Quote: (01-03-2018 03:39 PM)Tail Gunner Wrote:
I did not misuse the term. Words have various connotations. I used the broader meaning. When Warren Buffet invested in the stock of Amex and Bank of America they were "distressed assets." Such assets tend to become distressed at sector cycle bottoms or market bottoms.
This is an interesting one. The banks main asset is its loan book. Bank of America's assets became distressed due to the rising bad/ doubtful debt situation which in turn created the requirement for them to raise additional capital to meet their capital adequacy requirements. They had to do something to remedy their situation, which in this case was to do the deal with Buffet.
I say it's interesting because the sector (the banks etc) largely bought this situation on themselves due to the lending practices at the time. When the extent of the bad loan situation became apparent it resulted in the freeze in the lending markets and resultant share market collapse.
The point is that the opportunity for Buffet to swoop as he did was caused by the lending practices of Bank America itself (and arguably a few other factors). Buffet wasn't looking at market cycles, though ironically the impact of the banking sector crisis resulted in a lot of other market opportunities ie; panic driven selling, forced selling etc. Interesting if Buffet took advantage of that, or whether he stuck to his usual approach.
I think I read somewhere that Buffet doesn't really worry about market cycles. He instead looks for value.