is there a "bankruptcy bounce"?
June 10, 2009
– Comments (8)
I bought a few shares of CEM (Chemtura) which is now some insane pink sheet ticker, cemjq.pk i think.
I bought it at 18 cents, 17 cents, 16 cetns and 12 cents, and then CEM declared bankruptcy. I had alot of fun on the CEM yahoo message board the day they declared BK as trading halted and nobody knew what was going on, speculation ran rampant, and all of that.
The news then came out that they had delcared BK, and a whole new set of posters arrived on the scene. One offered that his/her investment strategy was based on buying stocks in the days following bankruptcy and then selling them some time later after what he/she described as usually being a significant bounce. Apparently, per this posters commentary, this "bankruptcy bounce" is extremely common. This person said they put in an order for something like 250,000 shares in stages between $0.02 and $0.03.
CEMJQ.PK went to $0.02 within a couple days of the declaration... And has since bounced as high as $0.37. Thats very nearly a 20 bagger, and more than a 10 bagger on average for this mystery poster mentioned in the paragraph above. I actually made money on CEM, after being down 80 some percent at the low.
I bought some shares of GGP for 60 and 36 cents earlier in the year, sold off enough sahres to basically just have the houses money left on the table when it bounced to $1.20 before the bankruptcy declaration. After the bankruptcy declaration, GGWPQ.PK dropped to the 50 cent range and has since bounced well over $3. I'm letting those shares ride for a while to see if Ackmans strategy works out, even though I suspect he makes out well and common shareholders have a decent chance of getting the shaft.
Pilgrims Pride (PGPDQ.PK) has been on a epic tear since the first days after its bankruptcy declaration. It hit 14 cents in the days after BK was declared and has since gone on the ride of a lifetime, hitting nearly 7 bucks. Thats a 50 bagger folks, better than many of us will ever do on any holding in our lives.
I am not really aware of all that many more companies that have gone bankrupt. Lehman dropped to a nickel within days of BK and subsequently bounced to 30 cents, only to drop back to a nickel. So your timing would ahve had to be good, but the "bankruptcy bounce" did occur.
Washington Mutual bounced from $0.02 to $0.10, but in the days just after bk it fell only to the $0.06-0.07 range, so thats not much of a bounce, but is a 50% return in under a year.
GM shares have staged quite a rally in bankruptcy, even though they are so clearly worthless.
Playing the bankruptcy bounce isn't really my style, and I don't know where to get a list of everybody thats going broke, but in an hour of digging around I can't find a bankruptcy stock that DIDN'T exhibit this pattern to some degree.
Did my fine feathered mystery poster on the CEM board have a strategy with good historical odds? Was he/she onto something?
Is there a bankruptcy bounce?
Checklisted minds are curious.
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