Small Investors At Risk When Bottom Fishing
Recently, small investors looking to buy stocks nearing lows often see their investment strategy evaporate by large company takeovers. A recent example of this is Countrywide which has had its stock plummet since the mortage crisis.
An investor that believes in buying for the long term may have purchased low but not at the bottom. So the investor may temporarily be at a loss. If the company turns around years later the stock may go up significantly.
However, when the stock goes down after purchasing and a larger investor, in this case Bank of America comes along and offers to acquire the company at a lower price than the investor paid, then this “temporary loss” becomes a permanent loss.
Bearn Sterns is another example of this. The company had its stock plunge to around $5 a share recently.
If you enjoyed this post, please leave a comment or subscribe to the feed and get future articles delivered to your feed reader.