Buying distressed corporate debt? (bond, IRA, mutual funds, rollover)

[sonarrat]

I've been directing my own investment decisions since the first time I opened up an IRA over 10 years ago. In that time, I've traded options, securities, mutual funds, and bonds frequently with mostly fairly positive results. As a result of a recent 401(k) rollover, I have $25,000 to play with and invest as I wish.

I've always wondered about the vulture funds, which specialize in buying and selling distressed securities. They are "activist investors" meaning that they try to infiltrate and influence the way that corporations reorganize, repay, or turn around their operations. Of course, I can't do this as an individual investor. I don't have that kind of pull, and if I knew that an operation was hopeless, of course I wouldn't have the pull to turn it around.

But, if I invested in the same securities that these vultures do - wouldn't I profit from their hard work as well? Or should I just assume that these offerings I see are, themselves, vultures deciding that the pickings aren't looking so hot and trying to divest? There's also the issue of trading commissions being relatively higher when buying cheaper bonds and eating into any potential gains. But on the other hand, I had one distressed bond that went into default shortly after, but the way the bankruptcy settled resulted in being able to resell it at a substantially higher price as there was now guaranteed recovery. In that way I was able to grab a scrap of meat from the vultures while they gorged.

I'm just thinking out loud, but if anyone has considered or taken this kind of line of investment, I'd be interested to know your experiences.

[TwoByFour]

I cannot comment on the investing end, but I can comment from the perspective of a company being taken over by investment bankers. My experience is that they are very very knowledgeable about tax law, accounting tricks, they know how to maneuver around the SEC, and finance. I found it to be a real eye opener to see the inner workings of how investment bankers do their thing.

At any rate, I cannot imagine trying to duplicate any of that as an outsider. One thing I learned is that investment banker rarely use their own money - they figure out creative financing schemes and risk other people's money. And then charge huge management fees. Things may not be entirely what they seem from the outside, so be careful.

[Wendell Phillips]

You would need $25 million to "play with".