How To Turn $100K into $4,000,000 with Distressed Investing

**SPEAKER_1** (0:00)
So after Scott came on the pod and was like, I have my distressed guy in Europe, I'm like, Ben, find me the distressed guy in Europe. All right, so Scott Gallo is on our podcast. And we ask him, we say, you know, we heard the story that you were buying distressed FTX claims. After FTX went into bankruptcy and everybody hated it, it was like, it was a disgrace. It was the symbol of a bad business, a bad investment. I heard that you were buying up claims on the cheap and that those claims are now being paid out, you know, in full or even more than full because Sam Bankman Friedman or whatever, he was doing his thing. He had owned enough assets that would make all the creditors whole. And so he tells the story about how he's got this guy, he's brought him into a couple of deals and he was talking about distressed investing.

**SPEAKER_2** (0:53)
And when he told the story, he like kind of dismissed it. He was like, I bought $10 million of FTX shares or something like that.

**SPEAKER_1** (1:00)
Or two million, I think.

**SPEAKER_2** (1:02)
Sorry, whatever it was, it was like a seven-figure bet. And he sort of just said like, yeah, I just did this one thing. And Shaan and I were like, rewind, what? And that's when he told the story.

**SPEAKER_1** (1:10)
Also, it was a moment where it's like, hold up, put some respect on the podcasters name. But I mean, I think a lot of people make fun of Scott. There's like the inverse Scott Galloway index and stuff like that, basically about his bad calls he's made in his life. And I think in general, people don't really realize, and Sam, you do a good job of this. You're like, actually, you were an entrepreneur who sold a company for $100 million. He never really talks about it that much. And then he's done some interesting investing stuff. And I just feel like, because almost he's so good at the gift of gab, I think people sort of bucketed him as all talk, no walk. And so it was interesting to hear one of his interesting walk stories. So then I got in touch with Tommy and we, I say, tell me about this. I'm interested. What are you doing?
What's going on? And he had some interesting stories. So I wanted to invite him on the podcast to do two things. Teach us about this category of distressed with Boach. Both me and Sam are pretty much novices in this. Like we are, we're missionary guys.
We like vanilla. Like we do very basic stuff, you know, when it comes to business and investing. This is more exotic and it's got me interested. I want you to start with a little crispy description of like, what's the big idea with distressed investing? What are you trying to do? How do we wrap our minds around this? And then I want to play a game called first best worst weirdest, which is where we go through maybe the first play you did, the best play that ever worked out for you, the worst deal that went sideways, and then just something where shit got weird while you were doing it. But I want first just, can you just make us a little smarter? Teach us, distressed investing one-on-one. What are we talking about?

**SPEAKER_3** (2:42)
Okay, so I am the bottom of the food chain of distressed investing. So there is a whole industrial complex of large distressed investing firms out there. You have Oak Tree and Silver Point and Fairlawn, and you guys Apollo, everyone's heard these names or maybe if you're a fowl business and investing, I guess. So for myself, I came up a different way, which is my parents were bankruptcy lawyers and I learned, I knew a lot about bankruptcy.
Generally, what you're trying to do is you're almost like value investing and the toolkit is you know a lot about the legal process. The trick that I've from studying a lot of distressed investing is, and there's this famous Michael Price saying, which you guys have probably heard, but if you haven't, he says, when you're investing, you always want the stake and the sizzle. I think what where the OK investors in distressed do right is they find stake. You know, you find something and maybe it's a double. But where the guys that really knock the cover off the ball and have outstanding returns generally are looking for that sizzle as well.

**SPEAKER_1** (3:49)
Stake is the kind of the known the known value that's there. It's the substance. It's the thing that will make you give you a margin of safety when you buy. The sizzle is the upside of how good this could be if things go right. But you still have the stake even if things don't go great.