Paul, Massive over-capacity doesn't exist with just the retailers or the bankers. The same is true of old-line industries like steel. So whether it's Penney's stock and/or bonds, or those of US Steel, the due-diligence problems for a would-be investor are the same. He/she can play a guessing game (using DCF or whatever) and try to pick winners/survivors and then bet on only them, or he/she can take an agnostic approach and focus on minimizing the consequences of his/her inevitable mis-guesses and mistakes.In the former approach, if one guesses and bets correctly, lots of money gets made. But if one guesses wrong, the losses could get one thrown out of the game, or at the very least, result in an under-performance of the broad-market averages (which is the fate of most investors, professional or otherwise). In the latter approach, not as much money is made as could be obtained under a more focused betting scheme. But, also, not as much money gets lost. So being wrong --even repeatedly-- will never severely impact the account. As a trader's proverb asks, Do you want to eat well, or to sleep well? Most investors pursue the former and --as the Dalbar 20-year studies of investor behavior document -- achieve neither, because they focus first on the upsides rather than the downsides. E.g., what's the current rating on Penney's bonds? Triple-CCC or something close. In other words, it's a piece of trash company with a 1 in 4 to 1 in 3 chance of blowing up, and nothing one should be betting heavily on. Some exposure? Yes, for sure. But how much? --and at what price?-- are the key questions that financial statement analysis can't answer, because the investing game isn't won by being right about those kinds of numbers, but by not being so wrong about the size and nature of one's bets that survivability is impaired. There is no material difference between 'investing' and 'gambling'. In both cases, bets are being made about unpredictable events. But there's a lot of a stupid ways to go about making those bets, such as failing to establish whether one has an 'edge' in the game (i.e., a positive expectancy, on average an over the long haul), and then failing to size one's bets appropriately, so that one can be there for that "long haul". Charlie
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