I prefer to believe the opposite—that there is always an indestructible beauty at the heart of darkness.

—Mary Balogh, A Secret Affair

In Chapter 12, we discussed several different styles of value investing through the lenses of nine famed value investors. Seth Klarman is among those who doesn’t mind sitting on liquidity to serve as “one-stop shopping for an urgent seller” and sees value in many types of assets not just equity and debt. In this chapter, we will explore this notion of distressed investing and how the strategic value investor can apply fundamental principles to spot hidden opportunities and avoid disaster.

Be warned, however, distressed investing is not for the faint of heart. That it ...

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