Beware of Turnaround Dogs and Rescue Stocks
From the Mailbag:
I’ve been reading a lot these days about turnaround stocks. It seems like investing in a stock with the potential to turn around could be a great strategy for creating huge gains. What do you think? Is there any risk I should be aware of?
That’s a great question, and one I’ll answer by telling you about my best friend…
Nearly three years ago, I adopted my poodle, Dooley, from a local rescue. He was roughly 3 years old and had been found wandering the mean streets of Miami.
I never would have dreamed the poor thing would teach me such a valuable lesson about investing.
This dog was your typical “turnaround” story… like Yahoo, HP or even, my hope, Apple.
The dog was a mess – he was thin, covered in fleas and missing hair. But he was very loving, and we bonded immediately. So I paid the adoption fee and took him home. Like Yahoo (Nasdaq: YHOO) CEO Marissa Mayer, I was certain I had a plan to quickly right Dooley’s ship.
Like Mayer, I was wrong.
Dooley’s first two weeks in my home was the honeymoon period. We spent the time getting to know each other. There were some small hiccups – kennel cough and a goopy eye.
But the fix was cheap. Besides, I expected episodes like these at first.
After a haircut, a bath and some good food, he started to look and feel much better. Like any cocky turnaround investor, I was certain that I was a genius.
That is, until all hell broke loose the following week.
I found out why Dooley’s previous owners had literally kicked him to the curb… and I found out the hard way.
One day, I came home to find the paint scratched off my front door and a trail of blood across my brand-new carpet. Dooley was drooling, howling and shaking uncontrollably.
It turns out he has a massive behavioral problem: separation anxiety.
So, being the diligent analyst that I am, I immediately researched the condition and how it could be fixed. The outlook wasn’t good.
If Dooley had been a stock, I would have sold my position on the spot. Dooley’s turnaround was going to be a lot more painful and take much longer than I first thought.
Like hedge fund investor Eddie Lampert and his Sears Holdings Corporation (Nasdaq: SHLD) turnaround, I continued to throw money into my investment.
I bought calming collars, special comfort shirts, diffusers, baby gates, herbal pills and food-stuffed toys. I even consulted with dog trainers…
If anything, Dooley and his destruction got worse. Every time I left him, I wondered, “What is Dooley up to now?”
Things got bad. He quickly moved from scratching my door to chewing on the woodwork. One day, I came home to find he had ripped the boards clean off the wall.
Enough was enough.
I finally realized it was time to bring in the big guns… the veterinary behaviorist – a shrink for dogs.
A very expensive shrink for dogs.
After three years and thousands of dollars, I can finally leave Dooley home for a few hours at a time. More often than not, I don’t come home to an unexpected remodel courtesy of my poodle. But I’m still on edge.