Buying assets at a big discount to their net asset values is the best way to guard against inflation.

In the late 1970s and early 1980s, the SEC adopted a supplement to financial statements called current value accounting.  They had the idea that companies were grossly understating earnings because of inflation, by taking inadequate depreciation charges.  It was a nice theory except when I lived through that era I found that companies with a lot of sunk costs were very well protected against inflation. New entrants couldn’t come in and build new plants.  Things were not as simplistic as the SEC believed they were.

If we buy a lot of sunk costs cheaply, in general it will be the best inflation hedge we can have.

As to buying performing loans with 25% yields – for that not to be a good hedge against inflation we need Weimar Republic-type inflation, not just 1970s-type inflation.

I regret that I did not add a chapter to our book on Canada, where they have monitors and courts have a lot of authority.

A big improvement would be to amend section 503, so that professionals would not be permitted to rip off companies.  We should go back to Chapter 10, and let professionals get paid at the end of the case, and only for substantial contributions.

Rewards to professionals are so great – I should have stayed a professional instead of becoming an investor.

Management should be forced to stand for reelection.  A shadow trustee should be appointed in Chapter 11 (Canada requires a monitor).  One of the big advantages as a creditor in performing loans is that in the US outside of a court proceeding, usually Chapter 11, nobody can take away a creditor’s right to monetary payment unless the creditor consents.  But this is not so in Canada.  Being a creditor, I like the US and this makes US bonds are more attractive.  In the US, management is very reluctant to use Chapter 11 and lose large elements of control.  There is a strong tendency for performing loans to stay performing loans.  Voluntary exchange offers don’t work well.