 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
 |
|
||||||||||||||||||||
 |
 |
 |
|
||||||||||||||||||
|
|
||||||||||||||||||||
 |
|
||||||||||||||||||||
 |
Corporate Restructuring | Turnaround Finance | Offshoring | |
|||||||||||||||||
 |
Home | Recent Deals | Personal Debt | About Us | |||||||||||||||||
|
|||||||||||||||||||||
|
|||||||||||||||||||||
|
 |
 |
 |
 |
|
||||||||||||||||
Blood, Sweat and Tears
I would love to be able to say there is a guideline to good investing sold by Amazon for £9.99 and that knowing when to invest is easy. The simple truth is that there are books, but knowing when and what to buy is not easy. History is important and a lot of the previously applied principles stay the same.
In the panic that followed the Battle of Waterloo, Baron Rothschild is credited as saying: "The time to buy is when there is blood on the streets."
Being as he was a contrarian investor (investing against the prevailing market), we know that this is only half the story. Baron Rothschild, a member of one of the world's most famous banking families, was really supposed to have said: "Buy when there is blood in the streets, even if the blood is your own."
His strategy was simple: if he invested in assets when they were at a discount or in a heavily depressed market then the return to value would be manageable and governed merely by the passage of time. This would create good wealth. If the investment performed very well then the returns would be super returns creating real long-term wealth.
A vast number of venture capitalists in recent years have bought at market value with the hope that the investment would perform well. This would return a reasonable value but not the same super returns that can be seen from investing at the bottom. This was Baron Rothschild’s forte. He would buy on the way down, then at the bottom as stability was restored, and then gain on the way back up. The amount of blood Baron Rothschild actually spilt is unknown but it is suffice to say he gained much more than he lost!
So, with such a simple principle in hand, how do we determine when there is enough blood on the street and the market is, indeed, at the bottom? There is an argument to say that if the market shows a tiny improvement or continuous slow gain for a period of three months, then this indicates that the future will improve.
Clearly, in the current environment there are no indicators that the market is at the bottom and a lot of blood is still being spilt. 2009 is going to be as bleak, if not more so that 2008. So far we have seen the destruction and culling of the big banks and other "safe" markets. 2009 will drastically affect smaller companies - and with January just around the corner, the time to act is now.
This is definitely a time for consolidation to survive. Out of the current financial crisis and blood-letting there will be great businesses built. These businesses will be streamline and effective and take full advantage of the upturn in the markets when they come.
However this is not a market for the faint of heart or amateurs. To succeed not only do you have to understand how to do progress, but you must also have the right skill-set around you. For example, dealing with operational issues and/or creditors in an insolvent situation is critical to success. Distressed investment requires more than cash. A different skill-set is needed from buoyant market investing, and surrounding yourself with experience and expertise is vital.
Those of us who have the benefit of the lessons learnt in the last recession and who have continued to specialise in distressed investments (either as principle or adviser) know that the right turnaround team and right technology will make all the difference in carrying an investment through to success. The team is fundamental - perhaps even more important than having the available cash to invest.
Going back to Baron Rothschild, it's not just about losing a little blood to gain a bit more. It's about having some blood to invest as well as the sweat and tears of long-established and experienced turnaround experts on and at your side. Without them the struggle will be that much harder.