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Most Downgrades Are Late; the Stock Price Has Already Fallen

Most opinion reductions are “me too,” the fourth or fifth such recommendation on the Street, and all copycats after the dismal outlook has been highly evident for some time. The shares have usually already fallen 25% to 50% or more, and have fully discounted the plethora of bad news. In 2008, such belated, useless downgrades happened over and over with Lehman Brothers, Bear Stearns, AIG, Fannie Mae, GM, and countless other dogs. Almost all downgrades are late and represent the final capitulation. After most of the ratings have been downgraded, it might be a good buying entry point for a patient investor. After most Street analysts are pessimistic, the share price has only one way to go—back up.

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