Wednesday, June 17, 2015

Today's Investing for Survival

 Investing for Survival

            12 things I learned from David Tepper: #4

4. “We invest in a lot of bonds and preferred (stock), which we can convert to equity. It not as risky as people make it out to be.”
When you make an investment in distressed debt your ownership interest can (under certain circumstances) convert into equity ownership, which gives you certain control rights that can be helpful in generating the return you desire. People who understand areas like bankruptcy and finance can do things like determine what is likely to be the “fulcrum security” which will convert into sufficient equity to exert some measure of control when the business restructures via a plan of reorganization. This sort of activity combines investing with the profession of distressed investing/bankruptcy. Distressed investing is not an activity where amateurs and people learning on-the-job experience a positive result. That David Tepper can do it does not mean that you can do it.

            Bonus: If you don’t sell high, you can’t buy low (medium):

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