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Undervalued Assets and Distressed Credit Investments

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Investment is always done in anticipation of a gain. Every financier is aware that an investment will involve risk and that in some cases the expected return could actually turn out otherwise. The commonly practiced investments that include both traditional and alternative ones are considered fruitful; but is the profit in the same way prolific when investing in undervalued assets and distressed credits? The answer could be a yes.

Undervaluation is when an asset is valued at less than its true worth. Investment in undervalued assets has seen many success stories; it is all about recognizing the true worth of an asset!

The most common example is the revamping of poorly constructed websites to give them boost in value. So many clever investors have purchased such websites for a meager price, and then redesigned it to sell for a price that gave them ample profit.

Undervalued assets can safely be called the ‘hated’ assets. At a certain point in time, these despised assets are considered of no use, and are not purchased by anyone. However, later on, these possessions can prove to be extremely beneficial and profitable. How many times have you heard people regretting over not purchasing gold in the past?

The risk in undervalue asset investment is extremely high, but it is the most risky investments that prove most gainful. The biggest investment winners are the ones who buy assets when they are most ‘hated’.

Others who are willing to take all sorts of risks to end up as successful as Pete Briger, San Francisco, CA, will opt for distressed credit investments. The investment strategy is distressed debt trading, and it is more of a gambling game; the risk is high, but so is the reward.

Distressed securities of the most common form involve bank debts and bonds. Companies that are heading towards financial distress attract buyers; mostly private investors and other purchasers like private equity firms and brokerage firms choose to buy these distressed assets.

Recently, the United States market for distressed securities has soared high. Private equity buyers have lately gained lead over corporate buyers when it comes to purchasing in the distressed market. Investment constraints restrict the purchasing power of public companies when it comes to distressed companies and assets.

Other investment opportunities lie in illiquid assets like cars and houses. These assets are most likely to lose value when being sold; thus making their risk high. However, high risk does not always mean a greater chance of damage; the probability of profit is equally high.


About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

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