Countrywide Financial (CFC), one of America’s largest home-loan lenders, tried as hard as they could today to deny the rumor that the company is filing for bankruptcy. However, as today’s stock performance shows… nobody seemed to be listening.
But today’s press announcements and market reactions brings up a few interesting observations about investing:
1. Sometimes market activity has nothing to do with performance. Countrywide could be just fine, but at the very hint of bankruptcy, investors take their money and run. It’s a knee-jerk reaction that has more to do with emotions and fear than actual performance. This is one aspect of investing that you just can’t plan for.
2. Sometimes investors know more than the company. I throw this one out there with a cautionary warning. At times, a few savvy investors can spot the warning signs early enough to bail right before a stock tumbles. The key is to watch those investors Perhaps Countrywide isn’t going to file for bankruptcy, but chances are that the investors believe the story is not only possible, but plausible.
3. Sometimes companies lie. I know, it’s hard to believe but Countrywide could be lying through their teeth. I’m not saying they are, but they could be. This is when you break out the spreadsheets and financial statements, pour over the figures, and crunch some numbers in the form of ratio analysis. You need to try and determine on your own if Countrywide could file for bankruptcy soon. What is the debt to equity ratio? Does it have enough cash on hand to pay interest this year? These are the types of questions you should be asking yourself before you jump ship yourself. Who knows, if you’ve done your homework Countrywide could be the perfect stock to BUY right now!