[[Start here]] → [[What works in stocks?|what works]] → [[diversify for resilience|diversity]] → [[there are six different categories of winning stocks|classifications]] → turnarounds --- ![[Turnarounds.png]] Peter Lynch stated in [[Lynch - One Up On Wall Street|One Up On Wall Street]] that [[there are six different categories of winning stocks]]. Turnarounds are one of them. ## About Turnarounds - Often near Chaper 11 bankruptcy. A poorly managed cyclical can end up in this state. - The occasional major success makes turnaround investing very exciting. The failures are often wiped from memory due to their data getting removed from vendors! > [!quote] Peter Lynch[^1] > The best thing about investing in successful turnarounds is that of all the categories of stocks, their ups and downs are least related to the general market. - Types of turnaround: - "*bail-us-out-or-else*" - where pressure is put on the government. - "*who-would-have-thunk-it*" - e.g. losing and making loads of money in something like a utility! - "*little-problem-we-didn't-anticipate*" - minor tragedy where there's major opportunity (reminds me of ASOS's fire). Best to stay away from "unmeasurable" tragedies. - "*perfectly-good-company-inside-a-bankrupt-company*" e.g. Toys-R-Us was spun out and 57-bagged. - "*restructuring-to-maximise-shareholder-returns*" - where diworseifications are spun off! ## How to deal in Turnarounds - Can it survive a raid by creditors? Check cash and debt - What's likely left for shareholders? - Will it have to print lots of equity? (i.e. company turns around but not the stock) - How will it turn around? What will restructuring look like? - Can it carve out, or write-off masses of the losses in one fell swoop? - Are costs being cut? Is business coming back? ## Typical two-minute monologue > "General Mills has made great progress in curing its diworseification. It's gone from eleven basic businesses to two. By selling off its Eddie Bauer, Talbot's Kenner and Parker Brothers and getting top dollar for these excellent companies, General Mills has returned to doing what it does best: restaurants and packaged foods. The company has been buying back millions of its shares. The seafood subsidiary, Gortons has grown from 7% of the seafood market to 25%. They are coming out with low-cal yogurt, no-cholesterol Bisquick, and microwave brownies. Earnings are up sharply." ## When to sell a turnaround - Sell when it’s turned around and everyone knows about it. Troubles are over. Reclassify the stock! - Other signs may include debt rising again, inventories rising faster than sales, P/E inflated too high, too much being sold to one customer. [^1]: [[Lynch - One Up On Wall Street|One Up On Wall Street]] - Lynch p. 122