I've had enough. We've often talked about not paying attention to short-term moves in the market, but I'm taking today off from rational thought. I'm angry -- actively angry -- at the stock market. I know, I shouldn't let it affect me on a personal level, but it's so maddening to watch all my favorite stocks constantly recovering immediately from brief falls. I want them to plummet. And that goes for the stocks in the Rule Breaker Portfolio, too.
That's right: I want our stocks to fall. Far. I want them to fall and keep falling. I'm talking about free fall. I'm a net buyer of stocks, you see, and so is this portfolio, now that we've decided to start adding funds regularly. Last year was a delight, as stocks like eBay (Nasdaq: EBAY) approached attractive prices. Since April, just as things were starting to get interesting, it seems that the stocks I want to buy keep clawing their way back up.
The Rule Breaker and I have 20-plus years of investing in front of us. I want to pay as little as possible for the best companies available, so that I can earn a many times greater return. I'm not saying that they have to be cheap -- we acknowledge that the best young companies will come at a premium price -- they just don't have to be super expensive.
It's not an outrageous suggestion. Back in the day, we bought America Online, now AOL Time Warner (NYSE: AOL), and Amazon.com (Nasdaq: AMZN) both at under $1 billion market cap. eBay, too, was once worth under $1 billion, albeit briefly. These days, even freakin' WebVan, a company that was clearly doomed from the start -- this was one call that I personally got right from day one -- was worth $1 billion as recently as November, when the writing was on the wall for all to see.
And don't think that the fall since then has ended the madness. It hasn't. Just when you think you've got a slide going, along comes some tidbit of news that the entire world latches onto and that drives prices back up. Witness yesterday's rally in shares of Yahoo! (Nasdaq: YHOO) following its latest earnings report. The quarter was awful -- interest gains and a restructuring charge masked operating losses and allowed the company to report $0.01 in earnings, but operating cash flow was negative for the first time in its public history. The advertising market was bad and getting worse, though Yahoo! took solace in its non-dot-com ad gains. There was no gain in premium services, which most analysts have identified as key to Yahoo!'s future.
Now, I'm not going to argue that Yahoo! is worthless. I'm sure that its cash flow will turn black again. It's got $1.7 billion in cash and marketable securities with no debt. It has many fine business elements. It just hasn't been able to monetize the many eyeballs that pass over it daily. It is not realizing significant real option value. Unless something radical happens, it's just not worth $10 billion.
Let's consider the holding that the Rule Breaker and I both own: eBay. I have argued before that eBay is undervalued, and I think that may well prove true. (With auctions for things like a tour of the Grateful Dead's vaults, how can it go wrong?) That is not the same thing, however, as calling it "cheap." It's not cheap. At around 200 times trailing free cash flow, it definitely qualifies as expensive. Yet the market bid it up 11% yesterday like it was the Queen of Hearts ordering Jeff Fischer's beheading.
But I digress. The point is that this bear market isn't doing its job. Everyone's talking about a return to sanity. There's no sanity out there. How are we supposed to feel good about buying companies at these heights? Did the market really think that it was helping us out by toasting a bunch of lame dot-coms and debt-saturated telcos? What a puny plan.
I want to see some values, darn it, and I want 'em soon.
All right, I've cooled down now. I realize that great companies at cheap prices aren't often going to walk up and slap us in the face. We have to work for it. With a little digging, I'm sure we can find some good deals out there even now. Tom Jacobs argued recently that Sprint (NYSE: FON) may represent a decent value. On the Rule Breaker side, would-be cancer vanquisher EntreMed (Nasdaq: ENMD) is trading near three-year lows, and our old friend Millennium Pharmaceuticals (Nasdaq: MLNM) is nearing a 52-week low.
Of course, just because a stock has fallen doesn't mean it's a good value. There may be fundamental problems underlying the drop. I'm looking at an interesting company that has come under fire called Actrade Financial Technologies (Nasdaq: ACRT), which was the Foolish 8 stock featured in the May issue of our research feature, TMF Select. Actrade provides payment methods for business-to-business transactions. On Monday, I'll talk about it at greater length.
Have a great weekend.
[Enthusiasts Wanted: Are you passionate about managing your own money? Are you addicted to the stock market? Do you find yourself scanning the Web for business news and pertinent discussion board posts? The Fool is conducting an online focus group with people who consider themselves "enthusiasts." We'd love to get your input.]
Brian Lund has the cunning of Odysseus, the temper of Achilles, and the physique of Screech. Of the companies mentioned, he owns eBay. For a complete list of his holdings, see his profile. The Motley Fool is investors writing for investors.