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If all stocks go down 40%, they don't necessarily become 40% cheaper if the earnings generation power of these stocks has also become impaired. Such statements are made in the belief that things always recover and price movements arise primarily from sentiment.
In the event that all stocks are off 40%, buying those whose earnings generation has been impaired the least is a good place to start. Energy and investment banks can blow up in a major stress event, but one suspects women will still need feminine hygiene products (eg. Asaleo). You can go a step further and determine discount to intrinsic value, if you have that ability.
Oh look, AIG is still trading like it's not broke during the GFC if the gov't hasn't stepped in. Its share price is not zero and its shareholders didn't lose everything.
From about $7 a share in 2008, it's now at $63 a share.
Dam big slimy government! Stepping in and bailing them out [at $180Billion?], getting them over that rough bankruptcy spot.
Not sit there, get all those billions and trillions; pay themselves big bonuses and then dividends... then have the nerve to complaint that the big bad gov't were being unfair.
Do you understand the US government took 92% of the shares in AIG?
so only 8% of AIG current equity position is attributable to the shares that existed prior to the bail out?
Please explain why you think the bail out was such a good thing for investors that you would recommend taking positions in those that needed to be bailed out.
Again, I don't think I will let you near my investments.
The Bailout wasn't a windfall for AIG, it destroyed investor value, it was a massive windfall for the US government and the FED
You are confusing the employees with the share holders there.
I have a feeling you are making a case for me.
When you are talking about people walking away with "fat bonuses", those are employees, not shareholdersPretty sure more than half AIG's workforce got canned with the collapse.
And why should shareholders expect to gain anything from the deal anyway? It's their fault for buying into the bs their board and executives were selling them.
So it's all cool that tens of millions of American homeowners got kicked out of their home, losing practically all of their life's savings. That's just the market weeding out the weak.
For banking executives and shareholders... giving lotsa money to save their skin is just bad form?
How so? All I mentioned was that one couldn't really quantify the risk because liabilities were unknown. So you have an unknown downside... with the limit that it's asymptotal at the $0 value (i.e. it can't touch zero, but can get forever closer to it)
For all we know, the next one might need 5 bailouts, each 90% cheaper than the last. Hardly bodes well for those who buy in at the first or second bailout.
When you are talking about people walking away with "fat bonuses", those are employees, not shareholders
It's not about gaining, there just could have been a deal done that wasn't so punitive.
The bail out was designed to protect the customers,
They didn't save investors skin, investors took a very real hit, their shares went from $1,400 to $7, and now nearly 10 years later are only $63.
AIG got given a loan for $85 Billion to AIG,
For this loan the government want 25% Interest, and 80% ownership. this is a very punitive deal, if you think its a great deal, maybe I can provide you with some financing.
The Fed also took equity, it bought assets from AIG for much less than what they turned out to be worth, and made billions on it.
I am not trying to make a moral judgement on it, but I am jut saying you seem to continually be saying the bail outs were free money and a windfall for investors, and they made the investment risk free for shareholders, but they didn't, its a perfect example of shareholders capital taking hits to protect the customers.
AIG dilute its shares, reducing it to the equivalent of 8% for the bailout right?
From $7 to $67 in 9 years... has there been any share consolidation or the diluted share is still outstanding?
hmmm... to call CEOs and other executives "employees" is technically true, but in the real world, things tend to not work like it's written right?
btw, how many of them goes to prison? Prosecuted? None.
No crimes or fraud were committed?
How were shareholders capital taking a hit to "protect the customers"?
If we define customers as other big investment banks, yea. Customers as those whose mortgage got slice and diced and how they're being kicked out of their home and losing their lifes savings...
anyway
Incredible how Craft can make so many good points in one short post only to have it glossed over by people talking about trying to buy a company which needs to be bailed out
I think the point is timing.
We can argue all day about morality and corruption and who benefits but the proof is in the pudding.
If you bought after bailout in 2008 sept, $40 to about $60. If before goodbye charlie to your money.
Also further to rehash the points already made.
1) 40% is not an indicator of value, but I think the OP did not mean this number in a literal sense rather that a drop is indicate of a dislocation in the market.
2) As stated it depends on whether the crash continues onward or is temporary and supported by the government or a rebound in economic conditions
https://au.finance.yahoo.com/chart/AIG
If you bought at 40% drop you would have lost alot of money. After bailout about 50% gain over 9-10 years.
At the low of $8.4 that is a fortune to be made or at $870 a fortune to be lost.
AIG Prices https://au.finance.yahoo.com/chart/AIG
May 2007 high about $1450
40% drop ~ march 2008 $870
Bailout sept/oct 2008 at $40 mark
Feb 2009 low of $8.4
Current price 2017 $62.88
And the most like answer is nothing and if you do buy it probably won’t be much because you’ll be as scared as everybody else and if you do manage to buy a bit of something you’ll probably be pretty trigger happy to exit it and snatch a quick profit or cut a drawdown.
Correct me if I'm wrong on this one, but if everything uniformly dropped 40%, then the risk/return equation doesn't change in relation to other holdings, only to cash (everything gets 40% cheaper, hence '40% more attractive').
Buy ones that will get bailed out.
Let me look up the companies that got bailed out and see if buying ones that got bailed out makes money or not.
This statement implies that you are buying before a company gets bail out. This is what everyone is questioning about.
This statement suggests you are buying after a company got bailed out. So if this is what you meant then just make that clear.
Yea, before it get bailed out does not mean when its stock price was sky high. Does it?
And why can't people buy in after the bail out announcement? That'd be a smarter play.
What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.
Main question you guys ought to challenge that premise is how will the investor know the about-to-go-broke company will or will not get bailed out.
Too Big to Fail might be the answer.
Pretend history repeats and we're in a similar situation to October 2008 (without knowing the future).
The market is down -40% during a financial crisis.
What types of stocks would you look to buy and why?
My thought might be a non-cyclical with high ROI like CSL.
Rehashing again:
The 40% was from the original poster.
cheers
Yea, before it get bailed out does not mean when its stock price was sky high. Does it?
And why can't people buy in after the bail out announcement? That'd be a smarter play.
What's with all these semantic? Whta's so hard to understand about buying ones that crashed and will get bailed out.
Main question you guys ought to challenge that premise is how will the investor know the about-to-go-broke company will or will not get bailed out.
Too Big to Fail might be the answer.
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