Here Comes A Rare Event: A Stock Market Washout

Losses, losses everywhereJohn Tobey (Financial Visualizations - FinViz.com) Such episodes are meant to "shake out" remaining weak investors from previously popular stocks, resetting values and creating strong foundations for gains ahead. MORE FROM FORBESStock And Bond Investors: Markets Headed To Shakeouts - Raise CashBy John S. Tobey They arrive when the markets are overloaded with detritus. Call it junk, trash or ugly leftovers. It's what remains after fads crash and dreams of riches evaporate. It's a clean-out of investments that have flunked out. During the 2021 stock market enthusiasm, many of today's walking dead were alive and kicking. Examine them now and "Yuck!" is an apt description. Yet, still they shuffle on, albeit on life support provided by a diehard fan base.

Why can't they continue their empty existence? Because the markets will dump them. Without sound fundamentals, trading dries up and out they go. Some will get so cheap, they will be acquired for some business reason - or for a fire sale. Others will drift off to the hinterlands or simply close their doors. The primary groupings are these: One of Wall Street's worst creations ever. Sold as safe (You can get your full $10 per back! ), the "magic" was that a brilliant person would discover an outstanding company to acquire. With the money in hand, the deal would be made and the SPAC holders would see big gains. However, the big catch was that each SPAC had "sponsors" (a Wall Street label that hid the real descriptor: "free-loading insiders"), and they received a huge 20% of the new deal at minimal cost. Mathematically, using $0 for the sponsors, the SPAC's investors' 100% of cash furnished by them shifted to 80% ownership of the new company. Unless the acquisition was made at a price 20% below fair value, that meant the investors' reality book value just dropped by 20%. Moreover, the "sponsors" were then free to sell their stock at just about any price and still rack up healthy gains (the benefit of "buying" at near-$0). Small wonder the stock charts of the completed deals look so terrible. Operations were basically scientists working on a glitzy project (the compelling reason to buy in) whose low odds of success made it highly likely to crap out. It's why virtually all biotech IPOs have 90+% losses - the money's gone and there's nothing to show for it. Likewise, the "story" was some glitzy project. The problem was that it was a long, uncertain way to creation, production, sales, and - most importantly - earnings. Story stocks, without some real, fundamental progress, are destined for the trash heap when the story glitz tarnishes. Power to the people! Only things didn't work out as planned, leaving behind a trail of tears and losses for those that still hang on. (When GameStop GME had its original run-up, I checked the Meme investors' meeting ground, Reddit. There were numerous congratulatory comments that had the same view and instruction: They could beat Wall Street by staying together and continuing to buy and hold, thereby forcing short sellers to drive the price up further. Believing chat board "commitments" not to sell is so.... Well, you furnish the descriptor. Anyhow, the stock charts show the loss-filled results, as well as revealing the remaining holders' presence. Prospectuses included beautiful color photos and discussions was how desirable the company products were. Alas, the money raised was going, first, to shore up the company's depleted finances. Growth was mentioned, but as an unlikely tag-end result. But, hey, you get to ride the wave, right? It's offer of $8.05 was just accepted by the board (whose responsibility is to look out for shareholder interests, and who holds the most stock?). From The Wall Street Journal article (underlining mine)... Was the forced sale of that 15% block of shares at a 40+% loss legal? So, bye-bye to Weber.Weber stock's graph from IPO to buybackJohn Tobey (StockCharts.com) Maybe...Dole stock's graph from its 2021 IPOJohn Tobey (StockCharts.com) Out-of-sight means out-of-mind, and a fresh environment means a fresh outlook. An apropos scene from the movie, "Margin Call," occurs after many employees are laid off in one day. The head calls together those remaining, saying, (underlining is mine) 80% of this floor was just sent home, forever. We spent the last hour saying our good-byes. They were good people, and they were good at their jobs - but you were better. Now they're gone. They're not to be thought of again. This is your opportunity. You are all survivors. And that is how this firm over 107 years has continued to grow stronger." This ... [+] historic landmark, located at 11 Wall Street, has been in continuous operation since it was built in 1903.getty