While sitting in the hospital again with my dad after my second procedure, I told him about the basic analysis I did comparing one of Macon’s publicly-traded banks to another local bank, the recently failed Security Bank (now State Bank and Trust). I told my dad things look really bad and that I felt chances were good that Atlantic Southern (ASFN) would fail within a year or two.
My dad asked me if one should short the stock. I replied that it was trading just below $4 and sure, I would short it but I would hedge by going long on the stock of a much stronger bank. My dad didn’t seem to think shorting a $4 stock was worth the effort as there was not much downside left. (click chart)
Well, it’s true. Not much downside is left, but the stock can certainly go to zero. If one is confident of their analysis, shorting the stock of a bank that has numerous non-performing loans and is not adequately capitalized and hedging by going long on stock of a strong bank should still be a good strategy.
As a side note, I think its a travesty the way this bank has let its shareholders down. ASFN has been publicly traded for roughly 3.5 years and its stock has only been heading down the toilet for the majority of that time.
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