A Double-Edged Trade

In the aftermath of Thursday's column on the gut-wrenching ride and wild profit opportunities in foreign banks, I spent some time dwelling on other types of investments with similar risk-to-reward characteristics. These situations are not for everyone, but traders who are more aggressive should definitely consider them. If I was 25 again, these longshot, aggressive, high-risk trades with enormous potential rewards are the only thing I would do with my money. The math of a portfolio of potential asymmetrical payoffs is very compelling, but you have to have a strong stomach and almost inhuman discipline to trade stock with this approach.

One such segment of the market is what I call stub stocks. My definition is a little different from the traditional definition as I included all heavily leveraged companies that have very little equity. I don't care if it was a recap, spinoff or just debt-addicted management that caused the condition. These perform like publicly traded leveraged buyouts. If management is able to grow profits and cash flow, debt are paid down over time and the equity value soars. If your batting average is anything close to .500, you can make a fortune with these stocks....522 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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