Why I no longer like the Motley Fool
After reading this article
http://www.fool.com/news/commentary/2006/commentary06032315.htm?source=eptyholnk303100&logvisit=y&npu=y
I recalled why I no longer pay attention to the Fool.
The Fool starts like a carnival barker. Look at this, the Amazing Amazon! Stupendous Starbucks! Delightful Dell.
That's right folks, it isn't like hitting the lottery, anyone can find a wonderful investment and ride it to riches.
Yeah, well, maybe. But not if you actually follow the advice of Motley Fool's picks. But they tease you in with their lures of how they have been able to pick winners.
Except they haven't. I actually find the Fool to be playing on your short term memory.
1. They pick more dogs than winners - A cursory review of the past few years' picks shows a few winners and a lot of losers
2. They never own up to the dogs. They'll never say - this stock was a mistake. Instead, they tell you to stick with it - be a long term investor. But that stock mysteriously vanishes from their picks
3. They misrepresent performance. Sure they have a few stocks that they rode hard to money, like Amazon and Ebay. But they continue to brag about these same companies even after those companies have showed poor performance for 2 years! they like to ride a bit to hard on the past, and very little on recent history.
I would lik eto take a ten year review of their top picks and then see how those companies have actually performed.
I look to the Fool as a stockpicking source, one of many. Because I do believe that they have a lot of solid talent. They don't offer active investment advice, so it's really a stockpicking resource.
Their stock picks are very hit-or-miss. They pumped up XM radio and Sirius - two obvious money bleeding, over-hyped dogs that have fallen ~50% in value. They have winners too, like MIDD and ISRG.
Sometimes I like what they say, sometimes I don't (MIDD seemed a bit wierd to me, and I missed a nice climber).
When I read an article like the one I attached, that's when I start to have deeper questions.
The article is looking at a rival's stock picks (many of those same stocks are ones I too have been following). The article says
1. Don't focus on earnings - earnings can be baked
2. Be wary of climbing stocks - they may be ready to retreat
3. The Fool gives better, more well-rounded advice
I absolutely start with earnings. I go in many different directions to understand the nature o fthe earnings and I look at the trends, but the market bases the price off earnings and I base my interest in a company off of its earnings strength.
If you don't focus on earnings, what do you focus on?
As for not investing in climbing stocks, they flat out contradict themselves. And it's actually one of the dumber things I've ever seen. That's exactly what you want to do - buy a stock that is climbing. Sure, there may be near term price movements (NTRI is one of our classic examples), but a climber is a climber.
The alternative is to buy a stock that is either flat or falling. That's a major gamble that you know something the market doesn't. That is, that the market is pounding a stock for the wrong reasons or that the market is missing the boat. That may be true (I pointed out that the market had missed the AKAM opportunity). But that is much more rarely the case. The fact is that it is extreme hubris and incredible greed to play the value game - it is true lottery investing.
I always look at market sentiment. Based on the mantra of not buying in a climbing stock, nobody would have bought in Ebay, Amazon, Dell, or Starbucks over the 10 years that they were climbing. When I bought Hansen last year at a split adjusted 16 (it's now at 115), Hansen had already been soaring. At any point in time, buying Hansen over the past 15~24 months meant buying a climbing stock.
It's sloppy thinking.
http://www.fool.com/news/commentary/2006/commentary06032315.htm?source=eptyholnk303100&logvisit=y&npu=y
I recalled why I no longer pay attention to the Fool.
The Fool starts like a carnival barker. Look at this, the Amazing Amazon! Stupendous Starbucks! Delightful Dell.
That's right folks, it isn't like hitting the lottery, anyone can find a wonderful investment and ride it to riches.
Yeah, well, maybe. But not if you actually follow the advice of Motley Fool's picks. But they tease you in with their lures of how they have been able to pick winners.
Except they haven't. I actually find the Fool to be playing on your short term memory.
1. They pick more dogs than winners - A cursory review of the past few years' picks shows a few winners and a lot of losers
2. They never own up to the dogs. They'll never say - this stock was a mistake. Instead, they tell you to stick with it - be a long term investor. But that stock mysteriously vanishes from their picks
3. They misrepresent performance. Sure they have a few stocks that they rode hard to money, like Amazon and Ebay. But they continue to brag about these same companies even after those companies have showed poor performance for 2 years! they like to ride a bit to hard on the past, and very little on recent history.
I would lik eto take a ten year review of their top picks and then see how those companies have actually performed.
I look to the Fool as a stockpicking source, one of many. Because I do believe that they have a lot of solid talent. They don't offer active investment advice, so it's really a stockpicking resource.
Their stock picks are very hit-or-miss. They pumped up XM radio and Sirius - two obvious money bleeding, over-hyped dogs that have fallen ~50% in value. They have winners too, like MIDD and ISRG.
Sometimes I like what they say, sometimes I don't (MIDD seemed a bit wierd to me, and I missed a nice climber).
When I read an article like the one I attached, that's when I start to have deeper questions.
The article is looking at a rival's stock picks (many of those same stocks are ones I too have been following). The article says
1. Don't focus on earnings - earnings can be baked
2. Be wary of climbing stocks - they may be ready to retreat
3. The Fool gives better, more well-rounded advice
I absolutely start with earnings. I go in many different directions to understand the nature o fthe earnings and I look at the trends, but the market bases the price off earnings and I base my interest in a company off of its earnings strength.
If you don't focus on earnings, what do you focus on?
As for not investing in climbing stocks, they flat out contradict themselves. And it's actually one of the dumber things I've ever seen. That's exactly what you want to do - buy a stock that is climbing. Sure, there may be near term price movements (NTRI is one of our classic examples), but a climber is a climber.
The alternative is to buy a stock that is either flat or falling. That's a major gamble that you know something the market doesn't. That is, that the market is pounding a stock for the wrong reasons or that the market is missing the boat. That may be true (I pointed out that the market had missed the AKAM opportunity). But that is much more rarely the case. The fact is that it is extreme hubris and incredible greed to play the value game - it is true lottery investing.
I always look at market sentiment. Based on the mantra of not buying in a climbing stock, nobody would have bought in Ebay, Amazon, Dell, or Starbucks over the 10 years that they were climbing. When I bought Hansen last year at a split adjusted 16 (it's now at 115), Hansen had already been soaring. At any point in time, buying Hansen over the past 15~24 months meant buying a climbing stock.
It's sloppy thinking.
posted by Andrew at
10:01 AM
2 Comments:
Am a novice trader. But how does the strategy of shorting after a peak (due to good results) sound to you? Obviously you have to analyze if the market is just over-hyped about the results. Take SHFL for example, a good short candidate at 33?
This is a great and timely question. Refer back to something I've said in the past - that the spectrum of putting money in the market runs from being an investor to being a trader.
Traders like to get in and out of stocks to maximize returns. If you plan on being an active trader, then you want to look for the peaks and valleys. That is, you choose a stock that has great future potential but swings around a lot.
Technical systems look for these points where a market appears over bought or oversold (stochastics, volume trades, MACD, etc).
A variation on selling the stock to lock in gains is to the put. If you are going to do this, I advise you to consider the potential volatility and watch the time.
* Volatility - After hitting peaks, MRVL did a slow 20% skid while TIE dropped 10% and then rebounded to a new 52 week high - in 2 weeks.
The put will cost 2%+ depending on the expiration date (assuming that the strike price is about the same as the current price). A MRVL put for May is 6% - because it is very volatile.
Is the risk worth a ~4% gain (assuming a 10% drop and 6% cost basis)? In MRVL's case, it would have been 14%, so yes.
* Time - Time not only in terms of option date, but also in terms of when you pull the trigger. There was a 3 day window ~3 weeks ago when TIE would have been below their market high AND you could have generated ~4% net return. But you had to watch and be ready.
My experience is that these windows happen and are typically brief. You aren't talking about betting on a longer term trend (like housing going down), you are betting that the stock will ease. I think you can pick up a few extra points, but I also think that for every stock that retreats deeper (MRVL), there are stocks that barely retreat 5%.
If you are going to do this - don't be greedy. Pick up your 4% or so and be thankful. You will probably lock in more than you would waiting for that occasional bigger drop.
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