Post of the Day
March 05, 1998
From our AOL
Subject:Re: tmbs, rcmt, tsri
"how come you folks dont post on the boards that the stocks are listed under?"I suppose it has something to do with the regular followings found on most message boards of the Motley Fool--including this one, I suppose. The main problem with most of the boards is their total, almost fanatic belief that they are correct and the market is wrong. If the stock is doing well, they tell each other what a great company they have and how it will triple in the next month, blah, blah, blah. This doesn't really harm anyone--it just raises a lot of expectations that are almost never met.
The real danger in the individual message boards is when the stock begins to fall--herd mentality at its finest. At first the members tell each other how it is just a small correction. "The rocket ship will soon be blasting upward, just wait." After a significant one-day loss, the tone gets even more emphatic. "How can the market actually be punishing this company--don't they know its worth twice this much?" Around this time, people start the "I doubled my position today, what a bargin" posts. You can bet you'll find a number of posts blaming (take your pick) a) the analysts that follow the company, b) the market-makers, and of course c) the shorts for the recent stock performance. Also, one of the leaders of the board will call the company and post a detailed transcript of the conversation where the CEO states that nothing is fundamentally wrong with the company, so on, and so forth. This usually brings on another wave of buying by the regular members of the message board, as they finally burn up their remaining funds, or even worse, go on margin--throwing good money after bad on a losing proposition.
By this time, all rationality is gone (along with a good bit of money) and despair begins to set in. However, their pride won't let them admit the mistake they've made, cut their losses, and start looking for a better company to invest in. "Well, I don't actually lose any money if I don't sell so I'll just wait for the price to recover." By the way, Heaven help any non-regular member who drops by and states the obvious--this stock/company sucks--and recommends people get out before any more damage is done. I've watched people lash-out at RT, Edge, TraceBV, and others after posting logical and rational reasons why it might be time to begin looking to for another stock. It happens again and again--ATCT, ASND, RMBS, BRE-X, CYMI, APM, GNT, AOL, MU, CUBE, SLOT, COMS, AMGN, OXHP, ORCL, KLAC...
I probably speak for at least a few of us here when I say I'd buy a company that makes plastic dog crap--as long as the stock behaves and moves up. When things change and the stock begins acting badly I'll take my profits and move on to the next company. If for some reason the stock begins to fall apart immediately after I buy, I admit the mistake, sell, and take the loss before it gets out of hand. There are thousands of other stocks, no reason to fight the market and ride a looser all the way down. In this game, emotion kills. So to actually answer your question about posting on the individual boards--why bother? Most of us here will "git while the gitten's good" and move on and this isn't what the average board reader wants to hear. No point arguing with them, they usually don't listen anyway.
Subject: Re: Anatomy of a Stock Chatboard!
Maule thank you. The message was enlightening and it does bring to light some of what we all have seen in investments in equities and message boards. On the other hand considering the market is basically a zero sum world with continuing conflict between Bull and Bear, the conflict on the message board may be expected. I mean the people who buy the stock from people who sell them feel, at the time, its worth risking their liquidity and stability for potential growth, while people who sell the stock figure the time may be worth sacrificing future growth to obtain liquidity once more. To every buyer is a seller and each has their own views.
In addition, one may use logical deduction to determine stocks (either in FA or TA) but the bottom line is, the market may be statistical but it is not always logical. The market is influenced by too many variables to make a really stable single formula for determining the future. It seems to go up and down as often as the weather and we all know how well people are at predicting weather. This is best seen by the infinite number of formulas there are to picking a winning stock. There is the value play vs growth play, there is the turnaround vs blue chip play, there is contrarian investing vs momentum investing, there is bottom fishing, dow dividend theory, fool ratio, CAN SLIM, cup and handle, double bottom, ascending and descending flags, Japanese candlestick, insider trading method, the dartboard method, even the "just do what your broker says" theory (he's a pro, he must know more than me).
Beyond this, there is the stock vs bonds, interest rates, what Alan Greenspan had for breakfast, who won the Superbowl, is Clinton guilty or not, what is Vinik doing today, the Magic 25 (or Tragic 25), the "what does my astrologer say" method (he's a pro, he must know more than me) method.
In addition, to get information to implement the various theories one can look at the trailing PE, the estimated future PE, the PEG using past 5 years growth, the PEG using last one year growth, the PEG using future analysts estimated growth, the PSR using past 5, 3, 1 years, the PSR using expected future sales, the debt over equity, the return on equity, the beta value, the comparison of past PE's to present PE (NAIC method), the cash reserves, the profit margin, the cash flow, the analysts estimates, the overall feel of the industry, the future products (often speculative), the moving averages, the seasonality of stocks (ie January effect), the derivative of the stock price (did it have a recent stock surge), the press releases, the amount of dilution of a company, the insider trading info (did Farrell sell today?), the taste of your coffee in the morning, whether or not Haines margined his account again, etc etc...
As people say, with enough variables you can make a future stock curve look like an elephant. With all the information above, it is no wonder that there are several opinions as to the future expectations of any stock. People do this with other statistic subject (who will win the next Superbowl, the Stanley Cup, the Kentucky derby, the Gulf War, the Academy Awards, the weather, future business deals, home estate planning, diet fads, fashion statements, etc). I think in any area where the outcome is not assured, people need to debate to obtain self assurance. When personal wealth comes into situation, the importance is amplified. That is why, I like this message board. It maybe a chaotic mix of reasoning, but it sure does give the many views that people have regarding the future of this stock.
Subject: Re: Anatomy of a Stock Chatboard!
"The main problem with most of the boards is their total, almost fanatic belief that they are correct and the market is wrong."Sorry, Bill, count me as unbowed. I'll be the first to admit when I've made a mistake and jump out as quickly as I am able (EGHT, CSDS) and happy to sell when I think the stock is fully valued (IGT). However, I hold firm when I think the market is wrong and I am right. A lot of people lost a lot of money in SLOT, by just not being patient enough, long enough, IMO. No criticism intended, because it takes sellers and buyers to make a market, but frequently it takes enormous courage to stand firm on a matter one believes to be correct, particularly in the face of intense criticism (Haines and Brigam come to mind).
To paraphrase Ben Franklin, when one chooses a contrarian position it is always fanaticism and arrogance in the third person (their fanaticism; their arrogance), but courage and opportunity in the first. Even more interestingly, in retrospect, such calls are "forgotten" as everyone moves forward. Having said that, even though I don't think $72 is sufficiently high to tout Brigam's courage in continually reminding us of the fundamentals during the recent "opportunity", I applaud him and his apparently correct call.