donzelion

Name Brand Stocks on the Edge of Obliteration

"Many stocks are just call options on a good bankruptcy." That's pithy and apt. However, "Many stocks are just call options on future earnings" is equally true. Indeed, in a manner of speaking, both are true all the time for every equity out there. The problem is everyone fixated upon the latter, forgetting the former.

When I first started investing (in the post-dot.com crash), it seemed to me that picking through the rubble would be the safest way to get slightly ahead (following Connorport's wisdom) - after all, if the markets are even slightly efficient, and if these stocks had 10x the price 52 weeks ago, without any substantial change in the intervening period, then it had to be that enough stocks would come back up (maybe to 50% off from their highs, but still 5x their lows) to make picking out a basket of fallen players worthwhile.

Never worked - because too many assets are too overvalued, and too many liabilities are too undervalued, and too many people are paid too much money ($18 billion in bonuses on a year like '08?!?!) to make sure everyone forgets the "call option on bankruptcy" and remembers "call option on future earnings" reasoning.