The Art of Vulture Investing: Adventures in Distressed Securities Management

Foreword

Capitalism has created more economic growth and well-being in the last two hundred years than all the economic activity in all the history of humanity combined. And the power, demand, punishment, and rewards delivered by efficient markets are all crucial parts of the capitalist system.

It has become old hat to say that capitalism is partly based on creative destruction. However, it seems that everyone likes the creative part, but nobody likes the destruction. Investors like George Schultze may be called vulture investors, but they do far more than feed on decay. They create opportunities for sick companies to survive and for restructured businesses to flourish.

Mr. Schultze’s business surely includes some destruction. But that misses the point.

The real point is that capitalism requires the market to efficiently allocate capital to its most productive uses. It is wonderful that entrepreneurs and businesses create jobs, but nobody ever started a company for that purpose alone. Entrepreneurs start companies to make profits; when capital is poorly allocated or badly managed, those inefficiencies lead to destruction. Investors like George Schultze maximize capital efficiency in such situations. The errors have been made; now someone has to do the cleanup.

When capital is efficiently invested, it creates a larger pie for everyone. It can be devastating for someone to lose a ...