Buy high-quality debt early in sell-offs
At the beginning of a market sell-off, investors should buy high-quality investment-grade bonds and enterprise software loans rather than cheap, low-quality distressed debt.
The argument
The guest argued that buying heavily discounted, low-quality companies (e.g., weak oil companies) early in a crisis is highly risky. Instead, buying high-quality names (like McDonald's or Starbucks bonds) discounted by liquidity panics offers superior risk-adjusted returns.
The thesis, stress-tested
✓ What validates it
- ✓Federal Reserve or central bank announcements of corporate bond buying programs
- ✓Stabilization of investment-grade credit spreads
▸ Risks discussed
- ▸Prolonged economic depression could eventually impair even high-quality issuers
- ▸Central banks failing to step in as lenders of last resort
Hear it yourself
"So we spent March buying investment grade bonds, McDonald's bonds down 20 points, Starbucks bonds down 20 points, and buying software loans, loans of companies that do enterprise software that even if there was a type of recession we thought that could come, would never miss a payment, again, in the mid seventies to low eighties."
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