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Marvel Enterprises
Re: Stock Advice for Truly Confused

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By jmichaeljaffe
July 30, 2004

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I just realized that in my last post on this thread I began a listing system for the points I wanted to make. Here's number...

2) If I look back on my own investing history, not quite stellar but not too shabby, I recall two stocks that I sold at a loss after doing pre-purchase due diligence
a) Elan (ELN) - I purchased this stock at around $8.50 when it was getting some very nice press from TMF. I checked out the reasoning, which seemed sound. A nice drug pipeline, good cash sheet, seemed undervalued - though slightly shadowed in fiscal management controversy. A few months later, the controversy exploded into scandal, the top officers were replaced, and the stock tanked. Was my original due diligence completely off? No, well, not altogether. True, the company had to endure restructuring, but the revenue streams remained mostly intact, as did the pipeline.

I held on when the stock was selling for under $3 and when, finally, the stock hit the high $6 range, I figured I should sell and take - what seemed to me to be - a relatively small loss. I played the "market", not the "company." I waited a long time for the stock to reach $6 even though I felt it was probably worth more. I caved, thinking, "The market, the market - you just can't fight the market." It is less than a year since my sale and the stock closed yesterday at $20.10, off from its 52-week high of $25.90.

b) Starbucks (SBUX). I bought in at $12 a stub and sold at $24, figuring I'd made a clean double. It's an expensive place to drink coffee - and I was trying to cut back on my own caffeine at the time. I also happen to presently live in a place where Starbuck's has *not* caught on because of the prevalence of local coffee houses. I made the "market" choice of selling, letting the quick double override my original assessment of the company's potential.

What was Starbucks's original draw? You could say good coffee, but that wouldn't be the only factor, or even the main factor. Starbucks's draw was its vision in making the experience of the coffee fun and worthwhile. Starbucks's same store sales attest to this. If you follow their product development efforts, the genius of which I am appreciating more and more after I sold the stock, they are committed to holding on to and increasing their niche position. Yesterday, SBUX closed at $47.53.

Back to Marvel. Marvel, the company, has none of the accounting problems of Elan, and none of the management worries. It does, however, share the "too good to be true" perception that spooks the shorts who only see MVL, the stock. Taking a more realistic backward glance at Elan, there were indeed some signs that Elan was a troubled company. Even so, the swiftness and thoroughness that characterized how the company's board addressed its problems were both admirable and impressive.

At this point, I'm admiring both Starbucks and Elan from the sidelines. I still feel they have good potential, but I would much rather invest in the smaller companies with much larger relative upsides. That's why I'm with Marvel at this point.

3) If I were to sell my stake, I would be down about %17, not too bad. Then I could put my money into another small-cap or mid-cap that seemed undervalued - and then sell again at a "relatively small" loss. Eventually, of course, and not too far in the future, I would lose all my money by balking at the dips. Instead, I went over the points of why I bought into the company and bought some more shares yesterday afternoon.

I am not going to let sentiment blind me on this one. If there are serious signals of stinky stock manipulation or illegal kickback deals, I will bail and then seek out the stock lawyers even if there are no class action suits (though that probably won't be the case - I'm sure that Milberg Weiss already have a dossier on MVL and are ready to pounce if the symptoms surface). But I am not going to sell this stock because of the market herd, nor because of generalized stock trading patterns.

When dealing with potential high-flyers, volatility happens ALL the time. If you can't take the occasional drops, stick with the venerable blue chips or with the index. If the stock trades lower, and there have been no serious developments company-wise, I'll be there to pick up some shares you might sell.


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