EK: Kodak Moment

Today it was announced that Eastman Kodak (EK) had filed for bankruptcy. The company vowed to continue business as usual and plans to emerge from bankruptcy after "shrinking significantly". At the close of business today the stock was worth $0.360!

At the end of this post I have a CNBC Fast Money video of an interview conducted tonight with EK investor Greg Abella of the Investment Partners Group. Mr. Abella currently owns close to 200,000 EK shares and more the $1 million in Kodak bonds. He was asked in the interview "Why were you holding the stock until the bitter end?"

The question caught the attention of the Random Stock Walker. When might Mr. Abella have known Kodak was going to collapse and what are the chances he can hold his stocks and bonds until the company comes out of Chapter 11?
To answer these questions, I thought I would estimate an EK model ending in the year 2000 and then play the model forward from 2000, compare the predictions to current data and ask what Mr. Abella might have learned doing a similar exercise. The best EK2000 attractor model was being driven by the world economy which makes some sense since Kodak was a world company. Ending the attractor model in 2000 and then forecasting out of sample (see the graph above) didn't really say anything special except that the EK stock price was declining from the mid 1960's with a lot of chop along the way. In other words, the idea that Kodak missed the digital age is a little off the mark. Kodak missed the entire late 20th century.

For the future, the EK2000 attractor model predicts that there is a 50-50 chance that the EK stock price will begin climbing after 2040 and a 98% chance it will begin climbing before 2060. That will be really a long time for Mr. Abella to wait for his money. Now, if you're still interested, you can listen to his interview below.