Matt Blackman

The Looming Valuation Adjustment Process

I have never understood the valuation approach that says a stock gets more attractive the cheaper it gets. That's all fine and dandy if we are in a bull market and experiencing a temporary correction but this approach has a number of major pitfalls. The most obvious becomes very painful in a bear market... or just before a company goes bankrupt.

Take Enron for example. After having been at $80, it seemed like a really good deal when it dropped to $6.00, a better deal at $3.00 and a screaming deal at $0.60, that is just before it disappeared for ever.