- no matter how much research you done regarding a stock you don't have a contract what the future price should be
- with high yield bond there is a contract for a certain price in a future, if you are correct about the calculation, you will be correct about your yield
- bargain price: liquidation price 75cents on the dollar buy at 20 cents
- when you are not a big established investment firm like Lehmen brothers, you have no franchise to protect. You are free to go the unconventional route for potential outsized returns
- great ideas are born bad. Its easy to make your way to a great idea from crazy outrageous ones than cautious and sensible ones. Investment bankers by default filter out the crazy outrageous ones.
- Contrarian thinkers need to train themselves to see things via unconventional routes
- ways to structure a bond
give money back sooner
- give higher interest rates
- give more stock
- give stocks cheap
- It is easier for corporation to pay interest which is tax deductible than dividends which are not
- Bonds offer process
first tier high rollers offer liquidity get to buy at cheaper price and exit earlier
- second tier payers, with franchise to protect, who want to avoid stigma of being junk bond buyers will come in later at more expensive price and exit later.
- Successful leverage buyout scenario: after buy out use cashflow from business to pay off the junk bonds thus deleverage the business
- Mutual fund arbitrage: compare value of underlying portfolio and stock price
- If you are right about a company being undervalued and it is willing to put itself up for sale, there will be buyers
- Poison pill: defense mechanism against corporate take overs. When would be acquirers crosses threshold of ownership, existing shareholders are given extravagant rights rights making it less desirable as take over target
- Michael Milken:
perception versus reality, see what the world could not.
- Vision is Strength.
- capital is abundant, vision is scarce.
- excess capital is not strength but opportunity for weakness
- capital put in the hands of someone with vision will result in drastically different results.
- return of the owner manager as opposed to the corporate manager
- by-pass the China wall principle where companies try to isolate the deal making and arbitrage departments
- knows many industry in depth
Related references
- [*Liar’s poker*, Micheal Lewis](https://garyteh.com/2020/04/liars-poker-by-micheal-lewis/)
- [*King Icahn*, Mark Stevens](https://garyteh.com/2020/04/king-icahn-biography-of-a-renegade-capitalist-by-mark-stevens/)