A Fool Looks Back

Chinese meltdowns and satellite radio hoedowns played bit parts in this week's Wall Street flick.

Rick Munarriz
Rick Munarriz
Mar 3, 2007 at 12:00AM

Chinatown or China down?
Are you still stinging from this week's sell-off? The crumbling started on Tuesday, as stocks in Shanghai shed nearly 9% of their value. The China syndrome then rippled through Europe before swallowing us down for one of the biggest stateside dips in a long time. As Matt Koppenheffer pointed out, some of the hardest-hit stocks included China Eastern Airline (NYSE:CEA), China Yuchai (NYSE:CYD), and China-based Canadian Solar (NASDAQ:CSIQ).

It probably didn't hurt that blank-check companies by the name of China Healthcare Acquisition and China Opportunity Acquistion were set to go public later in the week.

The market's nasty turn caught a lot of us by surprise. I'll tell you what I was doing just as the Chinese market was getting ready to swoon: I was waxing bullish on its leading online video game player. I had a good reason. NetEase (NASDAQ:NTES) had produced a great quarter. When you can clock in with 59% in net profit margin and have more than 1.3 million people playing your fantasy role-playing game, it's easy to get smitten.

NetEase is the kind of company that growth investors covet. It's got a hot hand. It has room to run, with just a tenth of China presently online. It has blown past Wall Street expectations in 12 of the last 13 quarters.

However, it was not to be on Tuesday. The company had the misfortune of posting a solid report just as its home market was starting to tumble. The stock shed nearly 8% of its value that day. It's a relative victory, but an absolute disaster. However, even if you prefer to buy into companies that are closer to home, there is still a lesson here. Bad trading days happen to good stocks.

"Today, my stock portfolio is worth several thousand dollars less than it was yesterday," Tim Beyers wrote the next morning. "And I couldn't be more thrilled."

He's right. There are no guarantees in this market. Modest dips can become prolonged bear markets. But if you believe that all stocks will eventually gravitate back to what they're worth, why shouldn't you cheer the downpour? If your stocks are made of the right stuff, they'll bounce back. If you've got a little cash waiting in the sidelines, the stocks that you found to be a bargain a day ago will be even cheaper.

The market is risky. You know it. As long as you accept that fact, why not turn that risk into opportunity? Don't back up the truck in the middle of the deluge. But, you know, slap on those galoshes and splash around a little bit. Study up on the fallen equities. Didn't your mother tell you to save up for a rainy day?

Take it from the top, guys
Congressional proceedings were rocking on Wednesday, and it wasn't just because XM Satellite Radio (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI) were defending their right to merge. Actually, it probably was exactly that.

Sirius CEO Mel Karmazin argued that the deal would be in the consumer's best interest and that lower subscription prices would be possible if the companies combined. He would also be open to pricing restrictions. Really? Do XM and Sirius investors really want the deal to pass on those terms?

New plan. Forget the merger: Fight to the death instead. Each company has accumulated a deficit of well more than $3 billion over the years, so it shouldn't be that hard for one to go belly up eventually. Then the victor can get the monopoly that it wanted all along, without having to issue new shares or get hogtied to silly concessions.

Still want the merger to go through, you say? OK, check out Thursday's Dueling Fools segment that explored both sides of the combination. Rock on, but don't dismiss the blues.

Until next week, I remain,

Rick Munarriz

NetEase is a Rule Breakers newsletter pick. XM was a former recommendation in the same newsletter.

Longtime Fool contributor Rick Munarriz recommends windshield wiper fluid when trying to look back. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.