You can't make lemonade from a lemon stock

Posted: February 05, 2013

WHEN I WAS a 1952 engineering grad, I was dealing with an Omaha developer. I just had to have a newly restyled 1953 Studebaker car then, and he thought the new model would turn the ailing company around. (He figured, "How much below $7 could the stock drop?") I bought the car and he bought the stock. Over the next few years, I watched his $7,000 investment shrink as he watched me try to get my lemon auto fixed. I had a loser auto, he had a loser stock.

- J.P.G., Santa Rosa, Calif.

THE FOOL RESPONDS: Companies with good products can still struggle and sometimes lose. And those with bad products can hang on for a while. Ideally, seek companies with great products, strong competitive positions and positive growth trends. Never think a stock can't go lower - the company can always go out of business or file for bankruptcy protection, wiping out shareholders.

In the early 1950s, Studebaker was struggling with high costs, quality problems and price wars between Ford and General Motors. It ended up merging with Packard, but struggles continued.

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