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Poor Richard's Financial Strategies

VW Evaluation and Reasoning

VW:     initials evaluation - September 26, 2015 - No holdings, No current plans to obtain holdings
Opinion: Clear case of a falling Knife

    As a value investor, I am always looking for a bargain when big news hits.  Well, the Volks Wagon Emmisions cheating scandal is definitely big news.  Some might be tempted to grab the stock cheap hoping that when this all blows over - guilty parties have been fired (maybe even jailed), the fines have been payed, the customer trust is being re-establshed, and the lawsuits become just another managed cost of doing business - the company will again be pumping out the clean and cool cars that the yuppies love and are willing to pay a premium for.  Don't be so sure.  While the company managed to develop a cleaner buring deisal engine, the cost of a cleaner engine appears to be less fuel efficiency and performance.  So there is a balance, you can either have clean, or you can have efficient and fun.  VW managed a marvel of engineering in which they claimed that the emmisions improvements had a minimal fuel efficiency and perfomance downside.  That was a truly valuable addition to the product for which they were able to charge a premium for years.  Well, now that it has come to light that what they had really engineered was a scam, even with all other effects ignored, the profit margins will be impacted as VW is forced to comply with emmissions standards.  A deisal engine with crappy fuel efficeincy and less than impressive performance is not quite the miracle that yuppies fell in love with.  Exactly how much this be hurt by compliance I don't know, but I am betting it is significant for the company to have perpetrated such a large and risky scam.  Don't catch this falling knife.