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Michael Bigger is an investor and a trader who has been involved with trading technologies for more than twenty years. In 1992, Michael joined Citibank as head trader of U.S. single-stock derivatives, where he managed a $5 billion portfolio of equity derivatives. In 1998, he joined D.E. Shaw & Co., L.P. to trade the U.S. equity derivatives portfolio. (More)

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Friday
Jan252013

This Insight Made Billionaires

I found this interesting Pier Import ($PIR) article in Forbes magazine. The article highlights an interesting situation by which a distressed company start seeing his business getting much better while the stock prices is trading under the assumption of the worst case scenario. 
 
In November 2003, Pier 1's stock was trading above $25.  However, the housing crisis took a huge toll on sales and profitability.  By early 2009, $PIR dropped to just $0.10 and was in danger of delisting from the NYSE. Alex Smith, CEO of $PIR said this about this situation:
 
“The outside world couldn’t see it, but our business was getting stronger”
 
He was right.  Yesterday the stock closed at $21.85.
   
Trading large-caps can make you a few bucks, but finding deep value is where the big money is.  Anyone that can uncover situations like $PIR in 2009 can become a billionaire. People will pay you a lot for the ability to choose great deep value investments. I know I would. Wouldn't you?
 
Here are two more data points showing American Apparel's management confidence in the current state of the business. This is why I think American Apparel could be the next successful distressed situation:
 
 

Investing in distressed situations is very risky.  Please do your own due dilligence prior to investing. We are long American Apparel and realize the odds of the company going bankrupt are still quite high.

Written by Michael Bigger. Follow me on Twitter and StockTwits.

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Reader Comments (3)

A lot of small caps are priced for bankruptcy due to forced liquidations during bear market selloffs. Those that survive, outperform substantially. Some appreciate 20-30, even 100 times. So, people that understand the business or can read balance sheets are in an envious positions once every 5-6 years, when such situations present themselves. For the rest of us, buying a basket of small caps during the forced liquidation period usually turns out to be a very lucrative investment. The survivors more than pay off for those that file for Ch. 11.

January 25, 2013 | Unregistered CommenterIvanhoff

the CEO is a real creep, I wouldn't invest a dime

January 25, 2013 | Unregistered Commenterwoolybear

I totally agree Ivanhoff. A basket approach is much less risky. I think John Templeton used this approach during a vicious bear market.

Woolybear, I love companies that are polarizing. They are talked about. Thank you for your comment.

January 25, 2013 | Registered CommenterMichael Bigger

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