullfight festival, and it ended up being a late night.

If you’ve never seen a bullfight, you should make that a bucket list item. They’re magical. A talented bullfighter can mesmerize both the bull and the crowd. When I say there’s nothing else like it, I mean it. There really is nothing else like it.

Andres Roca Rey, one of the bullfighters for the event, was in rare form. This was his first fight in months, as he was recovering from a back injury he suffered in the ring. But from his performance, you would have never known.

Roca Rey is the best bullfighter in the world today, and he’s absolutely fearless in the ring. He’s been gored more times than I can count, and yet he keeps coming back for more.

The active courting of danger is what makes bullfighting so exciting.

The Excitement in Danger

You have to be a little crazy to get into a ring and challenge a 1,000-pound fighting bull bred for aggressiveness to charge at you. And you have to be stark-raving mad to get back into the ring after being brutally gored. But that’s the psyche of a bullfighter.

I once had a long conversation with a retired bullfighter. He told me his biggest regret in life was not dying in the ring. I asked him how he could say that considering he had a lovely wife and kids that adored him, and he just sort of shrugged and laughed.

This is what an economist would call risk-seeking behavior. While it makes for an impressive show, it doesn’t always get the best results in other facets of life, such as investing.

Just look at junk bond yields today.

The Bank of America High Yield Master Index of junk bonds yields just 5.7%, which is close to an all-time low.

As recently as last December, the index yielded over 8%.

In early 2016, it yielded 10%.

A Better Way to Profit

Now, 8% to 10% is a reasonable yield range. At that level, you’re being compensated for the risk that some of the borrowers might default. And in a recession, you can bet that some of them will. You’re also likely to get some decent capital gains if market yields edge lower.

But at a yield of just 5.7%, there’s really no margin of error. They only way to get capital gains would be for yields to drop to new all-time lows. If the economy has as much as a hiccup that raises default risk, you’re likely going to lose your shirt. You’re accepting a lot of risk for a relatively meager 5.7% return.

You won’t find me recommending junk bonds in Peak Income, at least not at these prices.

Why settle for a 5.7% yield with the very real possibility of major capital losses, when you can get vastly higher yields with a strong probability of capital gains to boot?

The opportunities aren’t quite as abundant today as they were a year ago, but the Peak Income portfolio is chock full of companies with yields of 8% to 10%, and some even higher.

There’s no need to seek risk to land worthy profits. To learn out more about Peak Income, click here.

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Charles Sizemore

Income and Retirement Strategist, Charles Sizemore, CFA specializes on dividend-focused portfolios and building alternative allocations by finding value opportunities outside of the mainstream stock market.

Charles is the executive editor and portfolio manager for Dent Research's premium newsletters, Peak Income and Peak Profits.

He is also a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, and has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post. He is a frequent contributor to Forbes, GuruFocus, MarketWatch and InvestorPlace.com.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar. MORE FROM AUTHOR