Dash to Trash

Dash to trash is what happens when investors flock to a class of securities or other assets, bidding up prices to a point beyond what can be justified by valuation or other fundamental measures.

Dash to trash is an occurrence where a group of investors bid up prices of a group of securities beyond a point that can reasonably be justified by looking at the assets’ financial state or recent history. This process pushes up the price of stocks for lower-value companies.

While the dash-to-trash effect can occur within any type of security, the phrase is typically used to describe low-quality stocks and high-yield bonds, both of which can be subject to periods of overbuying in the markets. 

An example: the Smith Corporation has been losing money for several years, holds few assets of significant value and seems to be hampered by ineffective leadership. The stock has a recent history of trading at $5 per share, but some sudden event has the company in the news and trending, so a bunch of investors rush to invest in the company, and pay $10 per share even though the current book value is just a fraction of that.

As the name graphically implies, investors are buying low-quality assets or assets that do not correctly price in the risks associated with them. The dash to trash often occurs near the end of a prolonged bull market, when investors begin to seek higher returns regardless of the risks involved. The longer it has been since a market downturn, the more likely it becomes that large pockets of investors will feel bulletproof. So the dash to trash phenomenon is often a symptom of investors becoming overconfident, and thus becoming more comfortable with taking bigger risks than they might be during other times when they might tend to be more cautious and risk-averse.

This occurrence often involves a sort of herd mentality, where a mass of investors tends to act as a group and implement a collective movement that drives up the prices of a certain group of securities.

Dash to trash can also happen in an environment where returns are generally low, and investors are so eager to achieve any type of positive returns that they are willing to make higher-risk moves.

In the end, investors who are involved in a dash to trash often will later regret their decision, when in the end they find that they are holding stocks with little or no value.