Professor Elam

The Sunday DMN Business Section details that  Plano Investor Craig Hall has taken  a position of 8.23 M shares in RSH.  I checked and sure enough from its 2000 high of $75 it has fallen to $15, up to $20 and now back to $17.67.  The stock tumbled that $2.50 or so on an unexpected third quarter loss.  Halll’
s comment  was that he was surprised anyone was surprised. After all it is in  the interest of the new CEO, Julian Day, to get all the bad news out of the way early on.  In the Fin Statement Analysis class this is referred to as the Big Bath. The idea is that new management writes off every conceivable thing that could possibly go wrong or be written down as an impairment. Then the idea is that all the bad news is gone, earnings lie ahead. 

I taught Ethics this past spring. I used the example of RSH’s board firing the last President  for lying about his non existent diploma from what is now a Bible College based in Tulsa, OK.  In fact I believe we discussed that this semester. 

You can click on the monthly chart at left to get an idea of the enormity of the loss in share value the last few years.  The famous financier Amschel Rothschild  financed Britain’s war against Napoleon. When the outcome of Waterloo was unknown, Rothschild started selling shares of stock.  Everyone assumed Napoleon had won and also sold, the wrong shares it turns out.  At the market low, Rothschild bought  back the shares of British companies on the cheap.  It was perhaps this incident that prompted him to remark, One must buy when there is blood in the street-and there was plenty of just that at Waterloo.  Modern investors quote the famous financier usually forgetting that he really meant it, one buys during a war betting on the winner. 

Hall says that is what he did with AMR at $6 and now with RSH at $15.What do you think?  The stock is half what it was just a   few months back and 20% of its all time high.  Has RSH gone to the dogs that badly in a few years, or is this a diamond in the rough? 

And that my friends is precisely what a study of accounting teaches one-Warren Buffet has gotten rich by making just such judgments, so do we buy or sell, and at what price?

DLE