Miquel Roig and Daniel Badía, whom I have not had the pleasure of meeting beyond their articles in that publication, tell us about the benefits of investing in corporate bonds. Just like that. And do so through investment funds to ensure proper diversification, leaving it in the hands of experts (sic): «With a minimal investment, they allow for significant diversification and entrust management to investment professionals in these markets.» Another appointment eminent: «In our view, prices as low as they are at present represent an ideal opportunity for fund managers to invest in corporate debt, whether or not it is investment grade«, and who says so?” Adam Cordery, that is, a manager (seller) Schroders’ fixed-income funds. Both sides seem to be saying that the issuer’s creditworthiness and ability to repay are of little consequence if the purchase price is low enough.
To illustrate this, the article uses an absurd example: the investment involved in the Chicago Bulls signing Michael Jordan for 35 million a year, and how bad that signing would have been if the price had been 100 times higher (sic). 
They extrapolate this to today’s depressed corporate bond prices, and the conclusion is that now is the time to buy. But buying low-rated or sub-prime corporate debt at a bargain price is actually like the Chicago Bulls signing professional players with serious injuries – which will prevent an unknown number of them from succeeding – for half of what Michael Jordan earns. And to think that, because they cost half as much, they’ll still be competitive and, on top of that, they’ll make a fortune by selling them off as top-class players in their prime. What’s more, the Perfect Storm we’re heading into is going to exacerbate those injuries beyond measure. Dangerous, isn’t it?
To begin with, it is completely ignored the circumstances surrounding that investment, and they simply limit themselves to classifying it as good or bad based on the purchase price. But as we have said many times, the risk-return ratio is just one of the variables we must take into account before classifying an investment as good or bad, suitable or unsuitable for our specific circumstances. In the aforementioned article in *Expansión*, not even something as basic as the proportion of the investment relative to our total assets is taken into account. It simply spews out the slogan in large letters: «Experts recommend gradually building up a portfolio of corporate debt. Demonstrating their analytical skills and prudence, they recommend doing so gradually: «It is advisable to spread your purchases over several weeks or months (2,000 each week or 5,000 each month, and so on). Mickael Benhaim, Global Head of Bonds at Pictet Funds” (another salesperson), states that the time has now come to start building up a corporate debt portfolio, particularly in high-yield bonds, although he advises entering the market gradually.«
Here are a few more gems:
«The key to this type of investment is to have a portfolio that is sufficiently diversified so that any default by one of the issuers can be offset by the interest and the return of the capital invested in the remaining companies.» I’m afraid I must correct you, but the return on capital invested in the surviving companies will not cover defaults or credit events arising from investments that go wrong; it will only cover the interest. However, between the normal repayment of the issue and a default, there may (and will) be various credit events that turn such issues into a financial nightmare, even if they do not default.
«The economy will contract, demand will fall, and corporate debt defaults will rise from the current 2% to beyond 15%. The good news? Current prices already factor in the worst-case scenario..» Gentlemen, we cannot base the success of an investment strategy on the assumption that future defaults or credit events will not exceed 15%. Not in a liquidity trap scenario such as the current one. But the fact is that the recommended investment horizon isn’t even mentioned, and corporate debt with a maturity of more than a couple of years could face difficulties that are entirely impossible to predict. «The worst-case scenario»For most analysts, this has been systematically contradicted by the harsh reality that has been proving them wrong day after day. Why should we now trust their «worst-case scenario» calculations?"
Neither investment circumstances, nor asset allocations, nor portfolio compositions, nor investment timing… absolutely nothing. The Unbearable Lightness of the Fund Manager or the seller in their purest form.
I have no intention of offending the authors of the article in *Expansión*; I do not even know them. However, I have been unable to find in their text – or in the references to fund managers and salespeople included therein – a single rational analysis of risk, return and the circumstances that would safeguard the interests of potential investors. Just Slogans and more slogans.