Tuesday, November 17, 2009 0 comments ++[ CLICK TO COMMENT ]++

Low quality stocks starting to weaken

As is normally the case, so-called "junk stocks" (i.e. low quality stocks) have done exceptionally well off the bottom. The Globe & Mail has a nice article quoting a study by Scotia Capital showing companies with S&P credit ratings of BBB or below have significantly outperformed higher-rated stocks from March 9 to September 30. The study also shows that higher quality companies are starting to outperform. Since September 30, companies rated AA or above have outperformed.

All I can say is... be careful if you deal with low quality stocks (many small-caps and distressed companies are.) Looking around the web, I notice many value investors and contrarian investors deal in low quality stocks so make sure you have a good thesis for owning what you do. Everyone looked like a genius in the last 9 months but things are going to get tough pretty soon.

The worst thing about strong rallies is that, it's hard to tell if one's investment arguments are correct or if they are simply riding a wave. Godess of fortune likes to play around with humans ;)


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