📖Seth Klarman
Distressed Debt Opportunities
Distressed debt offers returns with reduced competition.
Distressed debt can offer exceptional risk-adjusted returns because most institutional investors are prohibited from owning it, reducing competition.
🏠 Everyday Analogy
📖 Core Interpretation
Seth Klarman treats survival as the first objective. Limiting permanent capital loss, controlling leverage, and avoiding single-point failure are prerequisites for long-term compounding.
💎 Key Insight：Institutional constraints create opportunities for others.
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❓ Why It Matters
A single large drawdown can erase years of progress. Risk control is not timidity; it is the operating system that keeps compounding alive.
🎯 How to Practice
Define downside scenarios before entry, cap position size, avoid fragile leverage, and maintain liquidity so mistakes remain survivable.
⚠️ Common Pitfalls
Equating volatility with all forms of risk
Oversized positions without an exit plan
Using leverage to compensate for uncertainty
📚 Case Studies
1
RJR Nabisco Post-LBO Debt (1988)
Following KKR’s leveraged buyout of RJR Nabisco, many investors dumped the overlevered company’s bonds amid fears of default and recession.
✨ Outcome：As fundamentals stabilized and cash flows covered interest, bond prices recovered sharply, providing strong returns to investors who purchased during the panic.
2
Vivendi Asset Sales (2012)
Klarman’s Baupost took a position in Vivendi as it pursued asset divestitures, including Activision Blizzard and Maroc Telecom, to unlock conglomerate discount.
✨ Outcome：Catalysts realized through sales and restructuring narrowed the discount; Baupost exited with a substantial gain over several years.
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