From the March 01, 2010 issue of Futures Magazine • Subscribe!

Distress Investing: Principles and Techniques

Distress Investing: Principles and Techniques

By Martin J. Whitman and Fernando Diz
John Wiley & Sons, Inc.
$70;247 pages

Marty Whitman, one of the pre-eminent distress and value investors, and Fernando Diz, an associate professor of finance at Syracuse University, have teamed up to provide an illuminating and all-embracing textbook on investing in distressed assets. This book is the most current of the handful of books on this arcane subject. The latest financial crisis has brought to the forefront the need for investors to better understand the country’s reorganization and liquidation process, and information about this crisis is covered, making it very timely. The authors provide a step-by-step approach that distressed companies need to follow to liquidate or reorganize. Whitman and Diz have divided their book into four comprehensive main sections, basing its contents on annual seminars given by them at Syracuse University. That is why this book has the format and structure of a university text book. The main topic areas covered are: The General Landscape of Distress Investing, Restructuring Troubled Issuers, the Investment Process and Cases and Implications for Public Policy.

The book’s investment focus is on buying-and-holding distressed assets rather than trading them. The authors say that there is too much uncertainty in distress investing, much more than investors may realize. Moreover, the authors point out that many of the facts about the subject matter are completely opposite to the conventional wisdom, especially those espoused by financial professionals. Financial analysts have found that understanding distress investing is very helpful when trying to ascertain common stock values. The two case studies presented are particularly useful in understanding the issues involved in analyzing company assets. The first case study focuses on a small company, Home Products International, the second reviews a large company, the well-known Kmart Corporation. The authors then provide their comments on an ideal structuring system.

For investors to be successful in this field, Whitman and Diz layout sixteen simple rules to follow. They emphatically state that Chapter 11 bankruptcy is just the beginning of the process not the end of it.

In summary, this tome by two experienced professionals provides incisive commentary and guidance on distress investing. The chapter subjects flow in a logical order and the amount of detail and insight provided is truly amazing. After reading this book, newbies as well as professionals will gain a more in depth knowledge of the subject and be able to use that knowledge to their advantage.

Leslie N. Masonson is author of “All About Market Timing and “Day Trading on the Edge”. Reach him at lesmasonson@yahoo.com

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