Beware of Turnaround Dogs and Rescue Stocks

Kristin Orman By Kristin Orman, Research Analyst, The Oxford Club


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…

Nothing worked.

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.

Good investing,