When I first started investing I made the repeated mistake of charging into bombed-out stocks on the assumption that because they were cheaper, they were better value.
I thought I was being contrarian, but I was being naive.
I bought BP (LSE: BP) while clean-up workers were still hosing down seabirds and the share price still had a long way to fall.
I made similar mistakes with Barclays (LSE: BARC) (NYSE: BCS.US) and Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US), buying on bad news, only for worse to follow.
All three stocks have taught me one hard lesson: when a companys share price collapses, the aftershocks can rumble on for years.
BP: The Pain Isnt Over Yet
After the Gulfoil spill in April 2010, analysts forecast thatBP faced a shocking $23bn loss.
The figure is now twice that sum, and rising. Some say they could total $90bn, which puts my own lossesin the shade.
Nearly five years later, BPs share price is 441p, one-third lower than the pre-Deepwater peak of 653p. Other factors have played a part, notablythe oil price collapse, but it all started in Mexico.
Barclays: Still Bad?
Barclays share price peaked in February 2007 when the phrase credit crunch was unknown, and investors thought the stock looked fair value at 721p.
Eight years later ittrades at 240p, one-third of its all-time high, as the aftershocks of the financial crisis rumble on and on.
Politicians and regulators have inflicted slow revenge on the banks. Tougher regulation, fraudinvestigations, fine inflation, competition enquiries, mis-selling and bank bonus scandals, all flowed from the original disaster.
As the aftershocks finally die down, its hard to knowhow much of the investment case is still standing.
Tesco: More Shocks To Come?
When Tesco issued its first profit warning in January 2012, the stock traded at 405p. I bought shortly afterwards, only to see the price slide to a low of 170p as more warnings followed
Fluffed global expansion, exiting chief executives, accounting scandals, vanishing customers, the rise of German discounters, all were pre-figured in that first set off shock results.
When disaster strikes, it is usually a sign of something fundamentally wrong with the business, which cant be put right in a matter of months.
If youre tempted to buy Tesco on signs of recovery today, watch out: history suggests they may be more shocks ahead
Troubled companies may still be worth buying if they come with the reward of a juicy dividend.
If you can buy and hold for the long term, you simply reinvest your dividends while you wait for the share price to recover.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.