Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Bankruptcy/Chapter 11 / Bonds

What is Distressed Securities Investing?

The Turnaround Letter is launching a new series on investing in distressed securities. In this first note, we delve into the question of “what is distressed securities investing”?

Investing in distressed securities means purchasing the equity and fixed income securities of companies that are either in bankruptcy or have a meaningful likelihood of filing for bankruptcy in the near future. These companies have claims against them that are greater than the value of their assets. More concretely, distressed companies don’t have the cash flow to service their debts.

Critical to the definition of “distressed”: these companies are fighting the clock – if operating results don’t improve soon or if their debts are not renegotiated, a bankruptcy will likely result. Their survival, in essence, is on the line.

How is this different from “turnaround investing”? Generally, investors in distressed securities want a turnaround – that is, they want the company to become operationally and financially stronger which will drive up the value of the (formerly) distressed equities and bonds. When we at The Turnaround Letter think about “turnarounds” we think about companies that are not fighting the clock. Rather, turnaround companies in our view have the financial staying power to provide them the time to make major improvements to their operations.

Distressed investing usually involves greater risk than turnaround investing, but can also offer higher returns. Given the risk, most investors in distressed securities focus on bonds. These securities can provide greater downside protection than equities, as they may have legal claims on valuable assets and may receive new securities or cash in a bankruptcy reorganization. Yet they still can provide significant upside potential, as gains of 100 to 200% are not uncommon. Distressed equities could potentially provide returns measured in multiples, yet if the company restructures or files for bankruptcy the equity generally becomes worthless.

In future notes in this series, we will explore what provides the attractive opportunities in distressed securities, how to find them and what to do when you find a distressed investing security that looks appealing.

Read More Turnaround Investing Blog Entries

Identify & Profit from Distressed Investing

Free Report: Distressed Investing

Turnaround Investing Blog

Turnaround Investing Blog

Return of Volatility? No, Return of "Normal"

Sizeable market moves can increase the temptation to sell on downdrafts and buy on upswings; however, we strongly advise against attempting to do that. The chances of getting out at the right time and then back in again before the market rebounds are extremely slim. Read More.

Harnessing Activists to Help Find Turnaround Stocks

Activist investors often produce attractive returns for their clients; and you can still use their influence to help your position as a turnaround investor in two ways: Buy a position in a stock with the expectation that an activist will soon follow or buy after an activist takes a stake.


Value Investing


While one of the many dozens of activist funds might find their way to selecting your particular stock, this approach is likely to be frustrating and unrewarding. A better approach is to buy after the activist makes their move. Once an activist takes a stake in a company, how do you evaluate whether it is worthwhile to follow on? Admittedly, this is a bit of an art... Learn how you can harness the power of activist investors to find market-beating turnaround stocks.

Turnaround Letter Stock Pick Named Top Performer of 2017


stock market advicex


What Last Year's Top Stock Pickers Are Buying in 2018


This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.


George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."