DAMODARAN: If You Want To Make A Crazy Bet On A Cell-Phone Disaster, Make It Nokia Rather Than RIM

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In a blog post on contrarian investing, valuation expert and NYU professor Aswath Damodaran takes a look at Nokia and RIM as possible risky options.He describes them as “Long Odds Options”, investments where the possibility of going to zero is very real, but where you don’t care that much because the price is so depressed.

Both companies are wildly out of favour, RIM after losing tons of market share, and Nokia because nobody bought the Microsoft phone.

Of the two, Damodaran thinks Nokia’s the better bet. Here’s why:

  • Nokia’s stock price has dropped further over a shorter period, reducing the cost.
  • The large debt load means Nokia could default, but it also leverages any upside. 
  • The turmoil in Europe means Nokia is even riskier than RIM, but that also means a bigger potential payoff. 

Keep in mind that this is a very risky play, and one where the time horizon is more likely measurable in years rather than months. But as Professor Damodaran writes, “…if the stars align, watch out!!!”

Don’t miss: Our series on Professor Damodaran’s three day valuation boot-camp >

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