My First Million – How To Turn $100K into $4,000,000 with Distressed Investing

Date: September 19, 2025
Hosts: Joe, Sam Parr
Guest: Tommy (Distressed Investing Specialist)

Overview

This episode dives deep into the world of distressed investing, with a focus on how savvy operators can turn high-risk, high-complexity situations—like bankruptcy claims in the crypto sector—into multi-million dollar returns. Hosts Sam and Joe bring on Tommy, a self-described "bottom of the food chain" distressed investor with unique expertise in bankruptcies like Mt. Gox and FTX, to demystify this niche and share both practical tactics and wild stories from the frontline.

Key Discussion Points & Insights

1. Introduction to Distressed Investing

• Distressed Investing 101:

  • Focuses on purchasing distressed assets (e.g., bankruptcy claims) far below face value, with the hope of significant upside if the assets recover.
  • Tommy: "There is a whole industrial complex of large distressed investing firms out there; you have Oaktree and Silverpoint. But for myself, I kind of came up a different way... my parents were bankruptcy lawyers." (02:41)
  • The toolkit involves legal acumen, hustle, risk assessment, and identifying both the "steak" (intrinsic value) and the "sizzle" (potential upside).

• Steak and Sizzle Philosophy:

  • Stake = Margin of safety or "known value".
  • Sizzle = Optionality/upside if the situation resolves favorably.
  • Tommy: "Where the OK investors in distressed do right is they find stake... but the guys that really knock the cover off the ball and have outstanding returns generally are looking for that sizzle as well." (03:49)

2. The FTX & Mt. Gox Playbook – How These Deals Work

• Crypto's Distressed Investing Niche:

  • Tommy recognized early that crypto bankruptcies were untapped by big players, offering unique, misunderstood opportunities.
  • In Mt. Gox (2014), claims were bought for ~$80 per bitcoin (BTC was $300), betting on recovery value in both cash and BTC appreciation (11:36).
  • Joe: "So the stake there was 200,000 bitcoins sitting there...Your sizzle was maybe they’ll find more, maybe bitcoin price will go up." (13:49)
  • Some investors made over 40x their money over seven years—initially by deep discounts, later powered by bitcoin's price spike (16:54).

• The Claims Market Mechanics:

  • Most claims are sourced by hustling—using leaked lists, contacting individuals, and verifying claim ownership (23:05–24:26).
  • "You're hustling... The work here is you find the person, you contact them, you get them interested, you verify their ownership." (24:25)

3. Who Plays in This Game?

• Barriers and Players:
  • Very few "claim buyers," and they're seen as the rejects or bottom feeders of distressed investing.
  • Tommy: "Most people in the space are not super smart. It's kind of like the lowest level of distress person." (21:59)
  • Large institutional firms control the bond side; individuals have niches in claims, sometimes with symbiotic relationships to bigger shops (16:49).

4. Origin Stories & Early Lessons

• Early Entrepreneurship:

  • Tommy started flipping HUD houses and buying distressed inventory as a teen, developing an eye for undervalued assets with his mom, a bankruptcy lawyer (26:53–27:37).

• Blending Legal, Value, & Hustle:

  • Success as a distressed investor requires legal fluency, value investing chops, and relentless entrepreneurial hustle (30:22).

• Notable Buffett Story:

  • Investing is about leveraging unique competitive advantages and constantly hustling—like Buffett joining a hunting club just to buy stock from members (31:03).

5. Core Philosophies

• Shop Madison, Not Canal:

  • Don’t buy “value traps” or fakes; get genuine assets on discount, not junk that looks cheap but isn't worth anything. "Fool’s gold is a real problem in distress." (34:23)

• Start Young – ‘First Decade is Tuition’:

  • The first years are about learning, making mistakes. "You’ll meet guys with a big exit who’ve never actually invested their own money—being a good operator doesn’t mean you’re a good investor." (37:46)

6. Concentration vs. Diversification

• Going All-In:
  • Tommy is comfortable being highly concentrated in a handful of high-conviction, well-diligenced distressed claims.
  • "I kind of like it when it hurts a little bit because I'm so concentrated." (40:43)
  • Typical returns for a skilled small player: "Probably 30 to 50% [ROI], depending on the year... you could probably easily get higher than that." (41:26)

7. Downsides and Ugly Realities

• Risks and Emotional Toll:
  • Small players can get trampled by big firms in court—don't expect fairness or mercy (45:13).
  • The work is emotionally challenging—often extracting value from people’s bankrupt dreams. "You’re almost like a guidance counselor walking them through, maybe doing a deal...this person might have just lost their life's work." (45:13)
  • It's very transactional; you rarely get visionary energy from founders, more often the bitterness of loss.

8. Tommy’s Legal Controversy – Owning the Downside

• Addressing Publicly Reported Settlement:
  • Tommy candidly discusses a Delaware receivership where a court fined him for how he ran the process, moving money between bank accounts, investing, and other administrative infractions.
  • "Not my brightest moment, I would say...I feel responsible as a person in charge to do everything and do it properly." (51:40)
  • He paid significant fines but maintains shareholders saw strong recovery, and he's open about the unflattering headlines (48:21–53:54).

Notable Quotes & Memorable Moments

• Tommy on Doing the Grunt Work:

  "There's a lot of work... you're hustling... you contact them, you get them interested, you verify their ownership." (24:25)

• On Risk and Hustle:

  "If you lose money for people, they generally don't return your phone calls." (06:00)

• Joe on Investing vs. Operating:

  "As an entrepreneur who was rewarded for taking action, you get punished as an investor for taking too much action." (38:31)

• Tommy’s Candid Self-Assessment:

  "Investing isn't...I wouldn't say I'm good, I'd say I'm OK investor. I'd also say that it's a bit of a disease." (45:13)

• On Legal Trouble:

  "Not my brightest moment... for me, reputationally, as someone who does what I do, it’s important that I try my best. But over time, I'll be able to talk about it more and more." (51:44)

Segment Timestamps

• Distressed Investing 101: 02:41–05:09
• How the FTX/Mt. Gox trades worked: 06:30–19:29
• Industry structure and 'the claims market': 20:15–24:50
• Tommy's Early Hustles (HUD housing, baseball cards): 26:24–29:33
• Investing Philosophy & Core Lessons: 30:22–39:29
• Concentration & Returns: 40:12–41:33
• Ugly Side of Distressed Investing: 45:13–47:53
• Addressing Legal/PR Issues: 48:21–56:09
• Reading List & Influential Investors: 57:15–61:52

Recommended Reading & Influences

• Seth Klarman – "Margin of Safety" (rare, cult classic in value investing)

• Joel Greenblatt – "You Can Be a Stock Market Genius"

• Biographies:

  • "The Gambler" (Kirk Kerkorian biography)
  • "Zeckendorf" (New York real estate mogul)
  • "How to Lose $100 Million and Other Valuable Advice" (Arthur Little)

• Edward Plunkett Taylor—a real case of rolling up breweries post-Prohibition for outsized returns.

Final Thoughts

This episode offers a rare, unvarnished look inside a corner of investing most shy away from—the grimy, legalistic, high-variance world of distressed claims. Tommy is both self-effacing and transparent, sharing tactical detail, lessons hard-won, and the emotional realities few investment podcasts will admit.
While the returns can be astronomical, the work is lonely, the risks are high, and the line between hustle and mistake is thin. For those curious about ultra-niche investing, this is essential listening.

For more deep dives into unusual investing frontiers and stories from the trenches, subscribe to My First Million and check the show notes for Tommy’s recommended reading list.