Wall Street Bankruptcies: The Sequel

What do the following two lists have in common?
List 1
  • Lehman Brothers
  • Washington Mutual
  • General Motors
  • CIT Group
  • Chrysler
  • Thornburg Mortgage
  • General Growth Properties
  • Lyondell Chemical
  • Colonial BancGroup
  • Capmark Financial Group
List 2
  • The Hertz Corporation
  • LATAM Airlines Group
  • Frontier Communications
  • Intelsat
  • McDermott International
  • J.C. Penney
  • Whiting Petroleum
  • Neiman Marcus Group
  • Avianca Holdings
  • Diamond Offshore Drilling

The first list is the list of the biggest companies that filed for bankruptcy by assets during the Great Recession. The second list is a list of the biggest companies that have filed for bankruptcy so far in 2020 in the wake of the COVID-19 pandemic.

The next step for many of these companies is liquidation.

The bankruptcy trustee takes over and starts liquidating company assets and doling out what meager cash is left. Creditors get paid first, then the lawyers and then everybody else until last and least, the stockholders get paid if there’s anything left and 80% of the time, there’s nothing left. Common stockholders are last in line and are always left holding the bag.

Don’t expect the high profile bankruptcies to end any time soon. The Sequel is coming . . . wait until the Q2 and Q3 numbers come out later this year . . . more bankruptcies and more fallout.

COVID-19 has spared very few in its devastation of the U.S. and world economies. Ranked by assets alone, the magnitude of bankruptcies this year has already surpassed that of 2008.

Besides driving many companies to bankruptcy, the Coronavirus has fundamentally changed the capital markets in ways few could have predicted.

Flooded from an influx of millions of stock market newbies bored from quarantines and social distancing, the stock market is experiencing unprecedented volatility with the largest daily price swings seen since the 1929 crash.

Inexperienced and undisciplined, these stock market newbies – consisting of mostly Millenials – have an insatiable appetite for risk-taking and high-risk stocks, even snapping up stocks of companies who have filed for bankruptcy with little hope of a turnaround.

Stock market volatility and downturns aren’t just hurting the reckless traders creating uncertainty, they’re hurting the general investing public as well – many watching their retirement portfolios dwindle before their eyes.

Aren’t you tired of your retirement fortunes being tied to the actions of inexperienced and jittery newbies?

Are you tired of extreme market volatility?

Are you looking for more certainty in your investment future?

Savvy investors have been avoiding Wall Street for years. Tired of playing in a sandbox with very few barriers to entry – where anybody can buy in with as little as the price of one share of stock – savvy investors look to more exclusive markets with higher barriers to entry and even higher barriers to exit.

Why?

Savvy investors want to be surrounded by other savvy investors who invest for the long-term who aren’t susceptible to crowd behavior.

That’s why they seek out alternative investment opportunities in the private markets – opportunities reserved exclusively for Accredited Investors.

Accredited Investors are inherently more financially sophisticated than the average investor. With a minimum requirement of possessing a minimum net worth exceeding $1 million or income exceeding $200,000 for each of the past two years, Accredited Investors are presumed to understand financial risk and can sustain losses.

In other words, they are less likely to act on impulses and out of desperation in difficult times. They can afford to ride out turbulence and stick with an investment.

Being surrounded by other Accredited Investors is one reason why savvy investors have flocked to illiquid private opportunities outside of Wall Street.

There are other benefits.

Alternative assets like income-producing tangible assets like real estate, agriculture, and productive businesses have long proven to provide better risk-adjusted annual returns over time than the S&P 500. Moreover, these assets are backed by a hard asset and the cash flow is typically shielded from Wall Street volatility.

In a time of turmoil like what we’re living through now, illiquid tangible cash flowing assets shield investors from inflation and a loss of income, unlike their public counterparts.

IT’S NOT TOO LATE TO REALLOCATE

Don’t get stuck holding the bag as public companies fail.

In a new economy, those seeking shelter from Wall Street bankruptcies and volatility should consider alternative markets where you’ll be surrounded by like-minded investors.

Invest in assets that are tangible where you can never be left with zero when a company fails.

There’s no better time than now to consider reallocating to recession-proof hard assets.

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