The vultures and the bottom-fishers: Howard Marks, Paul Singer, David Tepper, and the mathematics of buying what everyone else is selling, 2026 edition

Distressed and vulture investing sound, to most people, like a single idea: buying something cheap because it is in trouble. That framing misses the actual discipline entirely. A distressed investor is not underwriting whether a company or a country recovers, in the way a growth investor underwrites whether a business succeeds. A distressed investor is underwriting a legal claim, and specifically where that claim sits in a strict payment order when there is not enough money to satisfy everyone holding one. Get the seniority right, and the underlying business barely has to recover at all for the trade to work. Get it wrong, and even a genuine recovery in the underlying asset may never reach the specific piece of paper you own.

Paul Singer and the fifteen-year bet on a legal claim, not a country

No case illustrates the distinction between betting on recovery and betting on seniority better than Paul Singer's fight with Argentina. When Argentina defaulted on roughly $100 billion in sovereign debt in 2001, the country subsequently offered creditors restructured bonds worth a fraction of face value, and the overwhelming majority accepted. Elliott Management, the activist and distressed fund Singer founded in 1977 with $1.3 million in seed capital, refused, along with a small group of other holdout creditors, and instead pursued Argentina through US courts for 15 years, arguing the country could not legally pay restructured bondholders while stiffing those who held out. Elliott's most aggressive tactic, briefly having an Argentine naval vessel detained in Ghana in 2012 as collateral, drew international headlines and cemented the firm's reputation as, in the press's preferred phrase, a vulture fund. The dispute ended in 2016 when Argentina's new government settled, and Elliott received a reported $2.4 billion payout, several times its original investment in the defaulted bonds.

The Argentina case was never a bet that Argentina's economy would improve. It was a bet on a specific legal argument about creditor priority, held for over a decade against enormous public and political pressure, until the claim was paid in full rather than at the discount the restructuring offered. Elliott has run the same underlying logic across dozens of corporate situations since, building activist stakes in companies from EMC to Twitter to eBay to push for operational or capital-allocation change, with the firm's assets under management growing from roughly $17 billion in 2011 to a figure regulatory filings place at $70 billion or more by 2025. Notably, Elliott's most recent public commentary has applied the same contrarian instinct in reverse: a 2026 investor letter reportedly described mega-cap AI stocks as being in "bubble land" and called Nvidia "overhyped," a bet that the crowd, this time, is on the wrong side of the trade rather than distressed sellers being on the wrong side of a bankruptcy.

Howard Marks and the discipline of buying what everyone calls uninvestable

Howard Marks and Bruce Karsh built Oaktree Capital Management in 1995 around a more explicitly philosophical version of the same instinct. Marks's widely circulated investment memos, published continuously since the 1990s, return again and again to a small set of ideas: that markets move in cycles investors consistently underestimate, that risk is best understood as the probability of permanent capital loss rather than volatility, and that the best opportunities live specifically in whatever asset class the broader investment community has currently given up on. Brookfield Asset Management validated the model at scale, acquiring 61 percent of Oaktree for $4.9 billion in 2019 and agreeing in 2025 to buy the remaining stake for a further $3 billion, with Marks and Karsh continuing to run the roughly $200 billion firm independently within Brookfield's structure.

Marks's own recent positioning shows the philosophy applied in real time. Through 2024 and into 2026, as most global investors avoided Chinese assets amid a prolonged property crisis and regulatory uncertainty, Marks began increasing Oaktree's exposure specifically because of that avoidance, telling Bloomberg Television that hearing China described as "uninvestible" was "music to my ears" and that "that's where you look for the castoffs and the bargains." The position is not a bet that China's economy is fine. It is a bet that the price already reflects worse than fine, and that the gap between price and even a modest recovery scenario is wide enough to constitute what Marks calls, in the value-investing tradition, a margin of safety.

David Tepper and the simpler version of the same trade

David Tepper's Appaloosa Management runs a related but less structurally intricate version of distressed investing, closer to buying panic than buying seniority. In early 2009, with major US banks trading as though nationalization was imminent and most of Wall Street convinced the sector could not survive, Tepper directed Appaloosa to buy large positions in beaten-down bank stocks and preferred shares, including Bank of America, at prices that assumed the worst possible outcome. When the banking system stabilized instead of collapsing, the position reportedly generated a $7 billion windfall for the fund in a single year, one of the most profitable trades in modern hedge fund history. Tepper has continued applying the same instinct at scale since, most visibly in a September 2025 appearance on CNBC in which he said he had gone beyond his usual position limits to, in his words, buy nearly everything related to China following a fresh round of government stimulus measures, a stake Appaloosa's subsequent regulatory filings showed the fund continued adding to even as the initial rally lost momentum. Tepper's approach shares Marks's core instinct, that the crowd's despair creates the entry price worth taking, without Elliott's legal and structural complexity or Oaktree's cycle-driven, capital-structure-specific process.

The failure mode unique to this discipline: the right trade in the wrong wrapper

Distressed investing has its own characteristic failure pattern, distinct from the leverage-driven collapses covered elsewhere on this site, and Third Avenue Focused Credit Fund is its clearest modern example. Run within Martin Whitman's well-regarded Third Avenue Management, the fund built a concentrated portfolio of lower-quality, distressed and illiquid credit, a strategy with real historical precedent among specialist distressed funds. The structural flaw was not the strategy itself but the vehicle carrying it: a mutual fund offering investors daily redemptions, while holding assets that could take months to sell at a fair price even in calm markets. When performance turned negative in 2015, redemption requests accelerated, forcing the fund's managers to sell its most illiquid holdings first to raise cash, at exactly the discounted prices a patient distressed investor would normally be buying, not selling. Assets fell from roughly $2.5 billion in May 2015 to $789 million by December, with the fund down more than 21 percent for the year, before Third Avenue halted redemptions entirely on December 9, 2015 and placed the remaining portfolio into a liquidating trust, an unusually blunt admission that the fund could no longer meet its own redemption terms. Morningstar's contemporaneous analysis called the underlying investment decisions "a profound management failure," but the deeper structural lesson, echoed across the distressed investing industry since, is that concentrated, illiquid credit strategies are simply incompatible with a fund structure promising same-day liquidity, regardless of how sound the underlying credit analysis is.

The DN synthesis: the number distressed investors actually price, and everyone else ignores

What Singer, Marks and Tepper share, beneath their different levels of legal and structural sophistication, is a discipline almost entirely absent from how most retail and even institutional investors evaluate a distressed situation: pricing the specific claim against a modeled recovery waterfall, rather than pricing sentiment about the underlying company. A share of common equity in a bankrupt company is nearly always worthless, sitting behind every class of debt in the payment order. A senior secured bond in the same company can be a genuine bargain at 60 cents on the dollar if the modeled enterprise value comfortably covers that tranche's face value ahead of everything junior to it. The entire discipline lives in that distinction, and it is precisely the calculation Third Avenue's structural failure did not save its own investors from having priced correctly, since even a correctly priced waterfall does not protect against a forced sale at the worst possible moment.

The tool below makes that waterfall explicit and lets you test any distressed scenario against it directly.

What this means for DN's readers

Crypto and DeFi markets have produced their own direct analogs to distressed debt investing, claims against bankrupt exchanges, defaulted lending protocol positions, and token holder recovery processes following a project's collapse, each with its own strict priority order between senior claims, general creditors and token holders. The same discipline that separates Elliott's Argentina trade from a naive bet on a country's recovery applies directly: understand exactly where a specific claim sits before assuming that a broader recovery in sentiment or price will reach it, and treat the liquidity of the vehicle holding that claim as a genuine, separate risk from the claim's underlying value, precisely the distinction that destroyed Third Avenue's fund despite a defensible underlying strategy.

For readers looking to build exposure to distressed and recovery-driven opportunities within crypto markets, spot and derivatives access is available through most major exchanges, including Bybit, OKX and MEXC. As always, this is not financial advice. Buying what everyone else is selling can be one of the most disciplined trades in finance, or one of the most dangerous, and the difference almost always comes down to exactly where your claim sits in line.

Frequently asked questions