Marks’ Advice for Small Investors: Junk Is for Buying--and Holding

Most small investors can’t put their money with Howard Marks’ Oaktree Capital (the minimum investment: $2 million), but his advice will be almost free to anyone who wants to listen this Saturday.

Marks will speak to the American Assn. of Individual Investors’ Los Angeles chapter at the Proud Bird restaurant’s Escadrille Ballroom, 11022 Aviation Blvd. (east of Los Angeles International Airport), from 9 to 11:15 a.m. Tickets are $5 at the door.

Although he doesn’t offer a mutual fund himself, Marks will undoubtedly get questions about the merits of investing in junk bonds via the funds. There are more than 100 junk funds available, and their long-term returns seem to justify Marks’ case for high-yield bonds: The average junk fund rose 456% in the 15 years ended March 31, compared to 343% for the average U.S. government bond fund, Lipper Analytical Services says.

But one point Marks is likely to make with his audience Saturday is that junk-bond investing requires a buy-and-hold mentality. In the next recession, Marks says, junk bond prices are bound to plunge again as investors fear massive defaults. When that fear proves false, prices will rebound.

“The No. 1 challenge is to avoid selling out at the lows,” Marks says. “If you succumb and retreat to the sidelines, you’ll never get your money back.”

Junk mutual funds with the best 15-year track records, according to Lipper, are Kemper High Yield (+610%), Fidelity Capital & Income (+602%), AIM High-Yield (+566%), Eaton Vance Income of Boston (+545%) and Merrill Lynch’s Corporate High Income (+531%).