Investing in damaged goods

Backing companies that are returning from bankruptcy is risky, but the returns can be very high

The company behind Readers Digest, the 90-year-old magazine often seen on hospital waiting room coffee tables, has become one of the more exciting stocks of the past year, due to the growing market in post-reorganisation equities.

These investments - sometimes called "post-reorgs" within the industry - are the stakes in firms that have emerged from bankruptcy. Although risky, they offer the potential for sizeable returns.

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