One of the morally questionable things about investments of any sort is that for you to win, another side has to lose. That’s how you make money. Whether your choice to invest was a financially sound or negative decision, you’ll find out later.
What Is Vulture Investing?
In this sense, investors act like vultures, which brings us to the term ‘vulture investing.’ For those who are blissfully unaware, vulture investing is capitalizing on or making money off some misfortune.
Just like vultures, vulture investors swoop in at times of distress, buying assets at the lowest rates to ‘save’ the poor, desperate seller. They would invest in high-yield bonds nearing default or equities that are ready to go bankrupt.
The difference between ordinary investment and vulture investing is that in the latter, the investor patiently waits for misfortune to strike before they can. Before you can right off vulture investors as people who make money off people’s misery, let’s look at this objectively. Some argue that just like a businessman, a vulture investor takes an opportunity when it arises, so what’s the harm?
Examples of Vulture Investing
- If you decide to buy a house from a couple on the brink of a divorce and just need to get rid of the house immediately, so settle for a lower price.
- Buying a house in foreclosure as the owner went into debt and couldn’t afford to pay their mortgage due to a serious financial loss faced in their business.
- A company is on the edge of bankruptcy and cannot afford to pay back the loan it took from the bank. A vulture investor decides to purchase this debt from the bank.
Vulture Investing Through a Moral Lens
The addition of vulture to the term immediately makes it sound abhorrent, but is it really? If it was termed a strategic investment, no one would bat an eye.
The harsh reality is that in a free market, you’re free to buy and sell anything you want. If someone has enough capital as a vulture investor, why would they not jump at the chance to buy an asset lower than it would normally sell?
When put this way, vulture investing would be considered purely rational. It is also interesting to note that when companies invest in vulture funds, it doesn’t seem so morally outraging as compared to when an individual does it.
There is much conjecture regarding this: are people really troubled by the idea of profiting from someone’s loss, or are they upset that they lost out on this opportunity due to a lack of capital or other limitations?
Vulture investors look for companies on the brink of bankruptcy to swoop in at opportune times. This way, they take advantage of higher profits and returns with lower investment. While some might denounce vulture investing as immoral, others simply consider it a smart and strategic investment.