My timing was impeccable. The very next day, the stock was halted and it was announced that earnings would be delayed. When the stock next traded, it was down 70%. So I bought more. It soon came out that management had committed a massive accounting fraud and they later went to prison. I kept holding though, and even buying more as it dropped further, believing that new management could revive these once-proud brands. I even got more shares and cash as part of a class-action settlement. I still have the worthless stock certificate I received as a reminder of my foolishness.
New management was indeed able to get the company back to profitability for one quarter. It was enough to get them their bonuses that year, and I was able to sell a little at a profit thanks to the runup. The company would never report a profit again and soon thereafter entered bankruptcy and my investment disappeared with it. The prepackaged bankruptcy merged Aurora into some castoff brands from Campbell to form Pinnacle Food Corporation.
I learned several valuable lessons:
- Big companies rarely sell brands that can easily be “fixed” unless forced to because of antitrust concerns. If Procter & Gamble’s marketing whizzes and ample capital can’t fix it, Joe’s Overleveraged House Of Dead Brands probably can’t either.
- If an IPO is happening and somebody other than the company is getting the bulk of the proceeds, stockholders will more than likely be left holding the bag.
- What goes down doesn’t always go back up.
What was your biggest turkey? What did you learn from it?