Investing in financially troubled companies — those near or in bankruptcy, restructuring, or severe liquidity crisis — at prices that reflect the highest possible pessimism.
Deeper Explanation
Distressed investing is the extreme end of contrarian investing. The investment may involve equity of near-bankrupt companies (speculative, binary outcomes), distressed debt (buying bonds at steep discounts hoping for recovery of principal), or post-restructuring equity (fresh equity in a company emerging from bankruptcy with a cleaned-up balance sheet). The returns can be extraordinary — buying a company's bonds at 30 cents on the dollar when the business is worth 70 cents represents a near-certain return if liquidation or recovery occurs. The risks are equally extreme: bonds at 30 cents can go to zero. Distressed investing requires deep credit analysis, legal expertise, and the patience to work through multi-year restructuring processes.
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Go deeper into the Contrarian school — frameworks, case studies, and decision systems.