Pick A Stock Any Stock
A reader asked for feedback on a specific stock they had recently chosen and followed buy by asking for a recommendation. Long time readers know we do not make recommendations. We look at stock and provide opinions and hope to provide enough ways and sources for you to make wise decisions. Here is the exchange between us:
Sorry I took a night off of bloggin last night. Don't worry about warrants at this moment. Warrants are like options on steroids. I mentioned them because we do have a few traders who might be interested. We would suggest you get comfortable with how do the RIGHT homework and then when the time is right consider options. Once you know the ups and downs of options then warrants will make sense to you.
Regarding your homework. Give me your address as I'd like to send you a couple of books that might provide a good baseline of knowledge you will need to have any chance of beating the market. Keep in mind that 75% of retail investors do not make money and 60% of money managers do not make money. The odds are against you. I have made more money than I've lost but in most years I struggle to match the market. This year is one of those years.
If I may be a little critical of your explanation it might be helpful. So I will assume you are thick skinned and we want to learn from our mistakes. You will make a lot of mistakes so find out what they are and learn from them. Again we have been doing this since 1986 and we have made thousands of mistakes. You learn from them and move on.
See my comments in CAPS
"Basically I was looking at lots of stocks, and just tried to determine what stock had dropped the most, and was most likely to rebound."
GREAT LOGIC BUT THIS SELDOM WORKS UNLESS YOU AND YOU ALONE KNOW WHY THE STOCK WILL REBOUND. IN GRAHAM AND DODDS BOOK SECURITY ANALYSIS IT IS SUGGESTED YOU ASSUME THAT EVERYTHING KNOWN ABOUT THE STOCK IS KNOWN SO YOU WILL NOT KNOW SOMETHING THAT SOME ELSE KNOWS. NOW YOU MIGHT DO THE HOMEWORK AND SOME ONE ELSE MIGHT NOT.
YOU ALSO NEED TO KNOW THAT 75% OF THE DIRECTION OF AN EQUITY IS DUE STRICTLY TO THE DIRECTION OF THE MARKET AND OR THE SECTOR. YOU KNOW THAT THE MARKET IS IN A CORRECTION AND YOU ALSO KNOW, IF YOU HAVE DONE ANY HOMEWORK THAT THE BANKING SECTOR IS IN THE TOILETTE. WITH THE MARKET IN DECLINE AND THE BANKING AND FINANCE SECTOR STILL DECLINING, UNLESS YOU GET THE SWEET DEAL LIKE BUFFET, IT IS BETTER LEFT ALONE. WE HAVE SPENT THE LAST 8 MONTHS LOOKING FOR DECENT BANKS. THERE ARE NONE AT THE MOMENT BECAUSE THE INDUSTRY IS GOING THROUGH HUGE REGULATION CHANGES AND THERE IS NOT A BANKING CEO ALIVE THAT CAN TELL YOU HOW MUCH IT WILL COST TO RUN THEIR COMPANY FOR THE NEXT 12-18 MONTHS. IF THEY DO, THEY ARE LYING.
"I figured BAC was an undervalued stock because of the layoffs, and hatred towards the Bank of America at this current time. (and of course the whole warren buffet thing kinda helped too.)
I WOULD BE INTERESTED IN KNOWING HOW YOU CAME UP WITH THE FACT THAT BAC WAS UNDERVALUED. TYPICALLY WALL STREET LIKES LAYOFFS. EVERY COMPANY HAS TOO MANY PEOPLE. WE HAVE PROVEN OVER THE LAST 3 YEARS THAT VERY POINT. WE HAVE DOUBLE UNEMPLOYMENT HERE IN THE STATES FROM 5% TO ALMOST 10% AND WE STILL GET OUR BIG MACs IN LESS THAN 4 MINUTES AND THERE ARE STILL PLENTY OF TENNIS SHOES TO CHOOSE FROM. HATING A COMPANY IS AN INTERESTING NEW WAY TO DETERMINE VALUE? INVESTORS HAVE TO GUAGE CONSUMER OR CUSTOMER SENTIMENT TOWARDS A COMPANY, BUT AT THE END OF THE DAY ALL YOU NEED TO CARE ABOUT IS IF THE COMPANY IS MAKING MONEY, WILL IT CONTINUE TO MAKE MONEY AND HOW? WE TALKED ABOUT THE BUFFET DEAL AND THAT DEAL WAS UNIQUE TO HIM AND HIM ALONE AND JUST CLOUDS THE REAL VALUE STATEMENT FOR BAC.
BAC IS CHANGING A LOT OF THE CHAIRS IN THE C SUITE. THIS IS ALWAYS A CAUTIONARY ACTION WHICH INVESTORS NEED TO LOOK AT AS A BAD BAD THING. YOU DON'T MOVE C SUITE PERSONNEL BECAUSE THINGS A RE GOING WELL. WHILE YOU MENTION HATRED, THE THING TO WATCH IS THE NUMBER AND SIZE OF THE MORTGAGE LAWSUITE NOW BEING HURDLED AT BAC. THIS IS VERY BAD NEWS. UNFORTUNATELY IF YOU ARE GOING TO HOLD THIS STOCK, YOU WILL WANT TO DO SOME HOMEWORK ABOUT CAPITAL REQUIREMENTS FOR UNIVERSAL GLOBAL BANKS (BASEL III REQUIRMENTS). WHEN YOU DO YOU WILL SEE THAT BAC IS IN TROUBLE AND WILL BEED MORE ASSETS TO MEET THE BASEL III STRESS TESTS. BECAUSE THEY BOUGHT COUNTRYWIDE THEY HAVE EXPOSURE TO BILLIONS OF UPSIDE DOWN LOANS AND RELATED LITIGATION. ALL OF THIS IS IN PLACE WITH AN EMPLOYMENT SITUATION THAT DOES NOT BODE WELL FOR THE MORTGAGE INDUSTRY AND HOME VALUES. BAC HAS 1.2 TRILLION IN QUESTIONABLE ASSETS THAT MIGHT BE WORTH AS LITTLE AS 400 BILLION.
I figured the stock would be worth 15-25 bucks in 2-3 years (not because of anything intelligent, just that was normally where it was trading)
I JUST LOOKED AT 1,3,AND 5 YEAR CHARTS FOR BAC AND DO NOT SEE MUCH SUPPORT FOR THE 15-25 DOLLAR PRICE RANGE. PERSONALLY WE DON'T LOOK AT THE HISTORICAL PRICE RANGE AS MUCH AS WE DO THE CURRENT PRICE AS COMPARED TO 50, 100, AND 200 DAY AVERAGES. WITH WHAT IS GOING ON IN THE FINANCE SECTORS, THE PENDING LAW SUITS, THE YET UNDETERMINED DEVALUATION OF ASSETS, PRICES PRIOR TO JANUARY 2011 ARE BIT IRRELAVANT. I WILL BET THAT YOUR BULLS EYE VIEW RESEARCH PAGE CAN PROVIDE ANALYSTS REPORTS THAT WILL GIVE YOU A MUCH CLEARER PICTURE OF WHAT I AM DESCRIBING. I WOULD BE VERY SURPRISED ID THEY RATED BAC AS A BUY. ALSO Click HereAND YOU HAVE ALL YOU NEED TO KNOW ABOUT BAC.
I bought the BAC shares at 6.13 a share.
IT CLOSED AT 6.17 A SHARE TODAY. IF YOU READ ALL OF THIS AND CHECK IT ON BULLS EYE YOU COULD GET OUT WITH OUT LOOSING A DIME. IF YOU HELD THIS FOR A YEAR OR 5 YEARS YOU MIGHT SEE THE 15-20 RANGE YOU ARE HOPING FOR. WE DON'T DO MUCH WITH HOPE. WE CAN DO QUITE A BIT WITH HOMEWORK.
To a follow up question we responded with:
In the case of BAC, $6.80 was not the time to sell, because 6.13 was not the time to buy. The stock is really kinda stinky. Do I know the stock won't come up over the next few months? Of course not. It just if you do the homework, there is nothing in the homework to support that hypothesis? Look for a company with a strong balance sheet (No or little long term debt). Look for a company with a decent revenue growth history over the last 3 years. Look for a company with strong free cash flow.
Ok so if you sold the XXX shares of BAC at 6.00 and you have added XXX Dollars to it, you have about $X,XXX.XX to play with. We would not recommend a specific stock, but here is what I will do. You look around you over the next couple days and think about products and services you like or are impressed with. Don't think of it as a stock investment, think of it as what you would like to spend you money on. It might be a new set of boots or a wrist watch or a way to ship product to your members or a restaurant or a brand of cookie at the grocery store or the place where you buy fuel or gas or your local utility company or a grocery store.
Once you got two or three and determine if they are publically traded and we will show you how to do the homework. This is step one in investing. ONLY BUY WHAT YOU KNOW. Try your hardest not to pick a stock because of a headline. Try and base it upon personal experience. As you get good at this you can then see past the headlines and know how the economy, sector, and stock fit into the grand puzzle of this thing we call the market. Until then, park the money in a money market fund for a few days.
At the same time, ask yourself a series of questions like; what kind of annual return do I want to see on this money? How long can I afford to tie up the money? What percentage of a downside can I afford to tolerate? These are all important questions to determine your investment window and risk tolerance.
Salve Lucrum
