If you want to earn the same return as the markets, you can invest in stock indices. But, most people want to earn higher profits. That is why they might be interested in AAA alternative investing lessons from Highland Capital President James Dondero.
There are many concepts for investing, running the gambit from penny stocks to sovereign debt. The most successful hedge fund will purchase a cheap asset, which has experienced a momentary downturn. For example, James Dondero purchased AAA: American Airlines & Argentina.
Do all of the Highland Capital assets begin with the letter “A?” No. That was just a coincidence. Why did Highland invest in American Airlines?
If you remember 2001, all of the airlines were forced to ground their fleets and accept very stringent security checkout systems. Some airlines never recovered. On November 29, 2011, American Airlines filed for bankruptcy.
During the Barrons Dondero interview, American Airlines was discussed. The American Airlines stock price was at basement levels, creating a great opportunity. US Airways merged with American Airlines and fuel prices fell. This enabled American Airlines to recover and deliver a nice reward to Dondero’s investors.
“Why Hold These Assets?”
While some alternative investors just grab a penny stock, because it is low, Highland Capital’s James Dondero is not doing that. In fact, his strategy is similar to Warren Buffet. Warren Buffet prefers blue-chip stocks with well-established brands; James Dondero prefers “strategic assets.” Both have a certain advantage over other securities.
Remember that all of the country’s airlines were originally owned by the government. Will the government allow American Airlines to fail? No. Just like with the 2008 bailout, they will find a buyer.
The same can be said for Argentina and energy sector master limited partnerships, which are also key investments for Highland Capital. The US has a strategic petroleum reserve and is not likely to allow its energy companies to fail. What this creates is a foundation – even if these assets go bankrupt, their assets will still have value. This is one of the key AAA alternative investing lessons of James Dondero.