This article is about Hedge Funds buying bonds for pennies on the dollar.
But it applies to lots of situations… foreclosures, etc.
What looks like a pretty good deal right now might be vastly overpriced if the situation continues to deteriorate.
Sophisticated investors aren’t emotionally attached to deals so they make their choices based on cold logic, not sentimentality.
We unsophisticated investors get “attached” to ideas, investments, and concepts and too often don’t know when to “let go”.
Are you biding your time? Or are you so desperate you’ll grasp at any opportunity?
From Market Watch
As last year’s mortgage meltdown has grown into a global credit crunch, some investors say distressed debt is likely to generate another round of sparkling returns in future years.
“The coming boom in corporate defaults is around the corner,” said Keith Rosenbloom, managing member of hedge-fund investment firm Care Capital Group. “I don’t know when ideal time is going to be, but we’re spending a lot of time looking at various distressed-debt funds.”
After the dot-com bust and the massive bankruptcies of Enron, WorldCom and Adelphia, distressed-debt managers returned 32% in 2003 and 18% in 2004 on average, according HedgeFund.net, which tracks fund performance.
The strategy generated gains of 20% in 1999, in the wake of Russia’s debt default, the Asian financial meltdown and the collapse of hedge fund Long-Term Capital Management.
After a crushing series of interest-rate increases in 1994 hit debt markets, the strategy returned 23% in 1995. In the wake of the collapse of the last leveraged buyout boom at the end of the 1980s, distressed-debt funds returned 38% in 1991, HedgeFund.net data show.
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