Crushingly Negative News Flow Will Make For An Interesting Open
There were two big pieces of news this weekend - the ongoing Hurricane Irma saga in Florida, and the massive Equifax breach that has put at risk the most private personal details of an estimated 143 million people. I was reading through a number of different financial websites this weekend, and I was astonished to see the large number of people who were calling on investors to "take advantage of this opportunity" to buy shares of "oversold" Equifax.
To me, this is completely ludicrous.
To start, I read an article on Bloomberg that said that Equifax likely has roughly $100-$150 million of insurance that would seek to cover them in an event such as this one. Given the potential for a massive class action lawsuit, this seems like just a sliver of what the company could end up paying to settle this mess.
In addition, Congress is going to have a field day with this, likely bringing in executives from Equifax to pay the piper. Congress loves getting their faces out into the media to scold people in times like this, and they will no doubt be summoning top executives from Equifax to stand in the line of fire.
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Shareholders of Equifax need to realize that this story is likely going to get worse for Equifax before it starts to get better.
You really don't know the eventual fallout from all of this - it could take years before the company starts to right itself.
I see people advocating for "dollar cost averaging". Sure, you can buy on the way down, but why not wait until the story starts to crystallize a bit first? Those who bought in on Friday afternoon, for instance, are almost certainly going to wake up to more red on Monday morning. As mentioned, the news flow as entirely negative this weekend, and I would expect that a number of major shareholders will elect to sell and then watch the story unfold.
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This article is really about waiting to jump into a stock with bad news until the story starts to clarify itself.
While I think that Equifax will ultimately survive this situation, there is a non-zero chance that they don't.
Do you want to be dollar cost averaging all the way down?
The stock market is filled with thousands of different companies, all with unique stories and prospects that don't have this situation hanging over their heads.
There might come a time when Equifax is a buy, but now is probably not that time.
Disclaimer: Short EFX and long EFX puts
Filed under: General Knowledge
