question reads: Critique the following statement: “when the economy has been faltering and may be going into recession, it is typically a good time to invest in distressed securities” Their answer is that this is correct. Am I missing something? How does it make sense to go into distressed when defaults are going to rise and spreads are widening? Don’t people invest in distressed when economy is picking up?
The argument is that the stressed securities have plenty supply during time of recession. You are talking about “timing” which is a very hard thing to do.
those securities are cheap then and only way is to go up. Also you can short stocks when economy is going into recession
pupdawg82 Wrote: ------------------------------------------------------- > those securities are cheap then and only way is to > go up. > > Also you can short stocks when economy is going > into recession they could also go completely South…
but they are almost at the southern tip and they basically diversify to avoid from event risk specific to one company
gregorynep Wrote: ------------------------------------------------------- > question reads: > Critique the following statement: “when the > economy has been faltering and may be going into > recession, it is typically a good time to invest > in distressesecurities” > > Their answer is that this is correct. Am I > missing something? How does it make sense to go > into distressed when defaults are going to rise > and spreads are widening? Don’t people invest in > distressed when economy is picking up? I understand that you are putting emphasis on the word “going into” and you think that why would someone invest in them if they are “going to” get even cheaper (offer higher return). I think what they saying is that the return on them are already reflecting the scenario as if they have already gone into recession. Therefore, the return being offered is the best return you can get. From that point forward, the return on them will decrease which benefits you.