STRANDED ASSETS
Next, toss in some serious management missteps, an accounting scandal, or a bigfoot competitor that’s eating everyone’s lunch, and a stock enters the realm of “contrarian.” It’s very cheap, for very good reason... The company might recover, or – like a basketball player who ruptures their Achilles tendon – it might never be the same again. Stocks in Argentina have a Frankenstein-like knack for coming back to life after being repeatedly left for dead. Throw a rock at a stock listed on the country’s stock exchange, and chances are good that it’s experienced at least four 80%-plus collapses over the past two decades and a similar number of triple- digit recoveries. A stranded asset is worthless at best... or (even worse) an ongoing liability for its owner. Just because an asset no longer holds value doesn’t mean that its owner doesn’t still have to pay rent, property tax, security, or upkeep for it. THE LAST STOP Stranded is the last stop... As an asset steadily depreciates in value, it’s passed on – hot- potato-like – to the next guy who thinks that he can turn it around or that it’s on the cusp of rebounding. But eventually, the investor left holding the stranded asset winds up with nothing more than a cold spud. Perhaps the savvy oil lamp shop owner sold his inventory to a discounter – a colonial-style factory closeout – not long after Ben Franklin
found himself flying a kite in a thunderstorm. Somewhere down the line, someone was stuck with a warehouse full of oil lamps (space that perhaps, a few centuries later, was taken up by rotary phones). A stranded asset is worthless at best... or (even worse) an ongoing liability for its owner. Just because an asset no longer holds value doesn’t mean that its owner doesn’t still have to pay rent, property tax, security, or upkeep for it. And over the past year, a lot of assets have degenerated to stranded within a matter of months. As Bloomberg explained in April 2020... Empty restaurants. Shuttered theaters and hotels. Grounded airplanes. At least at the moment, they all fit the definition of stranded assets subject to premature writedowns and operating losses. Everyone is getting a close look at the vast economic and human costs associated with investing in infrastructure that can’t be used, even temporarily. The threat of bankruptcy and restructuring suddenly spans the global economy from offshore drilling to retail. An asset that’s stranded isn’t dead and gone forever... It still exists as a physical entity, and someone – no matter how reluctantly – owns it. A shuttered restaurant or an abandoned hotel may eventually get a second life with a different owner, after bankruptcy proceedings and under a different nameplate. The initial investment made by the next investor is a lot lower than it was for the people who started it the first time around. Buying an asset at a fire-sale price means that it’s that much easier to make back your
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April 2021
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