Apprenticed Investor: Protect Your Backside
In terms of lost investor wealth, Enron actually compares favorably to other flameouts. EMC, Cisco Systems (CSCO) and General Electric (GE) each "lost" over $100 billion in market cap from December 2000 to their 2002 lows. From the perspective of market-cap loss, Lucent (LU) shareholders would also have been collectively better off owning Enron instead.
Even (once) mighty Microsoft (MSFT) -- with a market capitalization of $266 billion as of Thursday's close -- has suffered enormous losses. From its split-adjust peak of $60, to its post-bubble low near $20, more than $300 billion in Microsoft shareholder valued has disappeared.
So compared with any of these market crash calamities, Enron loss is relatively minor. That is truly astounding.
And it's not just the tech sector where shareholder losses accrue: From December 2000 to the present day, pharmaceutical giant Merck (MRK) has dropped $120 billion in value. Even oil colossus Exxon Mobil (XOM) lost over $105 billion of market cap from November 2000 to July 2002, before rallying in conjunction with rising oil prices.
What Moves Stocks?In order to limit the havoc "disaster stocks" can wreak, it helps to understand what moves share prices. Investors typically look to a variety of short-term factors. Ask most people why their stocks are going up and down, and they'll reel off a list of news-driven events: economic releases, analyst rating changes, quarterly earnings reports, conference calls, etc. These factors have a de minimus impact when compared to the real action. The true cause is much less complicated: Share prices are moved by large-scale buying and selling by institutions. We discussed this extensively in
From peak to pennies
|Click here for larger image.|
|Source: Barry Ritholtz|
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV