Just received this, part of an email newsletter I get each week. Sort of applies to YF in a "reverse" way. Interesting nonetheless.|
By the way, for anyone following small caps, I would highly recommend Perspectives. I am not in any way affiliated with them. The weekly emails are free of charge. Send an email to email@example.com to be added to their mailing list. Happy reading......
Perspectives Weekend Edition - July 30
Is the market smarter than the people who run a public company?
A few weeks ago, I bought a position in a "real" company, that is, one that
had revenue and earnings. As always, I bought the stock for no other reason
than I liked what the market activity was telling me. The way it was
trading, I figured the market psychology on this oil service company was
turning and it could head higher.
The next day, by coincidence, a good friend of mine was supposed to meet
with the Chief Operating Officer of this company. So, I asked my friend to
get a synopsis from the COO on what the company was up to, what the outlook
My cocky attitude expected that the report would come back very positive,
with phrases like, "We're turning around and the industry is looking up,
the stock is a great buy", or, "The stock is very cheap at these prices,
there are good things coming." After all, that is what my analysis from the
market was telling me.
My ego was bruised when the report came back much less optimistic.
Basically, the company has been beat up by the weak oil market and is in
rough shape. "We have some projects which could save us, but it is pretty
uncertain right now."
My first reaction was to hit the eject button and move on, taking a small
loss. However, I returned to look at my trusted stock charts, which have so
often proved valuable in assessing opportunities in stocks. The market
activity told me that the stock was more likely to go up than down, so I
played the probability and hung on.
Guess what? The stock has only moved higher since.
So is the market smarter than the people that run the companies? I am not
sure; who can know more than the COO of a company?
However, just as the head honcho of a speculative Internet deal will
undoubtedly gush about his or her deal, I guess emotion can cloud the
vision of a COO who has been struggling to keep his company alive in a
lousy market. Sometimes it is hard to be optimistic when times are tough.
Some times it is hard to be pessimistic when the market is carrying you
along on euphoria.
Or maybe, the market is wrong. However, the market is the market, so it can
never be wrong.
As Gordon Gecko stated in the classic movie, Wall Street, "Don't get
emotional about stocks, it clouds the judgement. And if you need a friend,
get a dog."
I have a dog, do you?