"Fooling Some of the People All of the Time"

This seems to be the right time to read about financial shenanigans. David Einhorn and Joel Greenblatt pitch the book at just about the right level for a person who took one semester of Corporate Finance.

• A pair trade matches two companies in the same industry trading at widely disparate valuations... Pair trades attempt to hedge a portfolio's investments by eliminating both market risk and industry risk and capturing the valuation convergence over time.
• It is psychologically challenging to manage a portfolio that outperforms only a falling market. I have no desire to spend my life hoping for a market crash.
• mezzanine loans (senior to equity, but subordinate to senior debt)
• In essence, BDCs are publicly traded private-equity firms that give the public an opportunity to participate in the growth of young companies. BDCs raise capital in equity offerings and act like closed-end mutual funds.
• If Sirrom's management marked the portfolio fairly, then future adjustments should be independent of prior adjustments. No pattern should exist.
• We avoided the damage in the short portfolio by refusing to sell short anything just because its valuation appeared silly. We reasoned that twice a silly valuation is not twice as silly. It is still just silly.
• I believe the Internet bubble made its ultimate top the day the last short-seller could no longer afford to hold his position and was forced to cover. Market extremes occur when it becomes too expensive in the short-term to hold for the long-term. John Maynard Keynes once said that the market can stay irrational longer than you can stay solvent.
• The debt yielded over 20 percent, while the equity traded as if bankruptcy were improbable. We purchased the bonds and sold short the common stock.
• While investment-grade bonds often have skimpy covenant packages, it is standard for high-yield bonds to have exactly these types of covenants and restrictions - that's teeth.
• PIK interest means that the lender accepts additional securities, growing the balance of the loan, rather than cash, as interest.