Behavioral finance FAQ / Glossary (Fallen stocks)

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Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed/ discussed,
i: incidental

Fallen angel stock

03/9i + see
fad / fashion, image types

Stocks that got burnt in the stratosphere
and shot back down to Earth ...or under


Definition:

A fallen angel stock is a stock that has been highly fashionable (see fad /
fashion) among investors at a time but that is now distressed, with
a largely
depressed. market price.

Some fallen angel stocks have even become "penny stocks", but not all
penny stocks have been angels at a moment of their market career.

We talk here about the fallen angel that still have a market life, with
still some market transactions on a stock excbange.


The up and down


The happy period

Fallen angels had their moment of glory with puffed market prices
(see glamour stocks).

The good time lasted ...until investors discovered that their flashy
prospects and fashionable colors were illusions

(if they had matched those prospects they might have become real
"growth stocks", see that phrase).

The sad period

Upon that discovery, their myth crumble and their price tumble.

Cheap poetry, I confess! About cheap stocks, I can argue.

Since then they have been rolling inexorably downhill, as
miracles rarely happen.

Let us say they occur only in a small percentage of cases, even in
the world of angels.

What are they worth?

Cheap angels, or just dogs?

Some fallen angels might be value stocks (see that term),
but for most others, the recovery probability
is very low
.

Often, no economic value can be calculated.

But as long as bankruptcy doesn't strike those lame stocks, which often stay
in an artificial survival mode, their market prices do not fall to zero.

They are just put away on the backroom of the stock market shop, some of

them even becoming "penny stocks" as said above.

In such cases, a round number, 1 Euro or 1 $ for example, might become
their subjective pivot price ...or just their extreme ceiling price.

Typical collective anchoring / lazy thinking!

Periodic speculations might happen around
that very low price.

They get caught then into the magnetic attraction of
"small caps", often manipulated via "pump and dump"
techniques (see that phrase).

Some consider that they should be priced as options, with a calculation
based on their beta (see that word). Yes, they lye at the bottom, but are
still highly volatile

But here comes the problem to define the "strike price", unless admitting it
might be zero.

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This page last update: 07/09/15  

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