Suleman Ali

If you didn't just lose $8 billion dollars and if you've a bunch of cash sitting on the sidelines, you might just love this economic environment.  Cash is king again.  Suddenly every $1.00 buys you $1.40 of investment stuff.

You've got a $1.40, what do you buy? 

Every asset class looks hopeless: public securities are falling and will continue to fall.  GOOG looks cheap, but it will get even cheaper.  Residential real estate is dropping nearly as fast as public securities.  Already, homes are selling for below replacement cost throughout the country.  Commercial real estate, logically a laggard on the way down [ah, the benefit of long-term leases], needs to fall.  And will.  Lots of main street businesses, now full of high fixed costs from years of prosperity, will die because of compressed margins.

Buy only distressed assets.  If an asset doesn't have the word distressed before it, don't buy.  Wait till it does.  It likely will. 

Distressed simply means you have the seller over a barrell.  Well technically, it means the seller is bankrupt or on the way there.

In today's environment, companies are going bankrupt not because they can't extract value from their assets but because they paid too much for their assets.  This means the assets aren't dead; rather they throw off cash when you don't have debt service.  To compound the problem, there is no liquidity in the market.  This simply means all the money (to holdover sellers till better economic times return) and buyers (to buy assets) have disappeared.

When buying distressed, you pay less than 30 cents on the dollar.  This means you no longer need to pursue alternative investments (with 6x leverage) to get 20% IRR.

When they talk about the rich getting richer, I think they mean in times like these.