Playing with Cars
Lately I've been playing with cars. Playing in a kind of big boy way. Despite the dismal condition of the entire U.S. auto industry I've seen unique short term investment opportunities connected to automotive stocks.On March 6th GM hit a low of $1.27. It regained some value by the end of the day and closed out at $1.45. I immediately emailed my little brother and told him jokingly that GM stock was entering lottery range. When distressed stocks approach the $1.00 a share value my brother and I refer to them as lottery tickets. The odds may be long that the stock will take a sudden jump but you can buy a large number of shares at a bargain price, set a reasonable stop loss threshold and hold on for a short period of time looking for a bump upward. The next day GM opened at $1.51 and appeared to be heading up, so I bought 1000 shares @ $1.55. I paid cash rather than buying on margin. Short term investments are not day trades. The idea of leveraged bets has left a bad taste in our mouths and should never be used as a matter of course.
The rationale behind my purchase was built on the perception in early March that the administration was against the idea of letting the auto industry suffer bankruptcy, and was willing to prop them up with public monies until they could figure out an acceptable restructuring strategy. The government did impose a definite time table, GM and Chrysler had to present a plan by March 31. This provided a three week window in which to operate. It seemed inevitable that auto stocks would drop before the deadline date, profits would be taken and auto money would go to the sidelines and await an appraisal of the proffered restructuring plans.
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