This is a short commentary re-post that I wrote a few months ago on Uglystonks community. Enjoy.
I am particularly drawn to "uglystocks" because struggling companies and brands force the execs fat cats into action, pressuring them, most of whom are often pure byproducts of Wall Street universities' farmhouses, into action. The asymmetry therefore helps to clearly delineate pure corporate bureaucrats and careerist climbers from real entrepreneurs trying to work out solutions to salvage and revive their companies.
Overall, the failure rate is higher, but occasionally a strong team of officers revives their companies and sets them on a path to profitability, which is good news for shareholders.
Struggling companies are thus a unique investment niche because they operate as closely as possible to pure capitalist active management, unlike "growth" investing, which is often driven by momentum and popular trends.
A turnaround is impossible without a sound captain on the board trying to steer the ship away from the iceberg. The market tends to overreact negatively, applying an excessive discount premium to these stocks. Buying and holding the better assets while waiting for a re-rating is a uniquely profitable strategy for the patient investor.