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Strategies & Market Trends : Value Investing

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To: TimbaBear who wrote (7554)	6/15/1999 11:57:00 PM
From: James Clarke	Read Replies (2) of 78673

George Soros wrote about the idea of "reflexivity". This is when what drives the price is related to the price itself. For example, a company that has a high stock price (but a low return on capital) and issues shares to acquire businesses. This can go on for a while, but when the stock price drops, game over. These generally don't bounce back. The REITs in the summer of 1997 were a classic example of this idea - but they were safer because they had a natural bottom - they did have real asset value. Companies booking a large percentage of their earnings off their pension fund might be another example. What you are looking for here is a potential death spiral. The stock price drops, eliminating growth opportunites, lowering earnings, which causes the stock price to drop more... Once these start to drop in a market downturn, stay far away. JJC

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