The Worden Report (Thursday, July 19, 2001)
Play It Again, Sam
(The check's in the mail)
Hi, Sam R here. Please direct this question of mine specifically to Don or Peter Worden. I am reactivating my account for TC 2000 to pursue stock trading. My monthly check is in the mail.
User ID is: xxxxxx
Anyway, I have a question that is very, very important to me. I value the technical analysis and opinions of Don and Peter very much and was hoping that you would please give me your sincere feedback and thoughts on the following:
I am interested in attempting to locate and find prospective turnarounds. What I am talking about is stocks that are currently under $1 dollar a share. Preferably around 25 cents actually. Maybe 6 months ago they were 10 dollars a share or whatever, but now they are way under $1 dollar.
I am under the impression that most of the time, this type of stock will have bad fundamentals. Poor EPS, IF ANY. That's why it went down to the pits. I guess.
As I understand it, if I was going to attempt to determine a potential turnaround candidate that I would have to or want to look for a future. A merger taking place, an acquisition or some kind of special situation developing. I understand that this type of stock is not your personal cup of tea, so to speak. Not one that you would probably want to put money into yourself but nonetheless, knowing what you do about analyzing a stock in general, what would you suggest that I look for?
I know it's asking a lot, but there really is no opinion out there in stockland that I would value more than yours and I would really appreciate you pointing me in the right direction this one time. O.K? So...if you were bound and determined to seek out turnaround candidates (which I am) then what would you suggest looking at or looking for? Sincerely, Sam
For starters, Sam, everybody wants to find turnaround situations. You might just as well ask me to tell you the meaning of life. You are looking for a genie in a bottle. There are volumes written on finding the right stocks to invest in at the right time. There is no magic wand except hard work, including educating yourself. People who don't like the struggle – and what a struggle it is – would be safer to find another place to deploy their money.
I do get a lot of letters like yours, though not as colorfully drafted. Your letter sounds downright Runyonesque. People write and ask me to tell them which indicators are best for making profits in stocks. Or what percentage return they can expect using contrary opinion?
“Just this once,” I'll give you a hint. Buy only stocks that have stopped going down.
And I can tell you a story about the great John Templeton. At the outset of WWII, when he was a very young man, Templeton was able to borrow $10,000 from his boss as an investment stake. He called a broker and instructed him to buy every stock on the NYSE selling for under a dollar. Some time later the broker reported to him that he had indeed bought every stock on the NYSE selling for under a dollar – “except, of course, for the ones that had gone bankrupt.” Templeton told him to go right back and buy the bankrupt ones too. He wanted ALL the stocks selling for under a dollar.
That was at the beginning of the most tragic four years of the century. At the end of the war, he sold all of those stocks for a huge profit.
I'm not suggesting you try anything like this, Sam. I'm just telling you that's what Templeton did. -DW
An Uphill Grind
I was a little afraid during the day that all three of the major averages were going to close low in their ranges. As it turned out, both the Dow and the SP-500 closed respectably at around mid-range. Volume for the day was up and the heaviest volume came in during the last hour while they were rallying, just as happened yesterday. The Nasdaq closed lower in the range and was not as specifically positive. There were 63 advances among the Nasdaq 100, which was far from impressive but respectable just the same. Not so for our 33 Tech stocks, which were on the losing side of a 26 to 27 score. The Dow and the S&P 500 are acting quite well. The Nasdaq isn't out of the woods. -DW |
