Turnaround Tips
One of the keys to making money in investing is to avoid making mistakes. If you can avoid at least most of the following pitfalls, you will greatly enhance your ability to make money investing in turnaround situations. Read the 10 most common mistakes turnaround investors make.
Buying Stock of Companies in Bankruptcy
The Turnaround Letter rarely recommends that you buy the stock of a company operating under protection of the U.S. Bankruptcy Court. Stockholders are the lowest priority when it comes to payback; and—even if a company can successfully emerge from Chapter 11 protection—there is rarely enough value in that reorganized entity to give the old stock any value. Read more of "Buying Stock of Companies in Bankruptcy."
Insider buying consists of buying shares of stock in a corporation by someone who is employed by that company. Insider buying, which is based on public information, is absolutely legal. While trading on specific, undisclosed inside information (a practice known as insider trading) is certainly illegal, insiders are allowed to buy and sell their company’s shares provided that they report all trading activity to the SEC. Learn how these trading details can be a very useful tool for savvy investors.
Convertible bonds are an attractive vehicle for investors who want equity-like returns but cannot bear the volatility of stocks. See if convertible bonds are the right option for your turnaround investment portfolio.
Warrants can offer a lucrative option for those investors who are willing to take on more risk to obtain potentially higher returns. Read more about the pros and cons of this strategy.
Turnaround investors need to be especially wary of trendy sectors, and The Turnaround Letter's one rule in choosing stocks is that there must be a solid core business with long-term viability. Learn why your investment strategy shouldn't follow a passing fad
Turnaround Tips
TLCorner
Where Are the Customers' Yachts?
This headline could easily apply to Goldman Sachs today, as recently described by former employee Greg Smith. Actually, it is the title of a book written in 1940 by a former Wall Street employee named Fred Schwed, Jr. The title refers to a story about person admiring the yachts owned by bankers and brokers who asks where the customers' yachts were. Of course, the customers, who had dutifully followed the advice of the bankers and brokers, couldn’t afford yachts. This just goes to show that there is nothing new about the attitude that Goldman Sachs employees were purported (probably accurately) to have about their clients. It was just as true in 1940--and likely has been forever--as it is now.
Read More.Beware of Trendy Turnaround Candidates - Even Green Ones
Don't Chase the Headlines
The recent unfortunate accident involving the Costa Concordia cruise ship, which is owned by a subsidiary of Carnival Corp., raises an important investing question: Should you bail out of a stock if the company is affected by a serious negative event? Unless the event could be part of a series or trend, the answer is usually “no,” for two reasons.
Read More.What did The Turnaround Letter see that others did not?
Questions & Tips
AskGeorge
Now that Greece's latest bailout is complete, is it safe to buy European stocks again?
We’re not at all sure that either Greece’s or Europe’s troubles are truly behind them. But that said, we also believe that it makes sense to have some European exposure in your portfolio. The advice we gave in the November 2011 issue still holds...
Read More.With so much turmoil and uncertainty in the U.S. economy, and even more fear of collapse overseas, do you ever recommend just getting out of the stock market all together and hunkering down with something safer like bonds?
I never recommend getting out of the stock market entirely--or even making major changes to your allocation to stocks. The stock market is so unpredictable that if you bail out, the risk is very high that you will miss a significant upturn. Moreover, even if you make the right call to get out of the market, you then have to muster the courage to get back in.
Read More.What is your opinion on investing in foreign turnaround companies?
There are certainly good opportunities in foreign turnarounds, but also very significant risks as well. The market inefficiencies that provide unusually high return potential for turnarounds here in the U.S. are probably even greater in foreign markets. However, there may be special, local features that affect foreign companies that we may not understand when we view them from afar.
Read More.Bankruptcy Investing
George reflects on bankruptcy investing activity & trends seen in 2010. Read more.