CGS - I just want to say, things have gotten cheap, no doubt, and even though I think they are going to get cheaper as the truth comes out, I'm not suggesting that you can't make money trading this space. You can. But only as a very short term trader IMO.
My recommendation for those who have lost money would be this. If you want to make some money back, put some trading money into the names that you think are heavily oversold, likely to be legit, and that have a known catalyst. Try to play a bounce. Then sell--b/c I assure you that any bounce in these stocks will quickly be squashed, as we've seen so many times.
With that said, I would also say, keep it small. This is a space for play money, not for IRA money, not for 50% of a portfolio.
We've all heard the horror stories over the past few weeks. People margined into CCME with their entire portfolios, having to contemplate the sale of their homes to cover deficits, and on and on. It's scary.
It's even scarier to think that people used such poor risk management. The rules are there for a reason. No more than 20% in a single asset or correlated asset class. Diversify. If you want to speculate, do a little CGS, but then combine that with a little US blue chip, a little emerging market index fund, a little MLP, a little cash, some US small caps, maybe some high yield corporates, some utilities--that's a reasonable and responsible way to invest money.
But not this "bet the barn" crap, especially when you have no reason whatsoever to be that confident given the plethora of smart, well-researched money that's going against you.
JMO.
Personally, my lesson from this as an investor is that diversifaction is essential. Like everyone, there was a time when I was 100% in this space. Couldn't sleep at night. If I had stayed that way, with those same stocks (such as CCME) that I considered at the time to be the best of breed, my net worth would be about 50% of what it is today. Lesson learned.
Diversification keeps you cool, rational, open-minded, responsive. It protects your hard earned money. And it doesn't cost you that much in terms of lost gains. CGS is not the only asset class that goes up, after all. Look at a stock like FCX. Look at a stock like LGL. Look at a stock like CVX. They all go up in a bull market--a lot.
CGS is not an asset class in which diversification is possible. If the CGS fraud thesis is true, most of the companies are going to be frauds, and more importantly, they will all crater together on guilt by association. That's what's happening right now.
US small caps, in contrast, afford the ability to diversify, b/c they are not all hinging on the same fraud variable. So I think 100% US small cap is even defensible if you have a bunch of companies in that mix and you have a high tolerance for volatility. But not 100% CGS. No way.
If you built a portfolio of 20% CGS, 20% high quality multinational large/mid cap US companies, 20% emerging market companies, 20% US small caps, 20% REITS/MLPs/Dividend stocks, or whatever combination you prefer, you've survived the implosion rather well to this point.
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