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What Perma-Bulls Never Tell You
"Here Lies a Once Thriving Company" -- so say a long row of corporate tombstones.

By Bob Stokes
Wed, 28 Apr 2010 13:30:00 ET

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"No one ever tells you that in the history of this world, far more stocks have eventually gone to zero than have survived to the current day."
-- Robert Prechter, Elliott Wave Theorist, December 2001

The graveyard of failed stocks covers more acreage than you may realize -- certainly more than you hear from market commentators. Bankruptcy is one major reason; broad economic change is another -- for example, transitioning from major agricultural names early in the last century to high-tech names today. The casualty rate for smaller companies is higher, but Bob Prechter's main point remains: No matter the reasons -- no matter the company size -- stocks can go to $0, or sell for pennies.

Well-known examples in very recent history alone prove this. It's amazing to think that the very symbol of American manufacturing for decades, General Motors is no longer a Dow 30 member -- after coming to within a hair's breadth of going out of business. You wouldn't know it by listening to market commentary today, though. It's as if the financial crisis and the GM bailout are distant memories. Comeback stories can be inspiring -- but isn't it surreal to see GM commercials proclaiming, in so many words, they're back and stronger than ever -- as if nothing happened, as if they pulled themselves up "by the bootstraps"?

The point: If General Motors, or Citigroup, or any other "heavyweight" can experience a drastic drop in share price, so can any company, or multiple companies. That's why the main message of Bob Prechter's Conquer the Crash is capital safety and preservation. Here's how Bob commented on that around the time the book was first published:

"Bulls deride [Conquer the Crash] as a 'doom & gloom' book, but the fact is that doom and gloom are the signed, sealed and delivered products of bulls. They have decimated investors who acted on their cavalier assurances."

Bob's safety message served well those who have listened. This quote from the January 2010 issue of EWI's monthly Elliott Wave Financial Forecast explains why:

"The Wall Street Journal reports that in nominal terms, i.e., in U.S. dollars, the past calendar decade sports the worst stock market performance in two centuries of recorded stock-market history. U.S. Treasury bonds in 2009 delivered their worst year on record. For 10 years, holding cash, EWI’s main investment recommendation, has outperformed equities by a wide margin."

Today, the message that "everything is all right again" is permeating financial market discussions.

Don't fall for it.

Though most seem to have forgotten this recent painful lesson, we want to remind you what has, can -- and likely will -- happen to stocks big and small in the immediate future.

Read Bob Prechter's specific timing forecasts in the latest Elliott Wave Theorist online now -- click here for instant-access, risk-free subscription.

Tags: General Motors (GM), Citigroup, Robert Prechter, conquer the crash

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