It is Bottom Fishing Season Yet ?
An honest answer is... its always bottom fishing season... because the market never runs out of companies with management capable of screwing things up badly enough to ruin them.
I haven't bothered making that effort in turning on the fish finder in a while though... but, did that today... and learned a couple of interesting things... Too much for one post... so will start with perhaps the most eye opening... as it connects old ideas... failing companies plumbing the markets depths... with new ones.
The concept mimics/adapts MSTR's "let's buy bitcoin".... since the original business plan isn't working out ?
That's a set of behaviors that used to be limited to the pink sheets... since the moose pasture wasn't panning out, or as the oil well that got funded turned up a dry hole... those failed companies would re-invent themselves to become connected to whatever is hot at the moment....
So failed oil companies and miners... having been reduced to the pink sheets... might suddenly become marijuana growers... or REE explorers... or... or...
But, seeing the concept move up market... seems it provides more evidence about how hollowed out those larger market issues have become... than it is great news about some big new opportunity being seized ?
But maybe not... maybe the move upmarket of pink sheet survival strategies... is just the only possible answer available when the market won't provide the capital you need to put new tires on that old thing.
Perhaps... worth being contrarian enough to embrace it in an application which, like MSTR, means that if it works and it saves the business... its better than surrender to failure ? If you understand that issue as an alternative in context of a market with "toll takers" that exist to prevent new capital flowing to where its needed, instead of facilitating that flow ?
I'll post on that more, soon... as 25 years after making the mistake of stopping it... in the last month they have once again re-enabled Direct Public Offerings with lower limits... so capital starved companies have access to the markets once again... really for the first time in two decades...
That does add some new potential, in a last gasp... in businesses that have already realized more than enough risks for most companies... so, rather than creating new risks by changing focus like a pink sheet stock would... maybe a direct public offering and / or bitcoin can bail you out instead ? Companies used to actually be forced off the larger exchanges onto the pinks when their businesses failed ? But, with zirp / nirp... they manage to hang on as they hollow out and just become Zombie companies.... still, unless Reddit / Robinhood Traders leap in to enable injections of new capital... the shorts will eventually cut them off from capital flows entirely and prevent them hanging on...
Otherwise, bankruptcy is the normal route to "recapitalization"... as the lenders take the business... but, MSTR has combined both... trying to use bitcoin... but taking on a massive convertible debt to do it... when it seems likely that they didn't have to sign up for the debt... if the public supports their idea ?
FWIW, that's the end of the market where I've spent most time... sorting through the market's trash looking for AIG's under a penny... but, also, finding some still good stuff being thrown out with the trash once in a while... like the OAS bankruptcy wiping out OAS shareholders... but not hurting the OMP shareholders other than by making the stock cheap. The effort made in sorting stocks like that forces you to become a good analyst... dig into a lot of the internal workings of a lot of different businesses... and learn a lot about bankruptcy laws in different places... The polite term for dumpster divers plying that trade in the stock market: value investors.
The risks realized in BK often wipe out shareholders... if not always. But, once they've been wiped out... what's left is often worth a lot more more than it was before, once the weight of the debt is lifted. Again, see OAS... now the only debt free oil company out there. If you bought it as a bet before they emerged from reorganization... you got nothing. If you bought it after... it wasn't cheap... but since then you've doubled your money.
In some businesses, that risk is just a part of the routine... the oil patch is famous for booms and busts. Another... shipping... very capital intensive... assets with fairly short and predictable half lives... and when the market stops needing ships... the loans probably don't get paid back... often with little point in lenders taking control of a fleet of rapidly rusting floating scrap. But, when business turns up... the huge leverage can make for stunning reversals in fortune...
That I follow oil stocks and shippers isn't news here... so, I took note of two things related to this long post today... First, an incorrect... totally wrong... blast from Mootly Foolishness...
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Is Now Your Chance to Buy the Nasdaq's 3 Worst Performing Stocks of 2020?
The gist of it is... these three stocks... SHIP, TOPS, GLBS... wiped out their prior shareholders to re-capitalize... therefore you shouldn't own the recapitalized companies because shipping stocks are risky. But, the biggest risk in any stock like that... is that it will fail in getting recapitalized ? That isn't advice to hold onto them all the way down to the bottom and then lose all your money when they go bk and recapitalize ? "Buy low, sell high" assumes you do buy low... hold all the way up... sell high... and don't hold all the way back down ? The right question, now... for those three stocks... is what will the market do to these companies in the next year or two... not what did the market do to them in the past ? Doesn't mean you can skip over making a proper effort in doing the analysis of each company and its potential, as well as the changes in the market... which I have not done... ?
Will the eventual end or meaningful reduction of Covid risks this fall... enable a rebound in trade that makes basically bankrupt dry bulk shippers capable of surviving, again ?
But, if you're missing how this thread relates to bitcoin as an "alternative means to recapitalization" issue:
Sino-Global Shipping America, Ltd. (SINO)
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