A Rude Awakening

After coming back from a final exam, I checked my Dynegy (DYN) stock as I knew they were making a big announcement soon. I saw the big red numbers that read - %10 and immediately went rummaging through the news.

Deciding to keep my investment or run for the hills with what I still have (I actually bought the stock lower than what it fell to, so I am not in a loss as yet) I noticed why it had dropped. Turns out they are paying off debt (good), and the bottom line for yearly earnnings will now take a big hit (bad) because of it.

I evaluated my stance on this position: Longterm investment with a minimum holding period of two years. I have confidence Dyngy will get back on its feet when the initial hit clears. It may take a few years, but this one is for the longterm portfolio.

The lesson learned here is how fast your luck can change. Just 12 days ago I wrote an entry bragging about how well DYN was performing!

Blog posted on: December 8, 2004

2 comments on “A Rude Awakening

  1. bodhi

    neville, what is up with that? I used to be a research analyst. paying off debt would reduce interest charges and therefore increase net earnings. (unless they equity financed to do it – is that what you meant?) also paying off debt is not necessarily “good”. especially these days with the low rates and all. for a growth stock I would want debt out the ying yang – right on the line of being dangerous – get that financial leverage working for ya baby.

    I hope you are a good technical trader because you could know more about fundamental research. Personally I would just toss it in with the individual stock holdings and go with passive investing. Get some index and hedge funds and use the freed-up time to enterpreneur.

    Reply
  2. Neville

    Bodhi,

    A foreword:
    1.) I have never had formal education about any sort of investing. My analysis are based solely on what I have read, experienced or researched.
    2.) Based on your credentials, your opinion > my opinion !

    I understand the power of financial leverage in business, but I admire the company with no debts (something I try to apply to my own life). People can argue to death how great utilizing leverage is, but personally I like being able to walk away at any moment without owing anyone. When it comes to companies, I like ones that manage their debt responsibly. From my own research about the Dynegy situation, it seems they are responsibly handling their debt. While it looks bad on the books now, I think it will pay off in the future.

    About your index/hedge fund comment: I really want to invest in an index fund, and when I open my 2nd brokerage account it will be a priority. Since my stock portfolio is very small-cap (The largest it’s ever been was $12,000 and right now is around $5,000), I have a hard time spreading the money. I started investing to learn about the market, and I used to think it was only stocks. Now that I know more about it, I can start investing in different areas.

    I hope you continue to read this site and offer your expertise. Free financial from a research analyst? I’ll take it :-)

    Reply

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