Chapter 2
The Next 100 Victims Of
The Great Stock Panic
You can use my ratings to identify the companies most likely to crash and burn. And later, when it's time to buy, you can use them to identify the best companies to invest in.
It all started back in 1971, when my Dad and I began issuing our first ratings � exclusively on selected financial institutions.
Today, we are celebrating three decades in business with 180 analysts and support staff. Every quarter, we issue financial safety ratings on the stability of more than 11,000 banks, over 4,000 insurance companies, nearly 500 brokerage firms, and close to 600 HMOs,
Plus, we issue investment risk and performance ratings on over 8,000 mutual funds and 6,000 stocks. Our ratings and information are regularly requested by the press, the US Congress, the Office of Management and Budget, the US General Accounting Office, the Comptroller of the Currency, and various states all over the country. They've been quoted on nearly every TV network and in every newspaper in the US. But it hasn't always been so easy as this short story illustrates ...
How My Ratings Help Investors Avoid Losses
I was only doing my job: Issuing my regular ratings and giving investors a "heads-up" about carefully hidden financial risks at a $12-billion Fortune 500 firm.Within days of my widely publicized warning, a gaggle of the company's lawyers and top executives flew down to my offices in Palm Beach County, Florida. They ranted. They raved. They swore they'd slap me with a massive lawsuit and put me out of business if I didn't give them a better rating.
"All the Wall Street ratings experts give us high grades," they shouted. "Who the hell do you think YOU are?"
I politely explained that I never let personal threats affect my Weiss Ratings. And unlike other rating agencies, I don't accept a dime from the companies or stocks I rate.
"I work for individual investors," I said, "NOT big corporations.
"Besides," I said, opening up the company's most recent quarterly report, "your own financial statements prove your company is a disaster waiting to happen." That's when one of them delivered the ultimate threat:
"Weiss better shut the @!%# up," he whispered to my associate, "or get a bodyguard."
I did neither. To the contrary, I intensified my warnings. And within weeks, the company went belly-up just as I'd warned � still boasting high ratings from S&P; and major Wall Street firms!
It was a grisly sight: The company's stock crashed 99%, crucifying millions of unwitting investors. Then the stock died, wiped off the face of the earth. Three of the company's closest competitors also bit the dust. Unwitting investors � who did NOT have access to my Weiss Ratings � lost $4 billion, $4.5 billion, and $13 billion, respectively.
Fortunately, my subscribers were ready. I warned them long before those household-name companies went bust. Nobody who heeded my warning lost a cent. Not a single, solitary one.
In fact, the contrast between investors who relied on my ratings and those who didn't was so stark, even the US Congress couldn't help but notice. They asked: "How was it possible for Weiss � a small firm in Florida � to identify companies that were about to fail, when Wall Street told us they were still 'superior' or 'excellent' right up to the day they failed?"
To find an answer, Congress called all the rating agencies � S&P;, Moody's, A.M. Best, Duff & Phelps, and Weiss � to testify. But I was the only who showed up. Congress then asked the US General Accounting Office (GAO) to conduct a detailed study on the Weiss ratings.
The GAO's conclusion: Weiss beat its closest competitor by a factor of three to one in forecasting future financial troubles. The other Wall Street firms weren't even competition.
But the GAO never answered the original question � why?
Is it because we have better access to information than our competitors? No. Is it because we're smarter than they are? No.
The real answer lies in one four-letter word: BIAS. The other rating agencies are paid huge fees ranging from $30,000 to $50,000 for each rating, each year � the ratings are literally bought and paid for by the companies they rate. Plus, they empower the rated companies to decide when to be rated, how to be rated, and by whom. They routinely give the companies a preview of the rating before it's published and grant them the right to suppress publication of any rating they don't agree with.
I don't do business that way. I don't accept any money or any deals from the companies I rate. And I always publish their ratings whether they like it or not. In fact, the only income I get from these ratings comes from investors like you � who normally pay $15 for each Weiss Safety Rating they need. That means my only loyalty is to investors � NOT to big corporations.
My strict adherence to this principle is why the GAO found our ratings to be the most accurate, and why Barron's said the GAO's study is "a glowing tribute to Weiss." It's also why Esquire magazine wrote "only Weiss Research provides financial grades free of any possible conflict of interest." Now, I've added a valuable new tool to help you keep your money safely growing:
| 100 Riskiest Stocks in America (based on the Weiss Risk Ratings) | |
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3Dfx Interactive Inc (TDFX)
Aaron Rents Inc (RNT) Actuant Corp (ATU) Adelphia Business Solutions (ABIZ) Adtran Inc (ADTN) Advanced Lighting Techs (ADLT) Advanced Radio Telecom Corp (ARTT) AG Services Of America (ASV) All American Semiconductor (SEMI) Alliance Atla-B (AACB) Amazon.Com Inc (AMZN) Ameristar Casino (ASCA) Andersons Inc/The (ANDE) Arch Wireless Inc (ARCH) Assisted Living (ALF) Audiovox Corp (VOXX) Avaya Inc (AV) Aviation Sales (AVS) Azurix Corp (AZX) Beyond.Com Corporation (BYND) Bombay Co (BBA) Burlington Inds (BUR) Caremark Rx Inc (CMX) Cerner Corp (CERN) Ciber Inc (CBR) Coherent Inc (COHR) Columbia Sportsw (COLM) Corecomm Limited (COMM) CSS Inds Inc (CSS) Del Monte Foods Co (DLM) Echostar Communications (DISH) Edgewater Technology Inc (EDGW) Elbit Systems Ltd (ESLTF) Electric Lightwave Inc (ELIX) Essex Bancorp Inc (ESX) Fedders Corp (FJC) Fibernet Telecom Group Inc (FTGX) Finish Line (FINL) First Albany Companies Inc (FACT) Flir Systems Inc (FLIR) Global Light Telecom Inc (GBT) Global Telesystems Inc (GTS) Hampshire Group (HAMP) Hanover Direct (HNV) Harmonic Inc (HLIT) Healthplan Services Corp (HPS) Human Genome Sciences Inc (HGSI) IDT Corp (IDTC) IMS Health Inc (RX) Information Resources Inc (IRIC) |
Intimate Brands (IBI)
Invitrogen Corp (IVGN) ITC Deltacom Inc (ITCD) Journal Register Co (JRC) JPS Industries (JPST) Komag Inc (KMAG) Liberty Digital Inc (LDIG) Life Financial Corp (LFCO) Mcmoran Exploration Co (MMR) Mediconsult.Com Inc (MCNS) Memc Electronic Materials (WFR) Metrocall Inc (MCLL) Microstrategy Inc (MSTR) Mpower Communications Corp (MPWR) Neon Communications Inc (NOPT) Neuberger Berman Inc (NEU) Northland Cranberries Inc (CBRYA) NTL Incorporated (NLI) Onyx Acceptance Corp (ONYX) Oracle Corporation (ORCL) Orbital Sciences Corp (ORB) Pinnacle Holdings Inc (BIGT) Priceline.com Inc (PCLN) Primus Telecommunications Gp (PRTL) Psinet Inc (PSIX) Rcm Technologies Inc (RCMT) Read-Rite Corp (RDRT) Sierracities.Com Inc (BTOB) Sportsline.com Inc (SPLN) Star Telecommunications Inc (STRX) Telscape International Inc (TSCP) Therma-Wave Inc (TWAV) Thor Industries (THO) Topps Co (TOPP) Toro Co (TTC) Tycom Ltd (TCM) Union Acceptance Corp (UACA) United Shipping & Technology (USHP) Unitedglobalcom Inc (UCOMA) Usinternetworking Inc (USIX) Vector Group Ltd (VGR) Viatel Inc (VYTL) Vlasic Foods International (VL) Waste Systems International (WSII) Weblink Wireless Inc (WLNK) Wesco Financial Corp (WSC) Western Wireless Corp (WWCA) Wilsons Leather (WLSN) Winstar Communications Inc (WCII) Worldwide Xceed Group Inc (XCED) |
The Weiss Risk Ratings For Your Stocks & Mutual Funds
We continually monitor the underlying fundamental strength, historic volatility, and relative value of almost every investment you own: 8,000 top mutual funds and 6,100 stocks, including nearly every stock traded on every major exchange in America.The Weiss Risk Ratings for your stocks and mutual funds tell you which ones are on a solid footing and are least vulnerable to major price declines. And they tell you which stocks and funds you own are on a shaky footing � the most likely to fall dramatically in value when there's trouble from any source � the economy, an industry sector or an outside force no one can control.
For this chapter, I have selected the 100 stocks that have the worst Weiss Risk Ratings. Regardless of how much they may have already fallen, I believe they are the ones most likely to be the greatest victims of the Great Stock Panic.
You've seen how the most glamorous, hottest stocks on the planet quickly died on Wall Street's doorsteps. Hundreds of high-tech companies ran out of cash. Thousands more drowned in a sea of debt.
But I've also shown you that it's not over yet. Employees at these companies are being sent packing in droves. Their stock options are turning into worthless paper. Insiders are selling like there's no tomorrow. And the new threat to America can only make this worse.
Soon, many investors are bound to receive a letter from the bankruptcy receivers with instructions on when and how to line up for the few pennies that may be left in the kitty.
My advice: Look back at the most recent pass and learn some key lessons for the immediate future ...
Lesson #1: Earnings still count! If a company is selling for over 10 or 15 times its earnings, watch out. If it's selling for hundreds of times earnings, one would have to be insane to invest in it. And if it has no earnings to begin with, why are we even talking about the darn thing?
Lesson #2: Always avoid companies that tell you they want to get big fast � no matter what the cost.
Lesson #3: Avoid companies that effectively offer core services for free, or almost for free. Odds are the company will be out of business before it gets the huge slice of market share it's after.
Lesson #4: Avoid companies facing fierce competition. Selling books � whether in a retail store or on the Internet � is a tough, small profit margin business. Ditto for selling electronic products, household goods, and a host of other consumer products.
Lesson #5: If a company has more debt than shareholder equity, it shouldn't even be considered for investment.
Most important: Dump these 100 losers immediately. The accompanying table lists the stocks that have the worst risk ratings in our database of 6,000 stocks. If you own any of them, call your broker and tell him to dump every last share � NOW.
But that's just the first step. Nearly every stock in America today � whether tech nor non-tech, common or preferred � is vulnerable to the Great Stock Panic of 2002.
Will there be some exceptions? Yes. Some select gold shares and maybe a few energy companies. But beyond these, it will be almost impossible to pick out, ahead of time, which stocks will do well in the Great Stock Panic. You will only know after the fact � perhaps years later � when the great stock panic is history.
Does this mean that nearly all companies in America are going down the tubes? No. Many are still great companies with strong earnings, low debt, and great potential for the future.
The problem is that when investors sell in panic, they invariably throw out the baby with the bathwater. They drive down the price of the good companies as well as the bad companies. Don't stand defiantly in their way. Sell now, before the crowd!
By the time you read this, it is quite possible the market will be enjoying a bear market rally. If so, use it as your opportunity to sell almost everything.
If, however, when you are reading this, investors are already selling in panic, then do NOT sell everything all at once. A more prudent exit strategy will be to sell 50% of your holdings immediately. Then, wait for a decent rally of, say, 10% from current levels before selling the balance.
"But I can't sell now," say about half of today's investors. "I can't afford to take the loss."
My response: You already have taken that loss. It's a reality. And in the real world, there's no substantive difference between a "paper" loss and a "realized" loss. They're both reflecting the fact that your stock has gone down. Whether you hold the stock or sell it, you cannot change that history.
That's why the authorities require institutions to mark their portfolio down to the current market. When you're looking at your portfolio, you should always do the same.
"I can't sell now," say the other half of today's investors. "I can't afford to take the profit and pay the taxes."
My response: Uncle Sam is always your silent partner � whether you sell now or later. So always evaluate your stock portfolio net of taxes.
In the final analysis, there is only one question you need to ask: Is the market going up or down? If you think it's going up, it's time to hold or buy. If you think it's going down, you must sell now, whether at a loss or a profit. You can always buy back your favorite investments later.
I think the market is going down; and I'll explain the main reasons in chapters that follow. But first, let me cut straight to the conclusion right here: On average, the Great Stock Panic will wipe out at least 50% of the wealth of American investors. And that's my most conservative estimate.
So my first piece of advice can be summarized in a four-letter word � SELL. Sell your tech stocks, blue chips, utilities. Sell your growth funds, emerging market funds, international funds, index funds, and sector funds. Sell the stocks in your taxable accounts and in your 401(k). Don't stop to evaluate which ones are less or more vulnerable. There's no time for that anymore. Just sell. Get out. Clean house. The only exception: A small allocation to selected gold mining shares. (See the Safe Money Report for details.)
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