I think that we've all learned the hard way that just because a company is junk doesn't mean it's going to go down. It used to be that all you had to do was wait until everyone else realized what you realized about a company---now people have to be hit on the head to realize something.
To be hit on the head means something along the lines of a layoff, or an earnings warning, or something equally drastic. So I think that the real game is to try to predict when these warnings or layoffs will happen.
Zitel is an example of this. It ran from 5 to 60 on hype and momentum, while they were losing more and more money every quarter. Now it's back down to 11, probably worth 2 or 3, but it took over a year of disappointing sales and no Y2K contracts to convince people. My guess is that if other companies like KEA and CA were not landing hundreds of Y2K contracts, Zitel might still be at a much higher stock price because there'd be no "proof" that it couldn't make money later on.
If you ask yourself, when will people be hit on the head about AOL, the answer lies in the following question: When will AOL be in such bad shape that it has to do something drastic like lay off a bunch of people or do a Reg-S deal or something like that? Considering they just got a few hundred million dollar cash infusion, they may be able to hold off for a while.
Yahoo is similar-- people seem excited that Yahoo has earned money occasionally, never mind that it is pennies per share. So when will people be hit over the head for Yahoo? Frankly, they have such a small operation that they could probably go on forever.
Personally, I really want to short AOL and Yahoo. Every couple of weeks I call up some pals on the phone and talk about it. But we never can figure out what piece of news is going to come out that, in this market, will make the stock actually drop in price. If someone does, please tell me. |
