Distressed Assets Superiority

Scott Galloway believes that distressed investing is the most profitable asset class, outperforming other investment strategies across the capital structure. He has found that the less attractive or "sexy" an investment appears, the better the potential returns, with distressed assets offering the highest risk-adjusted performance.

• Experience across the entire investment spectrum:

  • Founded companies (ultimate seed investment)
  • Invested in seed stage, venture, growth, late stage
  • Done mezzanine financing
  • Invested in public companies (both growth and mature)
  • Participated in distressed investing (buying claims against bankrupt companies)

• Clear winner in performance:

  • "Hands down the best asset class is distressed"
  • His biggest win ever came from bringing a consumer company out of bankruptcy
  • Partnered with Jason Mudrick of Mudrick Capital and achieved a 30x return
    • Though it took six years and was "a nightmare"
    • Almost went to zero multiple times

• Investment philosophy:

  • "The sexier an investment, the lower the returns"
  • Venture capital is sexy (people want to "hang out with Tom Brady and Giselle")
  • Distressed investing is unattractive ("smells like piss... reeks of death")
  • The market's pessimism creates opportunity (FTX trading at 22¢ on the dollar)

• Real-world example - FTX bankruptcy:

  • Read bankruptcy filings and identified undervalued assets
  • Noticed FTX had a $500M investment in Anthropic
  • Estimated the stake was worth around $4B against $8B in total claims
  • Bought $10M worth of claims for $2.2M (at 22¢ on the dollar)
  • Now expecting to receive 160¢ on the dollar
  • "It was a good trade... I did my homework but that's worked out really well"

• Acknowledges failures alongside successes:

  • "I get it wrong all the time"
  • Bought Netflix at $12, sold at $10 (now worth $1,100)
  • Recently lost approximately $2M by selling covered calls on Oddity before earnings