Monday, 7 September 2009

Make a fortune with Lehman Brothers !

Yes that’s right. Lehman brothers. The same company that went bankrupt. You could have made a profit of 600% in a couple of months. Welcome to the insanity that sometimes grips markets. And trust the finance world to dignify the madness with a high sounding name. Its called the “lottery ticket rally”.

Lehman Brothers shares were languishing at 5 cents for most of the year. Last week, they touched 32 cents. If you bought at 5 and sold at 32 , you could have multiplied your money 6 times. They ended the week at 14 cents. Even if you missed the 32 and sold at 14, you multiplied your money a respectful 3 times.

Never mind the underlying economics. Big parts of Lehman’s erstwhile businesses have been bought by Barclays and Nomura. What’s left is all sorts of losses being unwound. Most certainly the rump left has negative net worth. By all laws of economics their shares must be worth nothing. And there’s nothing secretive about this – the travails of Lehman have been well documented. And yet, its stock has zoomed.

This is just mad speculation. People punting with complete irrationality. Apparently the same is happening with shares of other bankrupt companies as well.

Sure the punters who make 600% also lose 1200%. But that’s besides the point. A society that rewards insane risk taking over an honest day’s work needs some navel gazing. This isn’t socialist claptrap. Some introspection is called for, even amongst die hard capitalists.

10 comments:

  1. Unbelievable!! Madness prevails and always will!

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  2. Similar to the Satyam story in India where people still don't know what the real value of Satyam is but shares have rallied in the past few months to become almost 5 times of its low value.

    By any chance has your travel bought you to Bombay?

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  3. I also second what Mahesh has said, those who bought Satyam shares in Jan'09 are making huge profits today :)

    Just for my clarification: Is Share market something like gambling?? We have mathematical proof using probability to show gambling results in loss over a period of time....

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  4. @thoughtful train - Indeed. Such are the causes of the popular backlash against capitalism

    @Mahesh No, I didn't come to India - was in Europe, but now back.

    Big difference with Satyam - Satyam is intrinsically a sound company. Even during the scandal there was a base business that was solid. After the takeover there are clear business prospects. Lehman is a bankrupt company that is shut. There is no hope of shareholders getting a single cent when its liquidated.

    @Savitha - No stock market is not all gambling - there is sound investments you can make with a long term point of view and reap a good return. But in the short term speculation is rampant. Unfortunately unlike pure table gambling where you can't win in the long run, in the stock market you can, simply because governments intervene when things go down.

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  5. my awe meter for ur writing style has gone up several notches.. suffice to say..

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  6. @AJCl - awwwww - what a lovely comment. As so often, you made my day.

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  7. Thank you for the explanation....

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  8. Warren Buffet sums it as, Hold yourself when whole world is greedy and be greedy when everybody is holding.

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  9. Waa! If anyone has speculated this several months before, they would have called him fool.

    Yes I got to agree with AJCL - Ur writing skills are top notch!

    //People punting with complete irrationality//

    Yes Isnt? But there has to be an explanation why so, May be people jus wanna invest when the market is about to get better and better.

    /Some introspection is called for, even amongst die hard capitalists.
    //

    I have knowledge that of 6 year old , naaa make it 4 year old when it comes to shares and finance market. Thankfully I have a good financial advisor who manages my savings and investments, Most of them are in mutual funds :P I felt bad when the plummed down last time. but he kept saying dont worry its about to get better , and u should do investment at this time and tahts what i did and now i see its getting much better and sure the average unit cost is defn better than i expected!

    I got to listen to gurus like u ;)
    I was told at the office that citibank shares went up from 65 cents to 6 dollars! if only I have know hehe.

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  10. @Srivats - Yesterday AJCL made my day, today you, with your very kind comments. Thanks very much.

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