Just noticed that the most insightful business columinst David Olive has a good column that gives some space to Loblaw's and its attempt at a turnaround. Loblaw's right now is what some people have referred to as a "value trap" -- it looks cheap, and unloved, but it may very well deserve its current fate with the way it's been run lately. Will they be able to get the ship sailing true again? I like how Olive has a long memory; I don't think I've seen another analysis of Loblaw's refer to the Sayvette outlets -- in fact, I've never even heard of them.
On a side note, I once worked at a company that did some contract web development work for Loblaw's and some of the other employee's used to gossip a fair bit about Galen Weston Jr. It's hard for me to shake that image of Weston as the kind of rich kid that supports the adage about the first generation making the money, the second generation maintaining it and the third losing it. Good luck, Loblaw's shareholders -- there may come a time I may join you, but that time is not now.
Friday, January 05, 2007
Gold, germs (biotech) and steel
Watching the TSX in freefall, mostly due to a small collapse of gold and metal stocks, reminds me how arbitrary value is. Although I have no idea whether this downturn is significant in the long-term or if it's a temporary blip that will allow goldbugs and metal maniacs to get in "cheap", it strikes me as interesting how tied to the calendar this is. As soon as everyone returns from holidays, people return with conviction -- last year for the TSX it was with a set of strong up days. Considering how extended the metals cycle has gone, it's quite possible that the new year has given people a definitive deadline to realize the gains that have been made and perhaps avoid any slowdown.
On my side, I've been watching the Canadian steel producers (I know, not metals, but sort of related). I like buyout targets and considering the consolidation that has been happening (Dofasco's long wait to find out who its father is, Arcelor or Mittal Steel; Nucor buying Harris Steel) it's within the realm of possibility. But as others point out, it's likely some of that "takeover premium" has been priced in, as people like me buy in with that possibility in mind. It's interesting to think how much of the investor's lot is tied to waiting for other people to come around to his or her way of thinking, and how explicitly that is tied to psychology. Value investors like to say that people are "discovering the true value of a stock" or somesuch, but I could conversely say that people are increasing their assessment of a stock's value due to characteristics of security, dependability, trustworthiness (at least in the case of value investing -- not so much the case with investing for growth, but valuation does take many forms).
In any case, I'll be staying out of the gold and metals game for the time being. I dabbled in it before, and its volatility and speculative style (especially in gold) ruined me in small part, somewhat like the foray into Liponex. If there's one thing that an investor should always learn, it's when to sell. Metals, however, did me well enough in the form of Falconbridge, and that's strictly due to the consolidation and bidding war that broke out for it. As an industry, it's a bit questionable whether the next year of earnings is really going to be able to match those of the past year or so.
On my side, I've been watching the Canadian steel producers (I know, not metals, but sort of related). I like buyout targets and considering the consolidation that has been happening (Dofasco's long wait to find out who its father is, Arcelor or Mittal Steel; Nucor buying Harris Steel) it's within the realm of possibility. But as others point out, it's likely some of that "takeover premium" has been priced in, as people like me buy in with that possibility in mind. It's interesting to think how much of the investor's lot is tied to waiting for other people to come around to his or her way of thinking, and how explicitly that is tied to psychology. Value investors like to say that people are "discovering the true value of a stock" or somesuch, but I could conversely say that people are increasing their assessment of a stock's value due to characteristics of security, dependability, trustworthiness (at least in the case of value investing -- not so much the case with investing for growth, but valuation does take many forms).
In any case, I'll be staying out of the gold and metals game for the time being. I dabbled in it before, and its volatility and speculative style (especially in gold) ruined me in small part, somewhat like the foray into Liponex. If there's one thing that an investor should always learn, it's when to sell. Metals, however, did me well enough in the form of Falconbridge, and that's strictly due to the consolidation and bidding war that broke out for it. As an industry, it's a bit questionable whether the next year of earnings is really going to be able to match those of the past year or so.
Thursday, January 04, 2007
Story Stocks
I recently had a chance to discover first-hand the perils of what I like to call "story stocks". These are the types of stocks that are supported strictly by rumour, marketing and conspicuously well-timed press releases and feature newspaper articles. Usually, I avoid these stocks, as I tend to be somewhat of a value investor, in an informal sense, although I have been known to speculate with more moderate amounts. The one thing I always forget, however, is to get off the medium to long-term horizon and put on the short-term googles.
The case in point: Liponex (LPX.TO), a company with a single drug in Phase I/II testing trials. Their drug increases HDL, High Density Lipoprotein, or what is commonly called "good cholesterol", and is now moreso a contender due to the demise of Pfizer's torcetrapib HDL-raising drug, which showed an increased rate of mortality in test subjects. On the weekend, there was a glowing article in the Globe & Mail which summarized all this, and somewhat interested in these smaller stocks as pseudo-options, due to their low price (this had closed on the Friday at 1.54). On the Tuesday following, when the markets had re-opened after the New Year's, the stock climbed precipitously, in the 60%-70% range. The volume, normally in the low 5 digits, reached over a million shares traded. I managed to get in at the low end of the day and watched as my investment grew over the day and part of the next to achieve a 50% gain. Perhaps stupidly, I felt pleased, as if somehow I had been cleverer than most. Taleb would probably laugh in my face, if I were to purport it was skill.
Of course, you know where the story ends. After the market closed on Wednesday, the stock already drifting perilously close to my buy-in price, Liponex released news that there had been some "gastrointestinal adverse effects" in their trials when people on higher dosages took the drug, causing the drop-out rate of patients to be too high to continue the study at that dosage. This obviously wasn't great news, but was it enough to push it back to the starting line? I threw a stop limit order on it, wondering if it would get pushed to my price (a loss of 10% on the purchase if it filled), and went to sleep. Woke up, and I was out of the position, at a price higher than the actual trading range for the day (probably filled someone's market order).
What I learned, and should have known, is that if I get into a story stock, and I make gains, I have to get out before the story fades. I assumed that somehow I knew better about this speculation, that I was buying in because I figured this story was true. The fact is, I have almost no knowledge of how the trials are progressing. I don't know anything about their competitors. I don't know the efficacy of the drug, which could impact its appeal to the larger drug distributors that would buy or license it. I fell for the story, a victim of a pseudo pump-and-dump that probably let a few investors get out with some nice gains and left me holding the bag. So, if you want to invest in a story stock, with no revenues and negative earnings, go ahead, but be very aware that it's floating on a single thread -- the tale that's told.
The case in point: Liponex (LPX.TO), a company with a single drug in Phase I/II testing trials. Their drug increases HDL, High Density Lipoprotein, or what is commonly called "good cholesterol", and is now moreso a contender due to the demise of Pfizer's torcetrapib HDL-raising drug, which showed an increased rate of mortality in test subjects. On the weekend, there was a glowing article in the Globe & Mail which summarized all this, and somewhat interested in these smaller stocks as pseudo-options, due to their low price (this had closed on the Friday at 1.54). On the Tuesday following, when the markets had re-opened after the New Year's, the stock climbed precipitously, in the 60%-70% range. The volume, normally in the low 5 digits, reached over a million shares traded. I managed to get in at the low end of the day and watched as my investment grew over the day and part of the next to achieve a 50% gain. Perhaps stupidly, I felt pleased, as if somehow I had been cleverer than most. Taleb would probably laugh in my face, if I were to purport it was skill.
Of course, you know where the story ends. After the market closed on Wednesday, the stock already drifting perilously close to my buy-in price, Liponex released news that there had been some "gastrointestinal adverse effects" in their trials when people on higher dosages took the drug, causing the drop-out rate of patients to be too high to continue the study at that dosage. This obviously wasn't great news, but was it enough to push it back to the starting line? I threw a stop limit order on it, wondering if it would get pushed to my price (a loss of 10% on the purchase if it filled), and went to sleep. Woke up, and I was out of the position, at a price higher than the actual trading range for the day (probably filled someone's market order).
What I learned, and should have known, is that if I get into a story stock, and I make gains, I have to get out before the story fades. I assumed that somehow I knew better about this speculation, that I was buying in because I figured this story was true. The fact is, I have almost no knowledge of how the trials are progressing. I don't know anything about their competitors. I don't know the efficacy of the drug, which could impact its appeal to the larger drug distributors that would buy or license it. I fell for the story, a victim of a pseudo pump-and-dump that probably let a few investors get out with some nice gains and left me holding the bag. So, if you want to invest in a story stock, with no revenues and negative earnings, go ahead, but be very aware that it's floating on a single thread -- the tale that's told.
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