Amid the release of emails by Donald Trump Jr., the Dow Jones Industrial Average dropped about 160 points in 20 minutes, according to Elena Popina and Oliver Renick at Bloomberg News. George Schultze also weighs in on the situation. Be sure to follow the link for the full article.
In his latest article for Forbes, George Schultze discusses why, amid the Fed’s slow-but-steady tightening and the U.S. government’s slow-but-likely fiscal expansion and tax cuts, he expects the U.S. economy to keep growing. Additionally, George delves into why lower default rates do not necessarily translate into fewer distressed securities opportunities. Be sure to read the full article for more insights.
Here’s an excerpt from the full article:
“Many investors have recently questioned the relevance of active money management when lower-cost passive strategies, such as ETFs and index funds, have outperformed significantly in the last few years. However, active investment will always be relevant because it can provide non-correlated return diversification, a benefit that can be particularly important now after so many years of good market performance. In fact, the more money that flows into passive strategies, the more likely it is that new market inefficiencies will develop that can be exploited by smart active managers. This is particularly true for distressed securities investing, a specialized discipline which simply cannot be replicated through passive management. At its heart, distressed securities investing is the ultimate value investment strategy and one of the few places left where inefficiencies, such as those created by forced sellers, misunderstood litigation, or complex restructurings, can yield event-driven profits.”
You can read the rest of the article in full at Forbes.
Regardless of the industry or strength of a company following a reorganization, it can take the markets a considerable amount of time to warm up to a reorganized entity. With this in mind, George Schultze makes the case for General Motors, and why it remains one of the market’s fundamentally undervalued companies.
Take a look at this article excerpt:
“To further illustrate how market valuations sometimes ignore fundamentals, compare market sentiment toward Tesla versus GM. Last year GM generated a profit of $9.4 billion on $167 billion in revenues, while Tesla lost almost $675 million on $7 billion in revenues. Similarly, GM sold 10 million vehicles in 2016 while Tesla sold only 76,000. Although Tesla is perceived as a “new economy” company that sells electric vehicles, GM is also focused on the “new economy.” In fact, GM also sells electric vehicles. Moreover, it owns a large stake in Lyft (America’s 2nd largest ride-sharing service). GM also owns Cruise Automation and even created the Maven car-sharing service. Finally, GM is leading the market in automotive connectivity and mobility with 1.3 billion OnStar customer interactions since inception. Yet, the equity market capitalization for both firms is about the same and, if you adjust for cash on the balance sheet, Tesla’s market capitalization is actually larger!”
Want to keep reading? Check out the rest of this article by the founder of Schultze Asset Management on Forbes.
As Puerto Rico files for the largest ever US local government bankruptcy, George Schultze brings his expertise to the table and weighs in on the situation in a Reuters article by Nick Brown.
In an article for Forbes, George Schultze examines the benefits of investing in distressed securities, even though default rates are low. George predicts that with future interest rate hikes, a new distressed cycle will develop and provide greater opportunities in fixed income investing.
Here is a quick excerpt from the article:
“S&P Global Fixed Income Research expects the trailing 12-month U.S. corporate speculative-grade default rate to decrease to 3.9% by December 2017 from 5.1% in December 2016. They predict the overall default rate for speculative-grade and investment-grade issuers combined to retreat even further, from 2.1% to 1.5% during the same period. Moody’s Investor Services takes a similar view and expects the global default rate for speculative-grade companies to decline to 3% by year’s end from 4.5% in 2016. JP Morgan’s calculations see an even lower default rate of 2.5%. All three sources utilize different methodologies to measure defaults, which explain the different numbers, but they’ve arrived at a consensus in terms of overall direction.”
To read the rest, check out the full article by Schultze Asset Management’s founder here.
Looking Into Diversifying Your Portfolio With Distressed Securities?
Contact us for more information on how to incorporate distressed securities into your own portfolio, or talk to one of the investment advisers at Schultze Asset Management.
In his Forbes article, George Schultze explores why it’s critical for money managers to have an exit strategy in in place as a check on their fundamental analysis – regardless of how good their fundamental valuation skills may be.
Take a look at this excerpt from the article:
“As a money manager, I’ve long subscribed to the 80/20 rule and continue to put it into practice day-to-day. The idea stems from the Pareto principle which specifies an unequal relationship between inputs and outputs — specifically, 20% of the invested input is responsible for 80% of the results obtained. Although the numbers don’t always work out to that exact ratio, the significance is that the best investment managers make most of their gains from a small percentage of their holdings. The corollary to this truism is that ~80% of most portfolio holdings will achieve sub-par returns, if any. Thus, any good portfolio management strategy should include a well-defined system to reduce or eliminate underperforming inventory. This is particularly true for fundamental strategies due to their embedded human nature biases.”
To read more about this, and get the whole scoop about how it fits in with the 80/20 rule, check out the full piece on Forbes.
In his latest commentary for Forbes, George Schultze takes a look at macroeconomic conditions, and the possibility of a rising rate environment, to explore the opportunities available for distressed investors.
Rising Rates Should Create Ample Opportunities for Distressed Investors
Bloomberg reporters Oliver Renick and Brian Chappatta take a look at financial market moves under the new Trump presidency and what this means for managers, including insights from George Schultze.
White House Chaos Doesnt Bother the Stock Market
In an article for Forbes, George Schultze takes a look at what happens when companies come out on the other side of bankruptcy and begin to trade once again on the open market, and the opportunities that arise for investors.
Opportunities In Post-Distress Equities
In an article following the results of the historic 2016 election, George Schultze takes a dive into the new administration’s potential impact on distressed securities investing.
Post-Election Outlook Is Good For Distressed Investors