What is Dash to Trash?
A dash to trash occurs when investors bid up the price of a security to a point well above the security's reasonable value.
How Does Dash to Trash Work?
For example, let's assume that Company XYZ is a restaurant company that hasn't shown a profit in 10 years, has a weak management team and has little working capital. The stock has historically traded at $2 a share, but recently a famous celebrity announced that he bought a significant position in the company. Suddenly, investors flock to the stock, which drives the price up to $12 a share, even though the book value of the company is only $1.50 a share.
Why Does Dash to Trash Matter?
A dash to trash can happen for many reasons. Often, the 'right' conditions for this to happen often involve market returns that are so low that investors are willing to invest in securities that are very risky just to increase their potential returns. Prolonged high returns in a bull market can often dull investors' sense of risk, which can also spark a dash to trash.
Unfortunately, investors who participate in a dash to trash often end up holding worthless securities, though the massive rush to acquire the security makes it feel as if the investor is doing the right thing.
