Sub-Prime Lenders On The Verge Of Bankrupcy
Mar 13th, 2007 by Wealth Builder [This post is written and copyrighted by Wealth Building Lessons (http://www.wealthbuildinglessons.com).]
The trading for New Century Financial (NEW) was halted today as the company is on the verge of bankrupcy. Its lost about 75% of its market cap in the past 1 week.
Thats kind of funny because Bear Sterns upgraded the stock 2 weeks ago to a buy. The sad part is that some of their investors must have believed them and bought the stock at $15. When it dropped to $7 they may have doubled down, thinking they’ll break even when it jumps up a bit. However, its currently trading at $1.66 so any chance of breaking even for those who bought at $15 is gone.
There are a few things to learn from this.
Never buy something thats dropped 50%. Value and Price are two separate things. Unless you understand value don’t buy something because its priced cheaper than yesterday.
Never believe the stock analysts. Remember how they were cheering on Enron and encouraging investors to buy days before it collapsed?
Have the discipline to sell a stock that has dropped 10%-15%. Put in a trailing stop so that as the stock increases, you can lock in some gain if it drops.
Never put too much money in one stock. Professional money managers never allocate more than 2% of their holdings to any given stock. If its loses 50% overnight, you’ve lost 1% of your portfolio. Thats a loss you can recover from. If you have all your money in it, you now need to double your money to get back to where you were. Thats a tough proposition.
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One Response to “Sub-Prime Lenders On The Verge Of Bankrupcy”
You bet. Been watching NEW fall from $50 to $1.66…Was tempted of buying it..thank god i didnt !!