Why Europe is an opportunity for special sits investors

Pilots know that taking off with a strong tailwind behind you can be dangerous. Seasoned investors know the same thing. The best time to invest in equities is not when margins are high and sales are growing; it is easy to make errors of optimism and overpay for growth when things have been going well and the future looks rosy.

The bull market combination of high valuation multiples with cheap and abundant credit tempts company managers to expand their empires through acquisition. It is at this point that the chances of mis-allocating capital are at their highest.  At the turn of the century, Europe fitted this description almost perfectly. The advent of the euro provided companies in southern Europe with access to far cheaper borrowing than in the past. And what did those companies do with the money they borrowed? Too often, they used it to expand their empires by buying trophy assets at inflated prices. A ...