Charles Schwab Stock Selling for Less Than Cash the Company Holds

Who knows if we've hit a bottom, but here's an interesting fact. According to the WSJ, nearly one in 10, or 876 stocks, trade below the value of their per-share holdings of cash.

Who knows if we've hit a bottom, but here's an interesting fact.  According to the WSJ, nearly one in 10, or 876 stocks, trade below the value of their per-share holdings of cash.  Charles Schwab, which has $27.8 billion in cash on hand is trading at $21 billion.  Of course, we don't know what any of these companies liabilities are, but this discount to cash on hand was a common phenomena in the Great Depression.

The Journal article goes on to say that:

In the Great Depression "More than one out of every 12 companies on the New York Stock Exchange, Graham calculated, were selling for less than the value of the cash and marketable securities on their balance sheets. "Banks no longer lend directly to big corporations," he reported, but operating companies were still flush with cash -- many of them so flush that a wealthy investor could theoretically take over, empty out the cash registers and the bank accounts, and own the remaining business for free."

So are stocks done dropping?  My guess is we have more to go.  We need one last really big drop to get everyone to throw in the towel.  The media are full of reports of people waiting for a bottom.  To me, that means we're not near the bottom yet. 

The other thing to keep in mind is that while the market will eventually bounce back, it took over ten years for the Dow to reach its pre-Depression high.  And most recently, the Nasdaq which at one point in 2000 traded as high as 5,000, is now eight years later at 1,649.  Your broker may tell you to buy and hold, but that's an awful lot of holding.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • Jimbo

    October 12, 2008

    This has happened at other times. In 2001, during the tech bubble, many companies traded below cash on hand. In 1998, I believe that Apple even traded below cash on hand. And, biotech companies frequently trade below cash on hand. It is common perception that this means that the company is expected to be value destructive, but that fails to realize that shareholders really cannot just empty the registers easily without real tax consequences.

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